Chinese court finds GlaxoSmithKline guilty of bribery, issues 297-million pound fine

GlaxoSmithKline announced Friday that a court in China found the company guilty of bribing non-government personnel and issued a fine of 297 million pounds ($487 million). The Changsha Intermediate People's Court in Hunan Province ruled that the drugmaker's Chinese subsidiary "offered money or property to non-government personnel in order to obtain improper commercial gains."

GlaxoSmithKline said "the illegal activities...are a clear breach" of the company's governance and compliance procedures. CEO Andrew Witty noted that "reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter," adding "we have and will continue to learn from this." The verdict follows investigations initiated by China's Ministry of Public Security last year.

Commenting on the ruling, Mirabaud analyst Nick Turner remarked that the penalty imposed by the Chinese court is "not massive." Turner added that "the market will be relieved the fine isn't of the magnitude that people were concerned it could be." Edison analyst Mick Cooper said "GlaxoSmithKline will hope that this will draw a line under events in China, but it will take time for its Chinese commercial operations to recover."

According to the Xinhua news agency, Mark Reilly, GlaxoSmithKline's former head in China, is one of five executives who received jail sentences in relation to the matter. Xinhua indicated that Reilly was sentenced to three years in prison with a four-year reprieve and will be deported from the country. Earlier this year, Chinese police accused Reilly of ordering his sales team and other employees to bribe hospital doctors, healthcare organisations and other parties on "a large scale" to boost drug sales. At the time, ministry official Gao Feng said revenue that came from alleged bribery amounted to several billion yuan since Reilly joined GlaxoSmithKline's China operation in 2009.

Last year, GlaxoSmithKline said that some of its senior executives may have violated Chinese law after the company was accused of funneling up to 3 billion yuan ($488 million) to travel agencies to facilitate bribes to doctors and officials. Xinhua said that the other executives receiving jail sentences include former human resources director Zhang Guowei, former vice president and operation manager Liang Hong, and former legal affairs director Zhao Hongyan. The executives were handed sentences of two to three years, with reprieves ranging from two to three years. Meanwhile, Xinhua added that former business development manager Huang Hong received three years in jail with a four-year reprieve.

GlaxoSmithKline is also facing probes in other countries, with the UK's Serious Fraud Office launching a formal criminal investigation in May into the company's overseas activities. Meanwhile, the US Department of Justice is probing the drugmaker for possible breaches of the Foreign Corrupt Practices Act. In addition, GlaxoSmithKline has been accused of corrupt practices in Poland, Syria, Iraq, Jordan and Lebanon.

For related analysis, see ViewPoints: GlaxoSmithKline punished, but China's problems run deeper.

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