GlaxoSmithKline (LON:GSK) has been asked to pay up $20 million as the settlement for a bribery case in China. Regulators in the United States have charged the company for making illegal payments to doctors in China, and disguising these payments as entertainment, marketing, and travel expenses. GlaxoSmithKline runs a subsidiary firm in the country.
The global pharmaceutical giant has agreed to make the payment. However, Glaxo did not accept or deny any wrongdoing.
Apparently, Glaxo was paying the doctors to boost their overseas medicine sales figures. On receiving the payment, doctors used to prescribe drugs made by the company to their patients, which is in violation of the Foreign Corrupt Practices Act.
The pay-to-prescribe plan makes the company the latest drug manufacturer accused of running a bribery scandal. It is a common practice in China, India, and several other countries.
How Glaxo Ran Their China Operations
The Securities and Exchange Commission had alleged that employees of Glaxo (LON:GSK) were funneling kickbacks to doctors in the country through travel agencies and groups that organized events. Apparently, for these events, Glaxo was paying speaker fees, employee expenses, sponsorships and marketing costs.
It all started when a court in China found the company guilty of bribing doctors to prescribe Glaxo drugs.
Between 2010 and 2013, the company had spent close to $225 million on travel and planning services. However, after inspection, it was discovered that 44 percent of the invoices were inflated. 12 percent of the expenses were for events that never occurred. The gifts also included cash and payments made to finance shopping excursions. Not just doctors, even others linked to the medical fraternity were paid handsomely as well.
GlaxoSmithKline had also hired a company in China in 2010 to provide tools to clinics and administer vaccines that had to be refrigerated. Actually, the money was channeled to purchase electronic devices and laptops for the clinics. $2.3 million was spent for this.
The Glaxo Statement
A spokeswoman of the company said that they have cooperated with the regulators and agreed to pay the penalty. She also revealed that both the US Department of Justice and the Securities and Exchange Commission have concluded their probe. The China case is now closed and settled. There is no probe in any other country.
Interestingly, other pharmaceutical businesses too, such as AstraZeneca and Novartis have also faced similar charges, following an industry-wide sweep since 2010.