Healthcare

The Reilly factor

GSK predicament spooks other foreign firms

A Chinese national flag flutters in front of a GlaxoSmithKline (GSK) office building in Shanghai

The British firm has a drug problem in China

There are around 3,000 foreign nationals in Chinese jails and it could well be that the former head of GlaxoSmithKline (GSK) in China may soon be joining them.

Briton Mark Reilly’s fortunes took a turn for the worst last week when Chinese police singled him out in their 10-month investigation into the pharmaceutical giant’s China operations .

During his four years in the country Reilly built up a “massive bribery network” that forced up drug prices and generated billions of yuan in illegal sales for his employer, police have suggested.

Later a Xinhua report from Changsha – the city leading the investigation – said that the Shanghai-based Reilly and two Chinese executives had also tried to bribe officials to prevent an investigation into the company’s activities.

The case now passes to prosecutors who will decide whether tobring charges against the 52 year-old. As the Legal Daily also suggested this week, they must decide whether to prosecute GSK for tax evasion. The tone of the allegations leaves open the possibility of a life sentence, although legal experts at the Wall Street Journal suggest a jail term of up to 10 years is more likely for Reilly.

As WiC readers will remember, GSK’s problems began last July with a new campaign to reduce corruption in Chinese hospitals (see issue 203). Foreign baby formula makers were among the first to be investigated and then came the turn of drug companies, some 60 of them – both foreign and domestic.

Several Chinese firms remain under investigation, including Harbin’s Sanjing Pharmacetical, whose chairman committed suicide this week. Among the foreign drug firms, it appears that the police are only pursuing a case against GSK.  In total, 46 employees have been arrested over the course of the probe, with police recommending that at least three – Reilly, Zhang Guowei and Zhao Hongyan – be charged.

“The case is a warning to other multinationals in China that ethics matter,” Xinhua warned in an editorial last week.

The Global Times added: “Only when we treat people equally without regard for borders will we have a true zero-tolerance atmosphere to corruption. This will lead to higher standards and more strict rules for domestic companies, including state-owned enterprises.”

International newspapers all agreed that Reilly’s singling out has made a palpable impression on foreign firms. Many multinationals are now hiring consultants to make sure they are more fully compliant with Chinese laws. “Just this morning we are starting with three new compliance investigation cases,” John Huang, Shanghai-based partner at law firm MWE China, told Reuters. “We’re being asked to do training on how to deal with dawn raids, how to act when people are arrested, and how individuals should respond to police investigations.”

The Financial Times also noted that the “rules of engagement” for foreign firms had changed in the wake of the GSK case. But while a new mood is sweeping company head offices, the difficulties of enforcing best practice remain. One executive told the newspaper that “the challenge of educating our employees [about compliance] is endless” while another said that his firm was having to resort to one-on-one training sessions. “If you hold a training session for 1,000 people, half will be checking their mobile phones, and the other half will be asleep. That doesn’t work. We want the training to stick,” he said.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.