GlaxoSmithKline – Business Bribery
2014-11-07 09:28:42 Source： Hit：
The recent first instance decision of the Changsha Intermediate People’s Court in Hunan Province, China marks an official end to the eye-catching year-long business bribery probe involving British drug giant GlaxoSmithKline (hereinafter GSK). This is the first ever time in China where a Fortune Global 500 company stands trial for business bribery – the investigations and court case are over, but its far-reaching influence continues. In the previous months a number of foreign invested companies, particular pharmaceutical companies have consulted Beshining on internal compliance matters, and as such we think it is necessary to provide a brief introduction and analysis of the conviction and sentencing in the GSK case.
1. Summary of Facts:
Since February 2009, British national M has held important posts at GSK such as the head of prescription drugs department, chairman and legal representative of GSK. In an attempt to boost sales of drugs, M has promulgated a “selling-led” business policy, and has strongly propagated his idea in annual meetings, leadership summits, elite sales clubs and other GSK internal meeting and events. The “selling-led” policy was applauded and welcomed amongst the senior management by Chinese nationals Z1, Z2, L and H, and in turn grew into a mode of marketing which emphasised on sales performance in total disregard of relevant Chinese law and regulations. What happened was as follows:
GSKCI had restructured and expanded its operations by recruiting massively sales persons in its prescription drugs, vaccines, antibiotic and innovative branding departments, and had offered bribes in a variety of forms to medical personnel from medical institutions all across the country. Amongst others, the VIP and marketing departments had invited medical personnel from a number of medical institutions in joining all sorts of outstation conferences sponsored and organized by GSK – the bribe was paid in the forms of, inter alia, travel expenses, lecture remunerations and arranged tours, subsequently the relevant expenses would appear in the financial accounts as “conference related expenses” to be reimbursed. With the support of medical personnel who gladly participated in the “conferences”, GSK was able to see its drugs into medical institutions across China. Also, operational departments were able to bribe medical personnel from medical institutions across the country in the forms of business entertainment expenses, lecture remunerations and cash rebates via their medical representatives in exchange for GSK drugs being used or used on a larger scale– these were then reimbursed under the heads of, for instance, “entertainment expenses” and “other promotional expenses”.
In addition, the human resource department in GSK had devised pay and benefits systems and policies which centre on the sales performance of employees; and the finance, compliance, IT and other departments showed full cooperation and support in their supervision, management and appraisals. The legal department on the other hand, provided assistance and cover to the briberies.
The implementation of the aforesaid marketing strategies sees a tremendous boost in the sales of GSK’s drugs. Nevertheless, the unduly high built-in bribery costs translate into a ridiculous selling price when the drugs reach the hands of ordinary consumers – usually tens of times the cost price.
In February 2013, the Economic Crime Investigation Department of the Chinese police were shocked to discover in their course of duties that a little travel agency in Shanghai generates revenue of few hundred million Chinese Yuan whilst not involving in any tourism business. Suspicion arose when the source of its revenue was traced to the provision of conference services to Chinese subsidiaries of multinational pharmaceutical giants such as GSK. The police then assigned the Changsha District Police of the Hunan Province which has profound experience in dealing with business bribery cases to establish a special operation unit to conduct further investigations. As such, the GSK’s sales bribery was brought to the light.
On 4th September, the Public Prosecution Office of Changsha prosecuted GSK, M, Z1, Z2, L, H and others for the bribery of non-state functionaries, and the Changsha Intermediate People’s Court took the case and tried the defendants. The trial was behind closed doors as per GSK’s request by reason of the business secrets involved. On 19th September, the Changsha Intermediate People’s Court issued a judgment finding GSK, M and others guilty of bribing non-state functionaries; H was held guilty of accepting bribes in the capacity of a non-state functionary. A fine totalling 3 billion RMB was also imposed on GSK. Head of Chinese operations M was sentenced to a fixed term imprisonment of three years with 4 years suspension and deported from China. Z1, Z2, L, H and others were sentenced 2 to 3 years of prison with suspension ranging from 2 to 4 years. The legal representative of GSK, M and others had all pleaded guilty and raised no further appeals; therefore, the judgment issued by the Changsha Court is deemed as final.
