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 GSK confirmed it had conducted an investigation into procurement
practices in consumer healthcare in China, but said it did not find
any "unethical conduct". It said the inquiry was unrelated to a
Chinese criminal investigation into corruption in its
pharmaceuticals division that was made public last year.
Three "preservation notices" seen by Reuters show GSK was conducting
a focused investigation into specific people and suppliers in China
at least as far back as 2012.
The investigation was related to a U.S. Department of Justice (DOJ)
and Securities and Exchange Commission (SEC) inquiry into possible
violations of the anti-bribery Foreign Corrupt Practices Act (FCPA).
"The preservation notices issued in 2012 relate to allegations
around adherence to procurement policies within our Chinese consumer
healthcare business," said Simon Steel, British-based spokesman for
GSK, in a statement.
"We investigated using resources inside and outside the company and
did not find evidence of unethical conduct, but did identify some
non-compliance with our procurement procedures and remedial action
was taken as a result."
GSK has previously flagged that it has been part of a wider global
investigation by the DOJ and SEC into pharmaceutical corruption,
including in China, since 2010, but few details of the scope of that
investigation have been disclosed.
The documents do not amount to evidence of wrongdoing by GSK or its
partners, but show scrutiny falling on a part of its China business
that had not previously been identified as under the spotlight.
Legal experts said that the more far-reaching the U.S. probe, the
greater the risk to GSK that it could ultimately face a
multi-million dollar settlement payment or fine.
GSK's consumer healthcare segment, which spans products from Panadol
painkillers to its Horlicks nutritional malted milk drink, raked in
5.2 billion pounds ($8.6 billion) last year, making up one-fifth of
the firm's global turnover.
The drugmaker is also facing bribery allegations in Syria, Iraq,
Jordan, Lebanon and Poland. Chinese police have separately proposed
corruption charges against GSK executives after alleging widespread
bribery at the firm in July last year.
THREE NOTICES
The preservation notices seen by Reuters said they related to U.S.
investigations under the FCPA. The FCPA specifically targets illegal
payments to foreign government officials used to boost sales.
In FCPA investigations abroad, it is common for the company involved
to take the lead in the on-the-ground investigation and report back
its findings to U.S. investigators.
The three notices, which are sent by in-house counsel to employees
to ensure papers are not destroyed during a probe, were emailed to
senior GSK China staff, according to a person with direct knowledge
of the investigation.
The person, speaking on condition of anonymity, said even some
senior staff working on compliance in China had been surprised at
how far the investigation had gone.
"The notices didn't just generally ask about GSK's processes, but
listed specific named suppliers," the source said. GSK declined to
comment on this matter.
In one notice, dated Oct. 3, 2012, GSK asked staff to save documents
related to certain employees in China, Chinese and U.S.-linked
firms, senior Chinese academics and education institutes,
particularly those concerning contracts, negotiations and payments.
Sources familiar with the situation said GSK had since cut ties with
some of the suppliers identified.
A Shanghai-based corruption lawyer said the focused nature of the
U.S.-linked probe even back in 2012 suggested GSK would find it
tough to escape sanction.
"As well as other conditions they will need to agree, a large fine
is going to be a must," said the lawyer, who asked not to be
identified because he is involved in similar cases.
The DOJ and SEC declined to comment on the documents, citing the
ongoing nature of the investigation.
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WIDESPREAD ALLEGATIONS
Allegations of a widespread network of bribery in China to promote
sales surfaced last year against GSK, which now faces corruption
probes by British, U.S. and Chinese investigators.
Chinese authorities have laid charges against three GSK executives
over allegations the firm funnelled up to 3 billion yuan ($482
million) to travel agencies to facilitate bribes to doctors and
officials.
It is the biggest corruption investigation into a foreign firm since
a probe into miner Rio Tinto in 2009 that resulted in the jailing of
four executives for between seven and 14 years.
It is unclear if China will charge GSK as a corporate entity, which
would be a first.
Whilst the Chinese investigation carries the risk of jail if any
individuals are convicted, lawyers said the U.S. probe could result
in more severe corporate financial penalties.
The U.S. authorities have been aggressive in pursuing violations of
the FCPA, which forbids U.S.-linked companies - including those like
GSK that are based elsewhere but have a U.S. stock listing - from
bribing government officials while doing business overseas.
In China, government officials could include medical professionals
at state-run hospitals or officers of state-run firms or educational
institutions.
Such cases against companies usually end in settlements rather than
prosecutions. In April, Hewlett-Packard settled a wide-ranging
bribery case under the FCPA for $108 million, while in January Alcoa
Inc. agreed to pay $384 million to resolve charges of bribing
officials of a Bahraini state-controlled aluminium smelter.
A person with direct knowledge of the wider FCPA probe into GSK said
the firm hoped the majority of the investigation would be finished
by the end of the year, particularly in China.
GSK said it could not comment on confidential discussions with the
DOJ or SEC.
"ZERO TOLERANCE"
GSK said last year that the firm had "reached out" to regulators
including the DOJ after the Chinese investigation emerged. Sources
told Reuters previously that U.S. investigators added the Chinese
allegations to their global inquiry last year.
GSK has said some of its senior Chinese executives appeared to have
broken the law. It has also said it has zero tolerance for bribery,
calling the allegations in China "shameful".
Two sources with direct knowledge of the FCPA investigation said
there appeared to be little or no cooperation between U.S. and
Chinese authorities on the case in 2012. China's Ministry of Public
Security did not respond to faxed requests for comment.
The sources added U.S. investigators had honed in on specific firms
and individuals in 2012 after earlier requesting broader documents
related to GSK's China operations in 2010.
Three of the sources with knowledge of the investigation said there
may also have been a whistleblower passing specific information to
GSK and the U.S. investigators.
($1 = 0.61 British pound)
(Additional reporting by Ben Hirschler in LONDON; Editing by Alex
Richardson)
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