GSK Settles FCPA Charges with SEC
The SEC filed another settled FCPA action stemming from what the Order called “pervasive” practices in the China subsidiary of a multinational firm. This time GlaxoSmithKline plc was charged with internal control violations arising from the conduct of its China subsidiary and a joint venture partner in which the firm holds a controlling interest. In the Matter of GlaxoSmithKline plc., Adm. Proc. File No. 3-17606 (Sept. 30, 2016).
GSK is a global provider of pharmaceutical and consumer health care products based in Middlesex, U.K. GlaxoSmithKline (China)International Co. Ltd. or GSK China operated from Shanghai, China. The firm is an indirect subsidiary of GSK. Sino-American Tianjin Smith Kline & French Laboratories Ltd. is a public-private joint venture with Tianjin Zhong Xin Pharmaceutical Group Corporation Ltd. and Tianjin Pharmaceutical Group Co. Ltd. or TSKF is 55% owned by GSK.
GSK China and TSKF marketed GSK pharmaceutical products in China. Over a three year period beginning in 2010 the firm’s engaged in a series of improper transactions which were designed to increase sales. Specifically, the firm made a series of corrupt payments to foreign officials in China. The payments were designed to increase sales through prescriptions by individual healthcare professionals and purchases by hospital administrative staff responsible for product selection or purchase.
The payments varied in form. They included gifts, improper travel and entertainment with no or little educational purpose, shopping excursions, family and home visits and cash. The practices were pervasive among sales and marketing representatives and were condoned by regional and district managers. A plan submitted by one sales representative described an intent to make payments and furnish gifts on each holiday in exchange for a guaranteed order.
Funding for the corrupt activities was arranged through a variety of sources including:
Travel: Third party vendors who provided these services frequently inflated their invoices. A sample of invoices taken over a three year period demonstrated that 44% were inflated.
Speaker fees: The firm did not have any system in place to ensure the identity of the speaker, although there were limits on the amount of the fees. A sample of invoices demonstrated that for a significant number the qualification of the person as a health care professional could not be verified.
Marketing: SK China created a marketing program that was supposed to provide healthcare clinics with tools to facilitate the storage and administration of vaccines that require refrigeration. Senior officials at the subsidiary created the program. Rather than conduct marketing, however, the program was used to provide healthcare officials with gifts.
Over time internal audit and compliance reviews became aware of items which might be viewed as red flags and that could have alerted them to the improprieties. For example, fake bank documents and false invoices were discovered. There was also a lack of training on various policies and initiatives. The Order alleges violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).
The company cooperated with the SEC’s investigation, furnishing timely updates on its inquiry and making changes to its business practices. The Order does not specify that the company self-reported. Respondent also entered into a series of undertakings which included reporting to the staff over a two year period on the implementation of its remediation.
To resolve the proceeding the firm consented to the entry of a cease and desist order based on the Sections cited in the Order. In addition, the firm will pay a penalty of $20 million.