2. Legal Analysis
With regard to bribery, the Chinese criminal law provides clear definitions: accepting a bribe is defined as taking advantage of one’s office to demand or illegally accept money or articles of property from others and give favours in return. On the other hand, bribes are offered when one gives money or articles of property in order to seek legitimate gain. The crime is constituted when the amount involved is “relatively huge” or more. Now what is meant by “relatively huge”? Courts in different regions in China apply different standards in determining the concept due to the discrepancy in the level of economic development in different regions. That said, it is roughly assumed that bribery involving a sum of RMB 5,000 – 20,000 (around 500 to 2000 GBP) is of a “relatively huge” amount. To be more specific, in economically developed regions such as Beijing, Shanghai and Guangzhou, accepting or offering bribes totalling RMB 20,000 or more would constitute bribery, whereby the sum is RMB 5,000 in economically less developed rural areas such as Gansu Province and Inner Mongolia Province. Nevertheless, if the sum involved exceeds RMB 100,000 (around 10,000 GBP), it is a “relatively huge” amount regardless of locality. The law prescribes a fixed term imprisonment of not more than 3 years or criminal detention for crimes of bribery in which “the amount involved is relatively huge”; and a fixed term imprisonment of not less than 3 years and not more than 10 years. For a “unit” which committed bribery, a fine shall be imposed - the amount of which depends on the circumstances; persons in charge may also be punished accordingly.
In relation to the different capacities of target persons to which bribes are directed, the offence of bribery can be further divided into two categories, namely, (a) acceptance of bribes by a non-state functionary (Art 163) and offering of bribes to a non-state functionary (Art 164); and (b) acceptance of bribes by a state functionary (Art 385) and offering of bribes to a state functionary (Art 389). Apart from natural persons, “units” may also commit crimes as well, and as such the offences of acceptance of bribes by a “unit” (Art 387) and offering of bribes by a “unit” (Art 393) may be constituted. Should a natural person offer bribes to a “unit”, he may be guilty of offering bribes to a “unit” (Art 391). Moreover, the introduction and mediation of the acceptance and offering of bribes may constitute the offence of introducing a bribe (Art 393).
In the case at present, GSK and its senior management personnel (M and others) have committed acts of bribery, and the amount of bribes involved clearly exceeds the “relatively huge” amount as aforesaid; also, the bribes were offered to medical personnel in medical institutions all across the country, who are not state functionaries - therefore, GSK, M and others are all guilty of offering bribes to non-state functionaries (with GSK guilty of offering bribes by a unit). In addition, H in his capacity as a non-state functionary had committed the offence of accepting bribes by a non-state functionary by his acceptance of bribes offered by others. The GSK case involves an extraordinarily huge amount of money, yet by taking into consideration that the senior management (M and others) are merely directing the “unit” (GSK) in the offering of bribes instead of pursuing their personal illegitimate interests and also the existence of voluntary confession (M) and a positive attitude toward the admission of guilt, a relatively lenient verdict was arrived, and probation was given.
3. Implications
The GSK incident has widespread influence across the pharmaceutical industry. At present, other Chinese large-scale foreign invested pharmaceutical companies such as UCB, Pfizer, Merck, Eli Lilly, Hoffman-La Roche, AstraZeneca and Novo Nordisk are under suspicion of illegal business operations – investigations have commenced in pursuant to complaints from consumers and the pharmaceutical industry is at unease. In early September, tipping off from an anonymous source claimed that French pharmaceutical giant Sanofi had, in November 2007, directed payments to 503 medical personnel and 79 hospitals in Beijing, Shanghai and other regions totalling approximately RMB 1.69 million under the name of “research funds”. As such, the Beijing and Shanghai authorities have announced that investigations have been conducted accordingly.
In light of the current circumstances, there are criticisms from professionals, scholars and lawyers addressed at the regulatory deficit of the government which led to increased severity of companies operating against the laws. Other discontent has been voiced accusing the government of over-enforcement upon discovering problems, which often entails overly hefty and disproportionate penalties. Some also condemned the current enforcement culture as “selective”, i.e. the enforcement of law is not directed against all industries, nor against all companies, but on certain specific industries (such as pharmaceuticals), or even targeted at foreign invested companies. These criticisms are, in a large sense, fair. Nevertheless, the Chinese government is now making moves to refine existing systems in order to ensure enforcement on a more consistent and predictable level. In relation to issues such as whether the operation of a company involves business bribery, whether there is tax evasion, unfair competition or anti-competitive behaviour, the government authorities and judicial institutions are anticipated to impose tightened supervision. This is certainly deserving of much attention from foreign invested companies with investment and operations in China.
