FCPA Compliance and Ethics Blog

July 18, 2014

Looking Back on Johnny Winter and GSK’s 2001 China Bribery Scandal

Johnny WinterJohnny Winter died yesterday. He was one of the greatest rock and roll guitarists of all-time. As posted in Rolling Stone’s online article “Johnny Winter, Texas Blues Guitar Icon, Dead at 70” by Kory Grow, Winter “was born in Beaumont, Texas in 1944 and rose to prominence in his early 20s after a Rolling Stone cover story on Texas music in December 1968. “If you can imagine a 130-pound, cross-eyed albino with long fleecy hair playing some of the gutsiest, fluid blues guitar you ever heard, then enter Johnny Winter,” wrote Larry Sepulvado and John Burks in the issue. “At 16, [Mike] Bloomfield called him the best white blues guitarist he ever heard…. No doubt about it, the first name that comes to mind when you ask emigrant Texans about the good musicians that stayed back home is Winter’s.””

I was introduced to him by two long forgotten friends in the spring of 1976 through the album Johnny Winter Captured Live and most particularly the song ‘It’s All Over Now’. I spent most of yesterday afternoon listening through my ear buds to that song blasting at the highest volume possible and went immediately back to those nights in 1976 listening to Winter’s axe hammer guitar and vocals. I also considered how great Winter was as he is Number 63 on Rolling Stone’s list of the Top 100 Guitarist’s of all-time.

Interestingly yesterday, there was an article in the Financial Times (FT) by Demetri Sevastopulo and Andrew Ward, entitled “GSK admits to 2001 Chinese bribery scandal”, which reported that the UK pharmaceutical company GlaxoSmithKline PLC (GSK) had been involved in a prior bribery scandal in China back in 2001. They reported, “The Financial Times has learnt that GSK also found problems with its China vaccine business in 2001 that led to the firing of about 30 employees.” The article went on to say, “Two people familiar with the 2001 scandal said GSK found that staff were bribing Chinese officials and taking kickbacks. The company acknowledged the matter for the first time to the Financial Times, but said it had dealt with the issue rigorously.”

Obviously having a prior bribery scandal in the very same country as another current scandal portends poorly for GSK, as the FT noted. “The US Department of Justice, which is investigating the current allegations, will take a close look at the earlier scandal, said a former senior DoJ official who asked to remain anonymous. If it found a pattern of such behaviour, the justice department was likely to take a tougher stance towards the company, legal experts said.” The FT article quoted Timothy Blakely, a partner at the US law firm of Morrison & Foerster, who said, “US prosecutors would have to examine the 2001 case under justice department guidelines to see whether there was a pattern of behaviour. “It is something that a prosecutor would have to take into account,” said Mr Blakely.”

Unfortunately for GSK the 2001 scandal has some other rather inconvenient facts, which may well impact how the company fares in the current imbroglio in which it finds itself. The first fact is that unlike the current scandal, which unfolded beginning in 2013 when an anonymous whistleblower presented evidence of bribery and corruption in the company’s China operations, in the 2001 scandal the company took swift actions to investigate the allegations. In 2001, GSK hired PricewaterhouseCoopers (PwC) to investigate the allegations “at the time the corruption suspicions emerged.” The 2001 investigation, as noted above, led to the termination of “about 30 (GSK) employees”.

One of the difficulties for GSK is that it appears this robust response in 2001 contrasts dramatically with its response in 2013. It is now known that GSK was notified by the anonymous whistleblower of allegations of bribery and corruption as early as January 2013. Yet the company gave itself a clean bill of health, finding no evidence of any wrongdoing. However, it did not take Chinese authorities long at all to investigate and conclude that there was “evidence of “massive and systemic bribery”” in GSK’s China business operations.

Interestingly, one of the PwC investigators back in 2001 has played prominently in this current bribery problem. It is Peter Humphrey who is currently under indictment for his actions around some of GSK’s current problems. But, as reported by the FT, back in 2001 “One member of the PwC team in 2001 was Peter Humphrey. Now an independent investigator, he is being held in China on charges of illegally buying private information in connection with GSK’s current scandal.”

Humphrey, his naturalized American wife Yu Yingzeng and their companyChinaWhys Co., were hired by the GSK after GSK received a copy of a sex tape made of the company’s head of its China operations, Mark Reilly and his girlfriend having sex. Their assignment was to investigate the matter, the genesis of the tape and try to determine who filmed the couple. Humphrey has claimed that he was kept in the dark about the bribery and corruption allegations made at the same time as the notice about the sex tape was made to GSK officials. But if he was part of the investigation team back in 2001, do you think he might have inquired about any current allegations of bribery or corruption or any ongoing company investigations? What are the implications for GSK if he did make such inquiries but was not given correct information?

Another very interesting issue for GSK is that its current Chief Executive Officer (CEO), Sir Andrew Witty, “was the company’s head of Asia-Pacific, but his responsibilities excluded China. GSK said Sir Andrew “was not involved in and was not aware of” the case at the time. Sir Andrew has tried to cast GSK as a leader in ethical reforms since it was hit with a record $3bn DoJ fine for marketing abuses in 2012. But his clean-up effort, including measures to cut the link between sales volume and pay for marketing personnel, has been overshadowed by the latest scandal in China.”

All of these ‘coincidences’ may lead the US Department of Justice (DOJ) or the UK Serious Fraud Office (SFO) to conclude that GSK has a culture of non-compliance or worse yet – a culture of corruption. The FT article cited to un-named legal experts for the following, “If prosecutors find a pattern of such behavior, they are likely to take a tougher stance towards the company.” Do not forget that GSK had paid a $3bn fine for false marketing and is currently under a Deferred Prosecution Agreement (DPA) for those illegal actions.

While it is not clear how all of this will end up for GSK, I do fear it will end poorly. So if you are in GSK now, I might suggest that you put on your best headphones and crank up the volume on your receiver (or iPhone as I doubt many people have receivers anymore) and listen to my fellow Texan Johnny Winter blast out “It’s All Over Now”. Because you know, it is….

For a blast from the past, check out this version of Johnny Winter playing “It’s All Over Now” on YouTube.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014

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