Enhancing Business Governance: Insights from GSK's Case in China - Strategies for Internal Oversight, Audits, and Observation
In the world of business, the importance of maintaining integrity and adhering to legal guidelines cannot be overstated. However, a recent scandal at GlaxoSmithKline PLC (GSK) serves as a stark reminder of the potential pitfalls that can arise when these principles are overlooked.
The scandal, which has rocked the pharmaceutical giant, involves allegations of a bribery and corruption scheme in its Chinese operations. According to reports, GSK is believed to have lost up to $500 million due to this illegal activity.
One of the key areas of concern is the number of checks written to travel agencies for medical conferences. This can be a red flag, indicating potential corruption, and it appears that GSK's auditors should have paid closer attention to marketing expenses, particularly those related to travel agencies.
Transaction monitoring, which involves reviewing large amounts of data and comparing it against an established norm to identify potential red flags, is a crucial tool in preventing such incidents. Regulators are likely to assess best practices based on GSK's experiences in future anti-corruption enforcement actions.
The Chinese medical market is notorious for its propensity towards corruption, with numerous Foreign Corrupt Practices Act (FCPA) prosecutions of U.S. companies in China. Travel agencies in China are often used to distribute illegal payments, according to Paul Gillis.
To combat this, some companies, such as Boston-based Catelas, use software products for relationship monitoring. These tools analyze communications data to uncover networks within companies and between employees and external parties.
Internal controls over gifts were apparently inadequate, with the types of bribery schemes in China being well known. Internal controls expert Henry Mixon suggested specific controls for gifts, including checking if the correct level of person is approving the payment, ensuring a specific business purpose, preventing rather than relying on detect controls, and detecting failures if they occur.
GSK had more compliance officers in China than in any country, bar the United States, and conducted up to 20 internal audits in China per year, including an extensive four-month probe in 2013. Despite these measures, GSK was blindsided by police allegations of massive corruption involving travel agencies used to funnel bribes to doctors and officials.
Compliance practitioners can use GSK's missteps as a guide to assess potential weaknesses in their own company's compliance program. It is essential to maintain vigilance and to ensure that internal controls are robust and effective.
It is important to note that this publication is intended to provide general information and is not a substitute for legal advice or professional services. The company that conducted the investigation and report on the corruption scandal at GlaxoSmithKline PLC was not identified in the available search results, and the year the report appeared is also not provided.
The author, his affiliates, and related entities are not responsible for any loss sustained by any person or entity that relies on this publication. It is always advisable to seek professional advice when dealing with complex issues such as these.
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