Chinese Detain Pharmaceutical Company Managers in Economic Crime Probe

This week, reports have arisen that Chinese authorities in the cities of Shanghai, Beijing, and Changsha detained high-level GlaxoSmithKline (GSK) managers as part of an investigation into potential “economic crimes.”   The detentions occurred two weeks after the Wall Street Journal reported that a whistleblower claimed in a disclosure sent to the company’s board that the sales staff in China had engaged in “widespread bribery of doctors” to induce the prescription of GSK’s drugs.

GSK’s international drug promotion activities have been under U.S. government scrutiny for quite a while. As stated in a previous article, pharmaceutical and medical device companies have been the focus of a U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) Foreign Corrupt Practices Act (FCPA) inquiry since 2010.  Because the DOJ and the SEC consider doctors who are employees of state-owned hospitals and health care organizations to be “foreign officials” under the FCPA, pharmaceutical and medical device companies are particularly at risk for any direct or indirect sales or marketing activities directed at these foreign doctors.  Both agencies are also focused on pharmaceutical companies conducting foreign clinical trials and potentially paying off third-party investigators to finesse research data.

In June 2010, just two months after the DOJ and the SEC announced their pharmaceutical and medical device FCPA industry sweep, the Chinese Ministry of Health (MOH) launched its own nationwide campaign against pharmaceutical industry corruption.  The MOH established a “blacklist” of companies confirmed of paying commercial bribes in connection with the purchase and sale of pharmaceutical products.  The MOH also mandated that local authorities severely punish doctors or other persons who are accepting bribes.  And most recently the MOH has taken steps to lower drug prices, make consultations more expensive, and raise doctors’ salaries to discourage corrupt activities resulting in the overprescribing of drugs and devices.  These reforms are expected to be implemented nationwide by 2015.

Although the circumstances surrounding the Chinese government’s recent arrest of GSK employees are not yet entirely clear, it provides some indication that the MOH’s initiative announced in June 2010 was not merely a paper tiger. The arrests also provide further evidence that enforcement of anti-corruption laws is not limited to U.S. government actions.  Multinational companies operating on foreign soil should understand the potential consequences of alleged violations of foreign anti-bribery laws, regularly assess their risk profile, and update their compliance programs to account for local variations in enforcement standards.

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