Feds eyed GlaxoSmithKline's Chinese consumer biz for bribery, too

GlaxoSmithKline's China headquarters--Courtesy of GlaxoSmithKline

GlaxoSmithKline ($GSK) may have a bigger problem in China than previously thought. Before news about potential corruption in its pharma business surfaced, U.S. officials were already looking into possible bribery in its consumer healthcare unit. And so was GSK.

As Reuters reports, GSK investigated the consumer business in China from at least 2012, looking into specific people and specific suppliers there. The probe focused on procurement practices, the company told the news service, and did not unearth any "unethical conduct."

Meanwhile, the U.S. Department of Justice and the Securities and Exchange Commission were looking into the consumer unit for potential violations of the Foreign Corrupt Practices Act. Like several of its Big Pharma rivals, GSK disclosed FCPA probes from 2010 onward, in China and elsewhere. The law prohibits bribery of government officials overseas.

Last summer, the Chinese government said it was investigating allegations that GSK's China unit engineered $489 million in payments and gifts to doctors to increase prescription drug sales. Earlier this year, Chinese government charged GSK's former China unit chief, Mark Reilly; he now faces prison time. Peter Humphrey, a private investigator GSK hired to look into a company whistleblower, was recently sentenced to two and a half years in prison for buying and selling personal information about Chinese citizens.

Since the Chinese accusations surfaced, GSK has disclosed internal corruption investigations in a slate of other countries, including Iraq, Lebanon, Syria and Poland. U.S. and U.K. officials have said they're looking into the China allegations for potential violations of their respective anti-corruption laws.

Glaxo's consumer healthcare unit is increasingly important to the company as it pushes more deeply into emerging markets and hedges against generic competition and sales declines in pharmaceuticals. A prime illustration: Glaxo's unit swap with Novartis ($NVS), which involves a new joint venture in consumer health to be managed by GSK.

Until now, the prospect of corruption in that unit wasn't public. Glaxo says its internal probe uncovered little of note. "We investigated using resources inside and outside the company and did not find evidence of unethical conduct, but did identify some non-compliance with our procurement procedures and remedial action was taken as a result," GSK spokesman Simon Steel told Reuters.

Throughout the scandal in China, GSK has said it has zero tolerance for corruption in its ranks. But with probes popping up all over the world, it's obvious the company has either done a poor job on compliance or turned a blind eye to bad behavior in the past. The company says it has fired or otherwise disciplined dozens of workers in its Chinese operation since the government crackdown began, and that it has stepped up its compliance practices there. Its ex-employees, meanwhile, sued for wrongful termination. They're also demanding to be reimbursed for bribes they say they were ordered to pay.

- read the Reuters news

Special Reports:  Top 10 pharma companies by 2013 revenue - GSK | Top 10 drugmakers in emerging markets - GSK

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