The fall of GlaxoSmithKline in China
Chinese authorities have found GSK guilty of bribing both hospitals and doctors to promote their products in China, using a network of nearly seven hundred travel agencies to pay for doctors, health organizations and government officials.
SHANGHAI - August 2013, Peter Humphrey was in the bathroom of his Shanghai apartment when the police knocked down the door and slammed him to the ground. Nearly two dozen police officers stormed his home, confiscating files, laptops and hard drives related to his job as a corporate investigator.
Mr. Humphrey and his wife, Yu Yingzeng, were brought to building 803, a notoriously shabby criminal investigation center, normally reserved for human smugglers, drug traffickers and political activists. Deprived of sleep and hungry, he was transferred later that day to a prison, placed in a cell and tied to an iron chair. Three officers sat in front of him and asked for answers.
Mr. Humphrey knew the reason for the harsh interrogation. He and Ms. Yu worked for GlaxoSmithKline, the British pharmaceutical manufacturer under investigation in China for fraud and corruption.
According to Chinese authorities, GSK had channeled approximately 3 billion Yen ($ 482 million) into corruption through a network of nearly seven hundred travel agencies to pay for doctors, health organizations and government officials. GSK initially denied any involvement in bribes but admitted, only after an internal investigation, that some executives had acted independently.
A total of 5 GSK executives were arrested. Mark Reilly, the CEO of GlaxoSmithKline's operations in China, received a suspension of the prison sentence along with 4 other senior executives.
The local GSK branch in China was found guilty of corruption and fined, the largest fine for a company ever paid in China (according to the official Chinese news agency Xinhua) but little compared to GSK's annual cash flow, which it was around £ 4 billion a year.
Chinese officials who issued the verdict were keen to point out that the cost of bribes had passed directly to Chinese consumers. In other words, doctors and medical personnel were bribed to sell their products and the cost of those bribes was added to the price of the products that consumers paid for. (BBC News). According to a Chinese security ministry official, corrupt GSK operators hampered the investigation very heavily.
In 2013, GSK's sales dropped by thirty percent after being accused of corruption. To date, sales of GSK drugs and vaccines in China have fallen by 61% and those of consumer health products have fallen by 29%.
When the corruption allegations emerged, the company disregarded the desirable systemic changes and instead tried to downplay the problems and discredit its accusers by imagining that officials would not pay attention but the material against the corruption of GlaxoSmithKline in China was too abundant. Along the way were bribes, a mysterious sex tape, and corporate investigator Peter Humphrey hired by the drug company to dig into the personal backgrounds of government executives as well.
Everything started from an anonymous email that in January 2013 traced a detailed map of the fraud in Chinese operations directed to the board of directors of Glaxo obtained by the New York Times along with other confidential material. Written in perfect English, the email had been organized as a company note and under the heading "Conference Trip Vacations for Doctors"The anonymous whistleblower wrote clearly that Chinese medical professionals had received travel and expenses fully paid by GSK in the form of international conferences. The company covered the costs of airline tickets and hotel rooms and distributed cash for meals and tourist excursions.
In a section entitled "GSK Falsified Its Books and Records to Conceal Its Illegal Marketing Practices in China ", the email explained how Glaxo was offering drugs for unapproved uses. For example, the informant stated that Lamictal had been aggressively promoted as a treatment for bipolar disorder even though it had only been approved in China for epilepsy.
Glaxo "almost killed a patient by illegally marketing his Lamictal drug", continued the informant in the email sent to the Times, "GSK China bought the patient's silence for $ 9.000."
From the first e-mail that opened the scandal, another 17 months passed and in the meantime two more dozen that the informant sent regularly to the Chinese regulators, to the managers of Glaxo and to the auditor of the company (PricewaterhouseCoopers).
Glaxo has repeatedly refused to comment on the Chinese incident except with a note sent to the press in which "he fully accepted the facts and evidence of the investigation and the verdict of the Chinese judicial authorities", reads a statement. "GSK PLC sincerely apologizes to Chinese patients, doctors and hospitals, and to the Chinese government and the Chinese people."
Mr. Humphrey and Ms. Yu spent two years in prison for illegally obtaining government documents. Mr. Humphrey spent his detention in a cell with a dozen other inmates. There were no beds or other furniture, only an open bathroom and a neon light above the head. Humphrey and his wife were released in July 2015.
- December 2011
An informer who worked inside Glaxo sends an email to the Chinese regulators, specifying the fraud and corruption in the Chinese operations of the pharmaceutical manufacturer. It is the first of about two dozen emails sent over a 17 month period.
- April 2012
Glaxo executives in China are beginning to understand that an informant is sending documents to Chinese regulators claiming widespread corruption within the company.
- July 2012
The company pleads guilty in the United States for criminal charges of marketing improper drugs and bribes to doctors. The company's CEO, Sir Andrew Witty, promises that "it will never happen again".
- December 2012
Vivian Shi, head of government for Glaxo in China, is fired, presumably for falsifying travel expenses. But the real reason, according to internal documents, is that Ms. Shi is suspected of being the informant.
- January 2013
The informant sends an email of 5.200 words to the president of Glaxo, the managers and the external auditor of the company. The email, like the previous ones to the authorities, describes a systematic scheme of fraud and corruption. The charges are dismissed by the company as a "defamatory campaign".
- March 2013
Top Glaxo executives in London receive another email from the informant, this time quoting Mark Reilly, the company's chief of operations in China, engaged in a sexual act in his apartment.
- April 2013
Glaxo hires ChinaWhys, a private consulting firm run by Peter Humphrey and his wife, Yu Yingzeng, to investigate the suspected whistleblower and a raid on Mr. Reilly's home. The investigation is coded "Project Scorpion".
- June 2013
Mr. Humphrey presents the results of his investigations to Glaxo. Although his report does not offer evidence linking Ms. Shi to e-mails, he notes that the suspected whistleblower has "a track record".
- June 2013
The police carry out a series of coordinated raids on Glaxo offices across China, detaining four executives, including the country's chief lawyer. Several travel agencies that work closely with Glaxo are searched.
- July 10 2013
Humphrey and Ms. Yu, the private investigators hired by Glaxo, are arrested by the police.
- July 15 2013
At a press conference in Beijing, prosecutors accuse senior executives of Glaxo's Chinese operations of managing an elaborate plan to bribe doctors and hospital workers, describing it as a "organized crime operation".
- July 16 2013
Four Chinese executives from Glaxo confess the corruption and fraud scheme to state television.
- July 18 2013
Glaxo's chief of finance cannot leave China.
- August 2013
Mr. Humphrey and Ms. Yu were formally arrested in Shanghai.
- August 2014
Mr. Humphrey and Ms. Yu are convicted of illegally obtaining government documents during their corporate investigations, an accusation they denied. Each served two years in prison.
- 19 September 2014
In a day-long trial, Mr. Reilly, Glaxo's chief of Chinese operations, and other corporate executives pleaded guilty to fraud and corruption. Glaxo agrees to pay a $ 500 million fine. Mr. Reilly is deported from China.