1. Summary of Facts:
Since February 2009, British national M has held important posts at GSK such as the head of prescription drugs department, chairman and legal representative of GSK. In an attempt to boost sales of drugs, M has promulgated a “selling-led” business policy, and has strongly propagated his idea in annual meetings, leadership summits, elite sales clubs and other GSK internal meeting and events. The “selling-led” policy was applauded and welcomed amongst the senior management by Chinese nationals Z1, Z2, L and H, and in turn grew into a mode of marketing which emphasised on sales performance in total disregard of relevant Chinese law and regulations. What happened was as follows:
GSKCI had restructured and expanded its operations by recruiting massively sales persons in its prescription drugs, vaccines, antibiotic and innovative branding departments, and had offered bribes in a variety of forms to medical personnel from medical institutions all across the country. Amongst others, the VIP and marketing departments had invited medical personnel from a number of medical institutions in joining all sorts of outstation conferences sponsored and organized by GSK – the bribe was paid in the forms of, inter alia, travel expenses, lecture remunerations and arranged tours, subsequently the relevant expenses would appear in the financial accounts as “conference related expenses” to be reimbursed. With the support of medical personnel who gladly participated in the “conferences”, GSK was able to see its drugs into medical institutions across China. Also, operational departments were able to bribe medical personnel from medical institutions across the country in the forms of business entertainment expenses, lecture remunerations and cash rebates via their medical representatives in exchange for GSK drugs being used or used on a larger scale– these were then reimbursed under the heads of, for instance, “entertainment expenses” and “other promotional expenses”.
In addition, the human resource department in GSK had devised pay and benefits systems and policies which centre on the sales performance of employees; and the finance, compliance, IT and other departments showed full cooperation and support in their supervision, management and appraisals. The legal department on the other hand, provided assistance and cover to the briberies.
The implementation of the aforesaid marketing strategies sees a tremendous boost in the sales of GSK’s drugs. Nevertheless, the unduly high built-in bribery costs translate into a ridiculous selling price when the drugs reach the hands of ordinary consumers – usually tens of times the cost price.
In February 2013, the Economic Crime Investigation Department of the Chinese police were shocked to discover in their course of duties that a little travel agency in Shanghai generates revenue of few hundred million Chinese Yuan whilst not involving in any tourism business. Suspicion arose when the source of its revenue was traced to the provision of conference services to Chinese subsidiaries of multinational pharmaceutical giants such as GSK. The police then assigned the Changsha District Police of the Hunan Province which has profound experience in dealing with business bribery cases to establish a special operation unit to conduct further investigations. As such, the GSK’s sales bribery was brought to the light.
On 4th September, the Public Prosecution Office of Changsha prosecuted GSK, M, Z1, Z2, L, H and others for the bribery of non-state functionaries, and the Changsha Intermediate People’s Court took the case and tried the defendants. The trial was behind closed doors as per GSK’s request by reason of the business secrets involved. On 19th September, the Changsha Intermediate People’s Court issued a judgment finding GSK, M and others guilty of bribing non-state functionaries; H was held guilty of accepting bribes in the capacity of a non-state functionary. A fine totalling 3 billion RMB was also imposed on GSK. Head of Chinese operations M was sentenced to a fixed term imprisonment of three years with 4 years suspension and deported from China. Z1, Z2, L, H and others were sentenced 2 to 3 years of prison with suspension ranging from 2 to 4 years. The legal representative of GSK, M and others had all pleaded guilty and raised no further appeals; therefore, the judgment issued by the Changsha Court is deemed as final.
