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GSK China consumer healthcare unit linked to DOJ probe in 2012


 SHANGHAI/WASHINGTON (Reuters) - A U.S. anti-bribery probe into GlaxoSmithKline Plc (GSK.L) touched on the firm's Chinese consumer healthcare business in 2012, internal documents show, suggesting the drugmaker's compliance problems in China could go wider than previously revealed.

GSK confirmed it had conducted an investigation into procurement practices in consumer healthcare in China, but said it did not find any "unethical conduct". It said the inquiry was unrelated to a Chinese criminal investigation into corruption in its pharmaceuticals division that was made public last year.

Three "preservation notices" seen by Reuters show GSK was conducting a focused investigation into specific people and suppliers in China at least as far back as 2012.

The investigation was related to a U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) inquiry into possible violations of the anti-bribery Foreign Corrupt Practices Act (FCPA).

"The preservation notices issued in 2012 relate to allegations around adherence to procurement policies within our Chinese consumer healthcare business," said Simon Steel, British-based spokesman for GSK, in a statement.

"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 has previously flagged that it has been part of a wider global investigation by the DOJ and SEC into pharmaceutical corruption, including in China, since 2010, but few details of the scope of that investigation have been disclosed.


The documents do not amount to evidence of wrongdoing by GSK or its partners, but show scrutiny falling on a part of its China business that had not previously been identified as under the spotlight.

Legal experts said that the more far-reaching the U.S. probe, the greater the risk to GSK that it could ultimately face a multi-million dollar settlement payment or fine.

GSK's consumer healthcare segment, which spans products from Panadol painkillers to its Horlicks nutritional malted milk drink, raked in 5.2 billion pounds ($8.6 billion) last year, making up one-fifth of the firm's global turnover.

The drugmaker is also facing bribery allegations in Syria, Iraq, Jordan, Lebanon and Poland. Chinese police have separately proposed corruption charges against GSK executives after alleging widespread bribery at the firm in July last year.



The preservation notices seen by Reuters said they related to U.S. investigations under the FCPA. The FCPA specifically targets illegal payments to foreign government officials used to boost sales.

In FCPA investigations abroad, it is common for the company involved to take the lead in the on-the-ground investigation and report back its findings to U.S. investigators.

The three notices, which are sent by in-house counsel to employees to ensure papers are not destroyed during a probe, were emailed to senior GSK China staff, according to a person with direct knowledge of the investigation.

The person, speaking on condition of anonymity, said even some senior staff working on compliance in China had been surprised at how far the investigation had gone.

"The notices didn't just generally ask about GSK's processes, but listed specific named suppliers," the source said. GSK declined to comment on this matter.

In one notice, dated Oct. 3, 2012, GSK asked staff to save documents related to certain employees in China, Chinese and U.S.-linked firms, senior Chinese academics and education institutes, particularly those concerning contracts, negotiations and payments.

Sources familiar with the situation said GSK had since cut ties with some of the suppliers identified.

A Shanghai-based corruption lawyer said the focused nature of the U.S.-linked probe even back in 2012 suggested GSK would find it tough to escape sanction.

"As well as other conditions they will need to agree, a large fine is going to be a must," said the lawyer, who asked not to be identified because he is involved in similar cases.

The DOJ and SEC declined to comment on the documents, citing the ongoing nature of the investigation.



Allegations of a widespread network of bribery in China to promote sales surfaced last year against GSK, which now faces corruption probes by British, U.S. and Chinese investigators.

Chinese authorities have laid charges against three GSK executives over allegations the firm funnelled up to 3 billion yuan ($482 million) to travel agencies to facilitate bribes to doctors and officials.

It is the biggest corruption investigation into a foreign firm since a probe into miner Rio Tinto (RIO.L) (RIO.AX) in 2009 that resulted in the jailing of four executives for between seven and 14 years.

It is unclear if China will charge GSK as a corporate entity - which would be a first.

Whilst the Chinese investigation carries the risk of jail if any individuals are convicted, lawyers said the U.S. probe could result in more severe corporate financial penalties.

The U.S. authorities have been aggressive in pursuing violations of the FCPA, which forbids U.S.-linked companies - including those like GSK that are based elsewhere but have a U.S. stock listing - from bribing government officials while doing business overseas.

In China, government officials could include medical professionals at state-run hospitals or officers of state-run firms or educational institutions.

Such cases against companies usually end in settlements rather than prosecutions. In April, Hewlett-Packard (HPQ.N) settled a wide-ranging bribery case under the FCPA for $108 million, while in January Alcoa Inc (AA.N) agreed to pay $384 million to resolve charges of bribing officials of a Bahraini state-controlled aluminium smelter.

A person with direct knowledge of the wider FCPA probe into GSK said the firm hoped the majority of the investigation would be finished by the end of the year, particularly in China.

GSK said it could not comment on confidential discussions with the DOJ or SEC.



GSK said last year that the firm had "reached out" to regulators including the DOJ after the Chinese investigation emerged. Sources told Reuters previously that U.S. investigators added the Chinese allegations to their global inquiry last year.

GSK has said some of its senior Chinese executives appeared to have broken the law. It has also said it has zero tolerance for bribery, calling the allegations in China "shameful".

Two sources with direct knowledge of the FCPA investigation said there appeared to be little or no cooperation between U.S. and Chinese authorities on the case in 2012. China's Ministry of Public Security did not respond to faxed requests for comment.

The sources added U.S. investigators had honed in on specific firms and individuals in 2012 after earlier requesting broader documents related to GSK's China operations in 2010.

Three of the sources with knowledge of the investigation said there may also have been a whistleblower passing specific information to GSK and the U.S. investigators.