After US pharmaceutical Pfizer Inc was caught bribing in China in August, another major international drug firm has been caught bribing Chinese officials.
US drug maker Eli Lilly and Co gave improper payments to government officials and physicians in Russia, Brazil, China and Poland from 1994 to 2009 to win business, according to a statement by the US Securities and Exchange Commission (SEC) posted on its website Thursday.
For instance, employees at Eli Lilly's subsidiary in China were found to have falsified expense reports in order to give spa treatments, jewelry, other improper gifts and even cash to government-employed physicians, the SEC said.
In Brazil, one of Eli Lilly's pharmaceutical distributors bribed government officials to facilitate $1.2 million in sales.
By doing so, the company violated the Foreign Corrupt Practices Act (FCPA), which bars US firms from paying bribes to officials in foreign countries.
After the exposure, Eli Lilly agreed to pay more than $29 million to settle the SEC's charges, but it did not "admit or deny the allegations." In a statement sent to the Global Times Monday, the company said that it has "disciplined" or terminated the contracts of the employees involved.
A vulnerable sector
Experts said that the pharmaceutical industry, where drug authorities and doctors can have huge influence on sales, is more vulnerable to such conduct than other industries.
"The approval process for a new drug is lengthy and many government officials are involved, which has offered many opportunities for corrupt practices," Liu Baocheng, director of the Center for International Business Ethics at the Beijing-based University of International Business and Economics, told the Global Times Monday.
Liu worked as the CEO of Unigene, a Sino-US pharmaceutical joint venture, for more than 10 years. He stated that giving gifts has become very common to get regulatory approval for a new drug or to get the drug into the market.
"As the industry is highly technical, sometimes it is hard to investigate corruption," Liu said.
In August, Pfizer Inc was fined $15 million by the US Department of Justice and the SEC for paying bribes in eight countries and regions, including China.
In a parallel action, Pfizer and Wyeth LLC, a pharmaceutical firm Pfizer acquired in 2009, agreed to pay more than $45 million for improper payments in its international operations.
Other major drug producers, such as Merck, AstraZeneca and GlaxoSmithKline, were also investigated for possible impropriate conduct in overseas markets.
Hao Junbo, a Beijing-based lawyer working at an international law firm, said that it is common for international companies to send gifts to build connections in China, but if the value of the gift exceeds a certain amount, then it is illegal under both US and Chinese law.
"But sometimes the fact is that if a company chose not to give bribes, it may be placed at a disadvantageous position in the competition with other companies, as its peers may have been giving bribes," Hao noted.
Still at large
Corrupt practices are not exclusive to the pharmaceutical industry. International firms in other sectors, such as Morgan Stanley, IBM and cosmetics company Avon were also convicted of giving bribes to Chinese officials.
A local branch of global retail giant Wal-Mart was caught bribing a Chinese official in 2003.
Recently, another subsidiary of Wal-Mart, this time in Mexico, was accused of have violated the FCPA by paying bribes to local officials to let it open stores at desirable locations.
Li Ling, a spokesperson for Wal-Mart China, told the Global Times that China is not involved in the case, and "Wal-Mart launched self-investigation globally about a year ago in order to prevent such cases happening again."
Although many such cases have involved China, not every bribe taker has got punishment in accordance with Chinese laws.
"If the US regulatory bodies have convicted these companies of being involved in illicit conducts in China and fined them, the Chinese judicial departments should also launch similar investigations," said Hao.
Hao wrote a letter to the Supreme People's Procuratorate after Pfizer was fined by the SEC in August, suggesting that China's judicial departments should also start investigation into possible corrupt practices by the company locally.
But he received no reply, and he said that so far few bribe takers in international cases have been punished. These practices will not only cause economic losses for China, but may also endanger China's investment environment, according to Hao.
"Many of my clients have been worrying about China's law enforcement. If their employees in China get involved in illegal conduct due to the lack of supervision, they may face severe punishments in the US," Hao said.
Hao told the Global Times that it is disappointing that Chinese departments do not attach enough importance to the issues. "If a company faces very little transgression cost, then such illegal behaviors will be more rampant in the future," he said.
Experts noted that most such corruption takes place in emerging economies such as China, India, Mexico and Russia.
Liu from the University of International Business and Economic said a lack of strong enforcement and a poorly established legal system is the major reason for the frequent bribery cases found in the emerging economies.
"The regulatory environment in the host country is a key factor here… and it is a joke that these companies get punishment in the US but not in China," Liu said.
Stronger enforcement
Liu further noted that China should strengthen cooperation with the US judicial departments or the SEC to fight against foreign corrupt practices.
After it settled the charges with SEC, Eli Lily also said that it would invite an independent compliance consultant to conduct a 60-day review of the company's internal controls and compliance program related to the FCPA.
But Hao said that as long as they are a registered entity in China, they should also behave in accordance with Chinese laws. "It is not that China does not have a sufficient legal system. The problem lies in the enforcement."
China also now has an increasing number of companies expanding their business in the overseas market, and experts suggested that China should pass laws similar to the FCPA, in a bid to better supervise Chinese companies' behavior in the overseas market.
"But enforcement is still the key factor here. The law will be in vain if enforcement is not strong enough," Hao noted.
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