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GlaxoSmithKline Impacted by Scandal in China

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Big pharmaceutical company GlaxoSmithKline has been involved in a scandal in China. According to Reuters, GSK thinks the corruption “involved Chinese staff working around its systems” to defraud the company. They feel it is also possible that the same individuals worked to cheat the Chinese healthcare system. GSK claims to have had no idea this was going on. An independent review will be now set up to investigate what they call the “deeply disappointing” allegations and scandal.

The exact allegations of the scandal are basically that GSK “funneled” 3 billion yuan towards travel agencies in bribing doctors. In the United States, bribery is illegal and looked down upon. However, pharmaceutical companies often work through agents whose job it is to peddle medicines to doctors. Agents achieve this usually by having a relationship with the office staff and the doctors in charge of whatever medicines come into the clinic or practice. Pharma agents have been known to give free samples, pens and small gifts in these times. However not too long ago, for big clients, larger gifts like travel tickets and similar things have crossed the limits of legality. In many countries, transactions aren’t just balance sheet items, there can be money exchanging hands to sweeten transactions, or to expedite processes that can otherwise take a long time to enact. Although GSK claims complete ignorance, the Chinese cultural notion of ‘guangxi’ or relationship likely had to be maintained.

Emerging markets are the saving grace of the developed world, and for GSK they are an important market. Bribery violates the Robinson-Patman Act and the FCPA-the foreign corrupt practices act. It remains to be seen whether GSK will be prosecuted for this happenstance. GSK announced a share buyback and has seen 2% growth this year. British multinational GSK has a market cap of almost $125 billion and is the 4th largest pharmaceutical company in the world.

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Jaan Posted by on July 24, 2013. Filed under Business News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

 

 

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