2. Legal Analysis
With regard to bribery, the Chinese criminal law provides clear definitions: accepting a bribe is defined as taking advantage of one’s office to demand or illegally accept money or articles of property from others and give favours in return. On the other hand, bribes are offered when one gives money or articles of property in order to seek legitimate gain. The crime is constituted when the amount involved is “relatively huge” or more. Now what is meant by “relatively huge”? Courts in different regions in China apply different standards in determining the concept due to the discrepancy in the level of economic development in different regions. That said, it is roughly assumed that bribery involving a sum of RMB 5,000 – 20,000 (around 500 to 2000 GBP) is of a “relatively huge” amount. To be more specific, in economically developed regions such as Beijing, Shanghai and Guangzhou, accepting or offering bribes totalling RMB 20,000 or more would constitute bribery, whereby the sum is RMB 5,000 in economically less developed rural areas such as Gansu Province and Inner Mongolia Province. Nevertheless, if the sum involved exceeds RMB 100,000 (around 10,000 GBP), it is a “relatively huge” amount regardless of locality. The law prescribes a fixed term imprisonment of not more than 3 years or criminal detention for crimes of bribery in which “the amount involved is relatively huge”; and a fixed term imprisonment of not less than 3 years and not more than 10 years. For a “unit” which committed bribery, a fine shall be imposed - the amount of which depends on the circumstances; persons in charge may also be punished accordingly.
In relation to the different capacities of target persons to which bribes are directed, the offence of bribery can be further divided into two categories, namely, (a) acceptance of bribes by a non-state functionary (Art 163) and offering of bribes to a non-state functionary (Art 164); and (b) acceptance of bribes by a state functionary (Art 385) and offering of bribes to a state functionary (Art 389). Apart from natural persons, “units” may also commit crimes as well, and as such the offences of acceptance of bribes by a “unit” (Art 387) and offering of bribes by a “unit” (Art 393) may be constituted. Should a natural person offer bribes to a “unit”, he may be guilty of offering bribes to a “unit” (Art 391). Moreover, the introduction and mediation of the acceptance and offering of bribes may constitute the offence of introducing a bribe (Art 393).
In the case at present, GSK and its senior management personnel (M and others) have committed acts of bribery, and the amount of bribes involved clearly exceeds the “relatively huge” amount as aforesaid; also, the bribes were offered to medical personnel in medical institutions all across the country, who are not state functionaries - therefore, GSK, M and others are all guilty of offering bribes to non-state functionaries (with GSK guilty of offering bribes by a unit). In addition, H in his capacity as a non-state functionary had committed the offence of accepting bribes by a non-state functionary by his acceptance of bribes offered by others. The GSK case involves an extraordinarily huge amount of money, yet by taking into consideration that the senior management (M and others) are merely directing the “unit” (GSK) in the offering of bribes instead of pursuing their personal illegitimate interests and also the existence of voluntary confession (M) and a positive attitude toward the admission of guilt, a relatively lenient verdict was arrived, and probation was given.
3. Implications
The GSK incident has widespread influence across the pharmaceutical industry. At present, other Chinese large-scale foreign invested pharmaceutical companies such as UCB, Pfizer, Merck, Eli Lilly, Hoffman-La Roche, AstraZeneca and Novo Nordisk are under suspicion of illegal business operations – investigations have commenced in pursuant to complaints from consumers and the pharmaceutical industry is at unease. In early September, tipping off from an anonymous source claimed that French pharmaceutical giant Sanofi had, in November 2007, directed payments to 503 medical personnel and 79 hospitals in Beijing, Shanghai and other regions totalling approximately RMB 1.69 million under the name of “research funds”. As such, the Beijing and Shanghai authorities have announced that investigations have been conducted accordingly.
In light of the current circumstances, there are criticisms from professionals, scholars and lawyers addressed at the regulatory deficit of the government which led to increased severity of companies operating against the laws. Other discontent has been voiced accusing the government of over-enforcement upon discovering problems, which often entails overly hefty and disproportionate penalties. Some also condemned the current enforcement culture as “selective”, i.e. the enforcement of law is not directed against all industries, nor against all companies, but on certain specific industries (such as pharmaceuticals), or even targeted at foreign invested companies. These criticisms are, in a large sense, fair. Nevertheless, the Chinese government is now making moves to refine existing systems in order to ensure enforcement on a more consistent and predictable level. In relation to issues such as whether the operation of a company involves business bribery, whether there is tax evasion, unfair competition or anti-competitive behaviour, the government authorities and judicial institutions are anticipated to impose tightened supervision. This is certainly deserving of much attention from foreign invested companies with investment and operations in China.
