A report by David Barboza of the New York Times details how an apparently highly-placed whistleblower in GlaxoSmithKline’s China operation sent the head office in London a series of long, well-written memos about illegal sales practices that directors, executives, and auditors chose to ignore.
“For more than a year, the drug maker brushed aside repeated warnings from a whistleblower about systemic fraud and corruption in its China operations,” Barboza wrote Tuesday.
In September 2014, a court in Changsha, China fined GSK $490 million following a conviction for bribery.
GSK’s former head of China operations, Mark Reilly, was given a three-year prison sentence that was suspended. Reilly was deported.
At least five other China nationals working as GSK executives were sentenced to between two and four years in prison.
China authorities accused GSK of paying $482 million in bribes to health officials and doctors to boost sales. China’s Ministry of Public Security said in 2013 that GSK had used 700 travel agents to deliver the illegal payments since 2007.
Last month, the UK-based pharma paid the U.S. Securities and Exchange Commission $20 million to settle civil charges that it violated the Foreign Corrupt Practices Act. The SEC said China-based subsidiaries spent millions of dollars on pay-to-prescribe schemes for several years to pump up sales.
The New York Times said Tuesday the whistleblower allegations were dismissed inside GSK as a “smear campaign.”
To deal with the allegations of fraud and bribery, the company tried to bribe regulators, the report said. It also retaliated against a woman the company suspected of being the whistleblower.
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The whistleblower emerged in January 2013, the Times said. The GSK board received an anonymous 5,200-word email about the company’s illegal sales practices in China.
The Times said,
Written in perfect English, the email was organized like a corporate memo. Under the header “Conference Trip Vacations for Doctors,” the whistleblower wrote that medical professionals received all-expenses-paid trips under the guise of attending international conferences. The company covered the costs of airline tickets and hotel rooms, and handed out cash for meals and sightseeing excursions.
Over the next 17 months, the whistleblower sent about two dozen emails to authorities in China, to GSK executives in London, and to the company’s auditor, PricewaterhouseCoopers.
The Times said,
When the [China] authorities pressed Glaxo, the company was dismissive. It failed to properly investigate the allegations. It didn’t beef up its internal controls. And it didn’t change its marketing practices.
Most of the anonymous emails — all in fluent English — were sent from two Gmail accounts.
The Times was able to contact the whistleblower through one of the accounts.
The whistleblower didn’t reveal his or her identity to the Times.
“I didn’t reveal to GSK personnel that I was the whistleblower because doing so would have placed me in potential physical jeopardy,” the whistleblower said in an email to the Times.
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David Barboza’s 3,500-word report in the New York Times, “As China Battles Corruption, Glaxo Lands in the Cross Hairs,” is here.
Richard L. Cassin is the publisher and editor of the FCPA Blog.