China fined British drug maker firm GSK Plc 489 million US dollars for paying bribes

China on 19 September 2014 fined GlaxoSmithKline Placement (GSK Plc) a record 489 million US dollars (3 billion Yuan) for paying bribes to doctors to use its drugs. The fine was imposed by Changsha Intermediate People's Court of China.

Along with fine, Chinese Court also sanctioned jail sentence to former head of GSK Mark Reilly and 4 other GSK executives Zhang Guowei, Liang Hong, Zhao Hongyan and Huang Hong for two to four years.

The fine is equivalent to around 4 percent of GSK's 2013 operating profits. GSK will pay the penalty from existing cash resources. However, the sentence has not put any embargo on the deals of GSK with China.

However, it also offered GSK a potential way forward in the fast-growing Chinese pharmaceutical market. It is estimated that Chinese pharmaceutical market will hit 1 trillion US dollars by 2020.

Under Chinese criminal law, bribery by a corporate unit can lead to a large fine and jail sentence for the unit's head.

The verdict highlights how Chinese regulators are increasingly cracking down on corporate malpractice.

Comment

The GSK case is the biggest corruption scandal to hit a foreign company in China since the Rio Tinto affair in 2009 in which four executives, including an Australian, were jailed for between seven and 14 years.

Also, GSK is being investigated under the Foreign Corrupt Practices Act in the United States. The Act prohibits bribery of public officials.

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.