GSK Now the Leader in Chinese Bribery Scandal
July 15th, 2013 // 3:54 pm @ jmpickett
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Another day has come and we are reading about more very damaging details about the bribery scandal that is engulfing GlaxoSmithKline in China. Authorities there have provided the media with the names of several of the senior executives that were arrested. All of them are nationals of China and they currently are in jail.
Authorities noted that GSK uses more than 700 middle men, such as salesmen and travel agents, to send millions of dollars to physicians and government health officers to increase prescriptions of GSK drugs.
The head of the economic crimes division at the Ministry of Public Security notes that in their opinion, bribery is one part of the sales strategy for GSK in China. The name of the official is Gao Feng, according to recent media reports.
Feng stated that there was no evidence of corruption in their bank accounts. They were using travel agents as a way to transfer money. However, the official made it clear that GSK is the main firm responsible. He actually said that GSK is acting somewhat like a criminal organization in China. He was quoted as saying that GSK is the godfather of bribery in the drug industry in China. He also said that GSK is under investigation in the US for possible violations of the Foreign Corrupt Practices Act.
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The above incident – which allegedly involves sex favors being offered to GSK executives by several travel companies – has caused great embarrassment for the company and will hurt efforts to improve the image of GSK. The company paid out $3 billion in fines in 2012 to the government in the US for criminal and civil charges related to illegal marketing practices and not reporting clinical trial results to FDA.
The investigation in China could implicate other pharmaceutical companies too. Chinese agents with the government have gone through the records of several travel agencies and there were signs that some of the agencies were doing a lot of business with several pharmaceutical firms.
Some of the GSK executives that were put under arrest include the legal counsel and chief of compliance; a vice president of operations; a general manager of commercial development; and an HR director.
Mark Reilly, who is the leader of global operations in China for GSK, left the country in June and has not gone back. Gao told a news conference that they will need to ask why Reilly left.
The scheme with GSK seemed to involve travel companies including Shanghai Linjiang Travel. They would arrange various conference services and then pay kick backs to GSK executives, including money and various sexual favors.
Wng Jianyong, who is a representative for the travel agency told the Chinese press that he had an agreement with the travel company. The travel agency would offer him the chance to arrange various conference services, and some payments to the agency would be given as kickbacks to Liang.
Liang told the media in China that he oversaw 3000 medical reps in China that dealt with doctors and hospitals. He admitted that he was in touch with government officials and medical doctors and other health experts. He was able to approve budgets each year of tens of millions of dollars.
Liang took out some of the money and all the rest was left to Wng to handle expenses that were not reimbursable. Weng confessed that he had been told that such expenses were used as bribes to agents and officials.
These type of practices probably increase prices in China for drugs. A drug that could cost $5 to make might cost a consumer $50.
Overall, GSK operations in China seem to be a mess.
