Multinational companies have often turned to China with the prospect of marketing to a large population that has seen major economic growth in recent decades. As China has become an economic leader, the country has also invested more in its fight against corruption, in part to protect its own economy. British pharmaceutical company GlaxoSmithKline (GSK) discovered this firsthand when, in 2014, the company was fined $489 million by Chinese courts for bribing doctors and hospitals to use its products and bribing government officials and regulators to ease monitoring of GSK.
In 2013, an anonymous whistleblower sent an email to GSK board members, describing fraudulent activities in China. The whistleblower stated that medical professionals were given all-expenses-paid trips under the pretense of attending professional conferences. Also, the drug Lamictal was being heavily promoted as a treatment for bipolar disorder, despite being approved only for treatment of epilepsy by Chinese regulators. The whistleblower explained that GSK “almost killed one patient by illegally marketing its drug Lamictal,” and that “GSK China bought the patient’s silence for $9,000.” The whistleblower sent e-mails to GSK’s executives and auditor PricewaterhouseCoopers over the course of 17 months.
According to Chinese state media reports on the investigation, GSK apparently bribed government officials, gifting a Shanghai investigator an iPad and treating him to a $1,200 dinner. Reports also stated that Mark Reilly, the GSK country manager for the Chinese market, was given company funds for the purpose of bribing Beijing officials.
China first opened up its economy to international companies decades ago in order to help develop its own economy. Many multinational corporations avoided scrutiny over bribery as their presence helped establish manufacturing in China and created jobs. As Jerome Cohen, a legal advisor for international companies, explained, “For a long time, there’d been this policy of going easy on foreign enterprises,” adding, “The government didn’t want to cause embarrassment or give outsiders the impression that China is plagued with corruption. But they’re not thinking like that anymore.”
Extensive bribery by pharmaceutical multinationals is also a part of the massive expansion of the healthcare system in China. Benjamin Shobert, Senior Associate for International Health at the National Bureau of Asian Research, explained that new hospitals and infrastructure have been built at a rapid pace. However, according to Shobert, doctors are often overworked and underpaid and hospital administrators cannot always close the gap between government reimbursements and the growing costs of healthcare. He wrote, “It should be no surprise that both hospital administrators and doctors have found alternative means to make up for the revenue not provided by the government. For administrators, their response has been to incentivize doctors to prescribe unnecessary pharmaceuticals, surgical procedures, and diagnostic evaluations. Doctors have supplemented their paltry incomes through the sort of bribes the GSK scandal has laid bare.”
In addition to the fines faced by GSK, Reilly and four other managers were sentenced to prison time by the Chinese government. The charges against GSK have pointed to changes in other companies’ presence in China. For example, Microsoft faced scrutiny over antitrust allegations, Apple modified its tax practices after facing fines in China, and Disney has partnered more closely with Chinese producers. GSK apologized for its dealings in China and vowed to both reduce and change its interactions with Chinese healthcare professionals. CEO Andrew Witty stated, “We will also continue to invest directly in the country to support the government’s health care reform agenda and long-term plans for economic growth.”