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 A court in the southern city of Changsha also sentenced Mark Reilly,
the former head of GSK in China, and other GSK executives to between
two and four years in jail, according to state news agency Xinhua.
However, Briton Reilly, shown on state television wearing a suit and
looking tired during the trial, will be deported and will not face
jail time in China, a source with direct knowledge of the case said.
"Reilly will be deported so he won't be in detention in China," said
the source, who declined to be named because of the sensitivity of
the case.
The verdict, handed out behind closed doors in a single-day trial
according to Xinhua, highlights how Chinese regulators are
increasingly cracking down on bad behavior.
However, it also offers GSK a potential way forward in the
fast-growing Chinese pharmaceutical market, a magnet for foreign
firms who are attracted by a healthcare bill that McKinsey & Co
estimates will hit $1 trillion by 2020.
"If GSK China can learn a profound lesson and carry out its business
according to the rule of law, then it can once again win the trust
of China's government and people," Xinhua said in a commentary.
Xinhua closely reflects China's official government view.
COMMITTED TO CHINA
GSK said it remained committed to China and promised to become a
"model for reform in China's healthcare industry".
"GSK Plc has reflected deeply and learned from its mistakes, has
taken steps to comprehensively rectify the issues identified at the
operations of GSKCI, and must work hard to regain the trust of the
Chinese people," GSK said in a written apology.
Future commitments include investment in Chinese science and
improved access to medicines across the country through greater
expansion of production and flexible pricing, it said.
Roche Chief Executive Severin Schwan told Reuters in an interview
this week: "I remain very bullish about China, even though currently
the market has slowed down and pricing pressure has increased."
GSK also faces investigations into its overseas practices by U.S.
and British authorities. Those investigations continue and could
result in further penalties for the group.
"The SFO criminal investigation into the commercial practices of
GlaxoSmithKline plc and its subsidiaries continues," a spokeswoman
at Britain's Serious Fraud Office (SFO) said in an email.
In addition to the high-profile Chinese case, GSK has been accused
of corrupt practices, on a smaller scale, in Poland, Syria, Iraq,
Jordan and Lebanon.
GSK said the activities by the firm's China unit were a "clear
breach" of GSK's governance and compliance procedures.
Chinese police first accused GSK of bribery in July last year when
it said that the firm had funneled up to 3 billion yuan, exactly the
same amount as the fine, to travel agencies to facilitate bribes to
doctors and officials.
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"Reaching a conclusion in the investigation of our Chinese business
is important, but this has been a deeply disappointing matter for
GSK. We have and will continue to learn from this," GSK CEO, Andrew
Witty, said in the statement.
SURPRISE ANNOUNCEMENT
The case is the biggest corruption scandal to hit a foreign
company in China since the Rio Tinto affair in 2009, which resulted
in four executives, including an Australian, being jailed for
between seven and 14 years.
The judgment on Friday took many people by surprise, partly because
Chinese authorities did not make the date of the trial public in
advance.
The ruling from the Changsha Intermediate People's Court means China
has charged GSK's China unit with bribery as well as the individual
executives.
Under Chinese criminal law, bribery by a corporate unit can lead to
a large fine and jail sentence for the unit's head.
Reilly's China-based lawyer declined to comment on Friday.
A spokesman for the British Consulate General in Shanghai said that
Britain had "continually called for a just conclusion to this case",
but declined to comment further while the case was open for appeal.
Shares in the company were slightly higher on Friday, despite the
Chinese news, as the market took the penalty in its stride. A fine
had been widely expected and the $489 million hit will be relatively
manageable for a company with a market value of $113 billion.
"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," said Mick Cooper, analyst at Edison
Investment Research in London.
(1 US dollar = 6.1376 Chinese yuan)
(Reporting by Koh Gui Qing, Fiona Li and Ben Blanchard in BEIJING,
Adam Jourdan, John Ruwitch, Kazunori Takada and Engen Tham in
SHANGHAI and Ben Hirschler in LONDON; Writing by Adam Jourdan;
Editing by Mike Collett-White)
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