Ever since China began investigating GlaxoSmithKline's ($GSK) business practices last year, analysts have feared the British drug giant could get in big trouble in its home country, too. Their worries appear to be justified. Britain's Serious Fraud Office (SFO) said today it had opened a criminal investigation into GSK, less than two weeks after China slapped corruption charges on three of the company's top executives.
GSK confirmed the investigation in a brief statement, saying it "is committed to operating its business to the highest ethical standards and will continue to cooperate fully with the SFO."
To recap, China has charged the former head of GSK's operation there, Mark Reilly, and two other top executives with corruption, stemming from allegations that the company funneled bribes to healthcare workers through travel agencies. Such charges can carry a maximum sentence of life in prison. GSK is also facing tax-evasion accusations in China, not to mention questions in Poland, Iraq, Jordan and Lebanon as to whether the company may have also paid bribes to doctors in those countries.
It was only a matter of time before the U.K. stepped in to investigate. A new law called the U.K. Bribery Act prohibits companies from paying off government officials and state-employed doctors to try to win overseas business, according to Reuters. The law is similar to the U.S. Foreign Corrupt Practices Act, and as Reuters reported last fall, GSK has been under investigation by American authorities who are looking into the China debacle.
If the SFO's investigation were to result in charges, GSK would likely pay a fine; it could be put on probation for five years as well, according to a lawyer interviewed by Bloomberg. That may not have much of an impact on the top or bottom line, but it could be a major drag on GSK's stock price, says Stephen McGarry, an analyst at Societe Generale in London, according to Bloomberg.
"GSK may not have a major financial liability from any U.K. and/or U.S. investigation, the headline alone, especially if the U.S. launches an investigation, may restrain GSK's share price performance," McGarry wrote in a report obtained by Bloomberg. GSK's stock dipped 1.6% in pre-market trading to $54.10.