$500 Million Fine Levied Against GlaxoSmithKline (GSK)

GlaxoSmithKline has been charged with a $500 million fine by Chinese authorities as a penalty for bribery in the country. The British pharmaceutical giant was accused of bribing hospitals and doctors so that it could increase its drug prices and reap bigger profits from consumers. The Chinese court claimed that Glaxo made more than $150 million in illegal revenue from the scheme.

Multinational technology companies, automakers and food manufacturers have been under scrutiny by the Chinese authorities looking for cases of law breaking. China’s anticorruption campaigns have received increased attention as the country’s economy has continued to strengthen. Companies that can break into the Chinese market can reach nearly 1.4 billion new consumers with their products.

The Glaxo fine is the largest penalty levied in these types of criminal cases. In previous cases, the Audi unit of Volkswagen was fined $40.5 million for breaking antitrust laws and $200 million in penalties were assessed against Japanese auto parts manufacturers operating across the country.

The authorities also charged several of the executives who ran Glaxo’s Chinese unit with crimes. Several Glaxo managers are facing potential prison terms of up to four years in the case. When news of the bribery case first broke, Glaxo blamed the charges on a handful of rogue Chinese-born employees.

Doing business in China is risky for multinational companies, as corruption is widespread and the legal and regulatory system is stacked against them. The fallout from these investigations can be devastating to a company caught unprepared. Foreign governments and business groups have complained that the investigations discriminate against multinational companies and give Chinese companies a competitive edge. Multinational company executives have disclosed that they were not allowed to bring their lawyers to meetings with regulators and that regulators demanded in these meetings that they sharply reduce the prices for the products they sold in the country.

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