In advertising, the adage is that “sex sells.†In the world of white-collar crime, it is rare that there is anything other than money at stake, but the continuing corruption investigation in China into the British pharmaceutical company GlaxoSmithKline now has a dash of the libido to draw even more attention.
A Glaxo regional sales manager said that the company’s representatives “established good personal relations with doctors by catering to their pleasures or offering them money, in order to make them prescribe more drugs,†according to the official Chinese news agency Xinhua, which was cited in a report by The Guardian.
The Ministry of Public Security in China has been conducting the growing investigation into accusations that Glaxo used bribes and other benefits for doctors and public officials to increase its sales. The payments were funneled through travel agencies, totaling approximately $450 million.
While the tawdry aspects of the case will draw the headlines, the investigation has lessons for companies about how to deal with corruption issues while doing business in China, whose approach to investigations differs greatly compared with that of the authorities in the United States.
Glaxo’s initial response to reports of the Chinese government’s investigation was to make the usual promise of full cooperation while taking a dismissive approach to the potential problem. A statement released on July 11 said, “We continuously monitor our businesses to ensure they meet our strict compliance procedures. We have done this in China and found no evidence of bribery or corruption of doctors or government officials. However, if evidence of such activity is provided, we will act swiftly on it.â€
Glaxo responded a lot more swiftly than it might have expected when, just four days later, the company took a different tack in saying that “These allegations are shameful and we regret this has occurred.†And on July 22, the new head of Glaxo’s Chinese operations issued a statement that “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.â€
Over the last decade, since the passage of the Sarbanes-Oxley Act in 2002, publicly traded corporations have poured significant resources into their compliance programs to prevent wrongdoing, or to at least be an early warning system for what might become a problem. Companies know that it is always better to self-report a violation than to have a government agent come knocking on the door.
The buildup in corporate internal controls may lead to a false sense of security that the company will be able to ferret out internal wrongdoing before it burgeons into a serious concern. So there is often an urge to make the obligatory offer of the olive branch of cooperation when an accusation of wrongdoing arises accompanied by an assurance that the company had determined it did nothing wrong.
Glaxo had received a report from an anonymous internal whistle-blower about potential bribery of doctors in China. But the company said its investigation showed no evidence of corruption, so it appears to have initially viewed the Ministry of Public Security investigation as much ado about nothing.
What we do not know is how thorough Glaxo’s investigation was and whether it truly dug into the issues that have now come to the surface, especially given that hiding about $450 million in illicit payments can’t be easy.
Overseas corruption investigations can be particularly difficult for companies because few employees or agents are willing to admit to making questionable payments, much less providing sexual favors, and so are unlikely to be forthcoming. One can never be sure that the first review has in fact gotten even close to the bottom of the issue, especially if those persons know how to avoid internal control systems.
Another aspect of the investigation sure to draw the attention of companies doing business in China is the detention of a large number of Glaxo employees and agents by the Ministry of Public Security. The New York Times reported last Friday that 18 employees and other medical personnel had been detained, which is in addition to four employees held at the start of the investigation.
Robert M. Radick, a partner at the white-collar law firm Morvillo Abramowitz, wrote at Forbes [link below] that this marks the appearance of a “new policeman†on the foreign bribery beat. And unlike the Justice Department in the United States and the Serious Fraud Office in England, this is a much scarier cop.
Glaxo had disclosed earlier that it was having “discussions†with the Justice Department and the Securities and Exchange Commission over possible foreign corruption issues in its overseas operations, including China. Those investigations are sure to heat up in light of the company’s admissions of violations to the Chinese authorities.
But note how much more genteel the United States has been in dealing with Glaxo â€" discussions are far different from having a number of employees detained for questioning. It is rare in a white-collar investigation in this country to have anything more than an interview, usually with counsel present, in a prosecutor’s office during the investigatory stage of the case.
Companies accustomed to how the Justice Department acts should be prepared to deal with legal systems that rely on the detention of potential suspects, sometimes for an extended period, as a regular part of their investigations. Among those detained in the Glaxo bribery investigation are an American and a British citizen, so those at risk in an overseas bribery case is not limited to nationals working in their own country.
Bribery in foreign business operations has become a bane for many global corporations. American companies ranging from Avon to Wal-Mart have disclosed potential problems in their Chinese divisions because of possible corruption.
The Glaxo case raises a potential new threat to corporate employees caught up in these cases because of the potential that they may be held in custody for questioning about their work for the company. That’s a prospect no one wants to face.
