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Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Bill Steinman
Senior Editor

Richard L. Cassin
Editor at Large

Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
Contributing Editor

Bill Waite
Contributing Editor

Russell A. Stamets
Contributing Editor

Richard Bistrong
Contributing Editor

Eric Carlson
Contributing Editor

GSK pays SEC $20 million to settle China FCPA violations

The Securities and Exchange Commission said Friday UK-based pharma GlaxoSmithKline plc will pay a $20 million civil penalty to settle charges that it violated the Foreign Corrupt Practices Act when China-based subsidiaries spent millions of dollars on pay-to-prescribe schemes for several years to pump up sales.

The FCPA offenses spanned at least 2010 to 2013 and involved gifts, improper travel and entertainment with no or little educational purpose, shopping excursions, family and home visits, and cash.

“The costs associated with these payments were recorded in GSK’s books and records as legitimate expenses, such as medical association sponsorships, employee expenses, conferences, speaker fees, and marketing costs,” the SEC said.

The participants included sales and marketing managers within GSK’s China-based subsidiaries.

The SEC resolved the enforcement action with an internal administrative order and didn’t go to court. The order said GSK violated the FCPA books and records and internal controls provisions.

GSK agreed to pay the $20 million civil penalty without admitting or denying the SEC’s findings.

In a statement emailed to the FCPA Blog Friday, GSK said the Justice Department “has also concluded its investigation into these matters and will be taking no further action.”

The SEC order requires GSK to provide status reports for two years about its remediation and new enhanced compliance.

GSK’s common stock is registered with the SEC and trades on the New York Stock Exchange under the symbol GSK.

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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.

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.

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The SEC’s order Friday said the improper practices were pervasive among GSK China sales and marketing representatives and were condoned by regional and district managers.

Between 2010 and mid 2013, GSK China spent nearly $225 million on planning and travel services, according to the SEC.

About 44 percent of sampled invoices were inflated and about 12 percent were for events that didn’t occur.

Of about $17 million spent by GSK China on speaker fees in 2012, $2 million was paid to people whose healthcare qualifications couldn’t be verified.

A national marketing program called the Cold Chain Project was intended to provide China healthcare clinics with tools to store and use vaccines that required refrigeration. The project was instead used to provide doctors and other healthcare providers with gifts such as laptops, tablets, and other electronic devices.

Over the life of the Cold Chain Project, GSK China paid out about $2.3 million.

The project was created and run by senior marketing and sales managers at GSK China. They selected clinics for the project based on their potential as buyers of GSK pharmaceutical products.

GSK said Friday the SEC settlement took into account changes the company has made to its commercial practices over the last few years.

The changes include the way GSK’s sales representatives are compensated, stopping “payments to healthcare practitioners to speak to other prescribers about the company’s products,” and more disclosure of payments to healthcare practitioners for providing services or participating in clinical research.

GSK said it “remains strongly committed to these changes and to operating its commercial activities in a responsible, ethical and professional manner consistent with the company’s values.”

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The SEC’s administrative order of September 30, 2016 In the Matter of GlaxoSmithKline plc is here (pdf).


Richard L. Cassin is the publisher and editor of the FCPA Blog.

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