GSK Admits China Execs May Have Broken Law

After probes into foreign companies operating in China led the government to accuse executives of British pharmaceutical company GlaxoSmithKline (GSK) of corrupt practices including bribery and artificial price inflation, a GSK official has publicly admitted that China-based executives appear to have broken Chinese law. From The Guardian:

Abbas Hussain, the drug maker’s head of emerging markets who was sent to China by the company last week to respond to the crisis, said: “Certain senior executives of GSK China, who know our systems well, appear to have acted outside of our processes and controls which breaches Chinese law.”

It followed a meeting with the country’s ministry of public security, at which Hussain also said GSK would review its business model in the country.

GSK faces allegations of “economic crimes” involving senior executives accused of falsifying invoices and expenses and bribing third parties.

The ministry revealed last week that police were looking into deals worth around 3bn yuan (£320m). [Source]

CNN reports on detained Chinese GSK executives and a confession that aired on state broadcaster CCTV:

Four senior Chinese executives of GSK (GSK) have been detained in China, and state central television has aired the apparent confession of one of the four.

The CCTV report featured GSK executive Liang Hong explaining how the bribery scheme worked, including the use of fake conferences and travel agencies to create receipts for services that were never performed. The surplus funds were then used to pay bribes.

The circumstances of the interview are difficult to discern and it wasn’t clear whether the confession was coerced.

[…]How much damage the scandal will do to GlaxoSmithKline’s reputation or bottom line remains unclear. But the episode underscores the challenges of doing business in China — an enormous, rapidly developing market in which bribes and corruption are often deeply ingrained.[Source]

Travel restrictions have been placed on Steve Nechelput, the finance director of GSK China, and CDT previously reported that British national and “China-fraud investigator” Peter Humphrey has been in detention for the past two weeks while undergoing investigation for alleged contracts with GSK. Humphrey’s detention is racking the nerves of other China-based business consultants who help guide foreign companies through the obscurities of doing business in China. The Atlantic reports:

[…]Humphrey’s detention has frayed the nerves of a fast-growing contingent of influential foreigners in China — the thousands of consultants who act as middlemen for businesses trying to do business in mainland China.

[…]If you’re a foreign company that wants to do business in China, there’s a consultant (often headed by a foreign-born man or woman) to help you figure out how to do it, whether it’s manufacturing ice cream, or entering the film industry, or in the case of Humphrey, examining your business or partners for fraud.

[…]Humphrey has been detained for nearly two weeks with little outcry from any business community, highlighting the impotent nature of the foreign-born China consultant if things go wrong.

[…]A host of China consultants, normally a chatty group (because building a reputation as an expert is an important part of their business) contacted for this story declined to speak on the record, citing the sensitive nature of the situation, though on background they called him “highly-regarded,” “plugged-in” and “well-respected.” [Source]

As of July 19, GSK was a “sensitive term” blocked on Sina Weibo. Also see prior CDT coverage of foreign companies operating in China.


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