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The discomfort of GlaxoSmithKline PLC's bosses over the Chinese alleged bribery scandal breathes through every word of the official statement the company published on Monday, after the Chinese government accused the British drug company of laundering hundreds of millions of dollars in bribes through phony payments to travel agents. The money was allegedly then used to influence doctors and hospital officials in their choice of drug and to pay kickbacks for sales.
Without acknowledging that bribes were paid, GSK says it is "deeply concerned and disappointed by these serious allegations of fraudulent behaviour and ethical misconduct by certain individuals at the company." This is politically correct PR-speak. You might translate it thus: something has gone horribly wrong; we don't know the scale of it but it looks big and bad. Let's attempt to mollify the Chinese with boot-licking humility and do our best to head off an investigation at home under the U.K.'s anti-bribery laws.
GSK is not the first foreign company to be subject to a Chinese anti-corruption probe. A Chinese employee of Rio Tinto was sentenced to 10 years imprisonment in 2010 for buying state secrets relating to sensitive iron ore price negotiations. And there are signs that China is stepping up its domestic anti-corruption efforts: new anti-bribery laws came into force in January and the Chinese Commerce Ministry pointed the finger at foreign enterprises, insisting that anyone breaking the law would be punished "regardless of whether it's a Chinese company or a foreign company."
GSK's bosses are right to be worried. The arm of U.S. and U.K. anti-corruption law now extends to multinational behaviour everywhere, but that is not the only concern. Emerging markets are marching to the same moral drumbeat. It is one thing being collared by a zealous Department of Justice prosecutor in Washington. It is quite another if you are fingered in Moscow, Shanghai or any other place ruled by autocrats where justice is meted out by administrative tribunals, according to opaque procedures, and with heavy political influence. It cannot be said that China is not pursuing white collar crime; the question is how it is done. Last week, Zeng Chengjie, a real estate developer convicted of running a massive ponzi scheme which defrauded investors of $460-million, was put to death by lethal injection. His family were not informed of his execution until his body was cremated.
According to the blog Tea Leaf Nation, Mr. Zeng was at one time favoured by powerful politicians, but it all went wrong when the wind changed and the political cronies panicked. Just as the Chinese judiciary is infected with political influence, the Chinese political class is supported by private capital. In March, the Hurun Global Rich List identified 83 billionaires among the delegates to the National People's Congress, China's official legislature. Such a concentration of wealth cheek-by-jowl with political power would even embarass the U.S. Congress, which counts many wealthy, but fails to boast a single billionaire.
In such an environment, it is difficult to see how the most squeaky-clean and compliant foreign investor could avoid being suborned by the prevailing climate of official corruption. GSK said last week it had found no evidence of bribery or corruption by its Chinese staff. That may be true but the GSK board cannot be unaware that it has chosen to do business in an environment rank with corruption. That carries a huge political, legal and business risk for GSK, its shareholders and countless other companies.
Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights .
Carl Mortished