Bribery and Corruption: The Case GlaxoSmithKline (GSK)

The GlaxoSmithKline (GSK) scandal in 2014 has brought to an international audience’s attention something that is common knowledge in China; that bribery and corruption are widespread in this powerhouse country. Examining the GSK case provides an insight into why some Fortune 500 companies are engaging in unlawful practices in China.

GSK Under Investigation in China

Although it has improved over the past few years, China’s legal system remains incomplete and at times terribly confusing for officials and laymen alike. This is caused in part by a lack of transparency by the Communist government and results in countless miscommunications and breaches of the law, including corruption and bribery. The most recent and also most publicized bribery case involves British pharmaceutical corporation, GlaxoSmithKline (GSK). GSK are currently under investigation and have been accused of bribing doctors, government officials and hospitals in China.

The British pharmaceutical giant has admitted that executives in their Chinese branch have broken Chinese laws by their involvement in a bribery scandal involving up to $489 million dollars. Thus far four Chinese nationals: the head of the legal department, two vice presidents and the head of business development and a handful of foreign employees have been detained.

Travel Agencies Involved

The scandal has also involved local travel agencies who assisted the corrupt executives with hiding their illegal income through falsified travel documentation. Liang Hong, one of the accused executives said in an interview with a state run TV network that they would hold small meetings and “those meetings might not actually happen in the end but we’d collude with our travel agency and pretend that those meetings happened; then we’d be able to falsify reports for money.” The travel agencies became more and more involved in the elaborate schemes and began to compete with each other for the commission they earned on the illegal deals.

GSK Cooperating With Investigators

GSK are cooperating with the government investigation and GlaxoSmithKline’s International President, Abbas Hussain, has said in a statement,

“I want to make it very clear that we share the desire of the Chinese authorities to root out corruption wherever it exists. We will continue to work together with the Ministry of Public Security and we will take all necessary actions required as this investigation progresses.”

Bribery as a practice is in fact widely accepted in China as a part of regular business deals and while foreign companies are currently under the spotlight, local companies are likely to be engaging in the same sort of illegal payment methods. Peking University Guanghua School of Management’s health care economist, Gordon Liu, says that local companies practice informal payment methods as a common marketing strategy.

A whistleblower had exposed the GSK bribery scheme earlier this year but an internal investigation didn’t find any evidence. The scheme was fully exposed when Chinese authorities noticed that the travel agencies had significant discrepancies between their bookings and revenue.

China’s Anti-Corruption Campaign

This is a cause of great concern for overseas executives in countries like China who have a tradition of bribery. While previous corruption cases had arisen out of overseas investigations by the United States and United Kingdom governments, the GSK case has shown that the Chinese government is now also taking a stand. Foreign companies operating in China now need to review their operations meticulously as executives based in China who are found to be involved in unlawful practices will face arrest, travel bans and possible detention in Chinese prisons.

GSK is not the only multinational involved in bribery in China; rival drug company, AstraZeneca, is also under investigation by Chinese authorities with one of their sales employees being taken away for questioning. Similarly, New York based company Pfizer paid millions in fines to the U.S government for bribery by its health care workers in China.

Expensive Drugs and Waning Patient Care

Medical corruption has long been a topic of public frustration in China as it distorts treatment through the use of overly expensive drugs and waning patient care. Huang Dongliang, a local who’s uncle was being treated in a Chinese government hospital, says that his uncle was being ignored by the physician until his family gave the doctor a ‘gift’ of 3,000 Yuan.

Doctors in China don’t earn much compared to some of their internationally based peers and Chinese laws prohibit them from taking on second jobs which is thought to have sparked the bribing trend. Liu believes that physicians are not paid enough and need to find a way to support themselves.  Oncologists and specialists operate under a state-set price which is less than the cost of a hamburger. In order to bridge the revenue gap, hospitals assign sales quotas to employees and add surcharges to drug prices.

Actions to Address Medical Corruption

The Chinese government has reacted to outcries over medical corruption by promising to ban drug surcharges and increase doctors’ salaries. Commentators have said that while this is the first step, transitioning into a European–style health care system is a better solution. Not many Chinese nationals take out health insurance and instead save up their income for medical emergencies; this is an indicator that the promised health reforms will benefit both the law and economy of China. With a proper health care system in place, income can be freed up for domestic spending which will increase self-sustaining economic growth while eradicating bribery and corruption.

There have been reports that GSK will leave China, however the company has since denied these claims.

China’s newly inaugurated Chairman, Xi Jinping, has famously advocated for the eradication of corruption in China and his administration has already launched landmark corruption cases against corporations and officials alike. The GSK case sends a powerful message to the medical industry and to multinational companies operating in China; that bribery and corruption will no longer be tolerated and it’s time to clean up their acts.

Sourced from:

• The Glaxo-China Bribery Scandal: A New Policeman Walks The Beat
• Five questions answered on the GSK China bribery scandal
• What we know so far about the GlaxoSmithKline bribery scandal
• Glaxo case shines light on China’s medical bribery

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