Prosecuting GSK: How to Deal with Being Second in Line

As followers of the anticorruption blogosphere know, China recently fined British pharmaceutical giant GlaxoSmithKline (“GSK”) $490 million for bribing Chinese doctors and hospital administrators. There is no need rehash here what many others have already said: this case is likely a watershed moment marking China’s emergence as a force in the global fight against corruption.

But there is another aspect of the story that has gone unnoticed: With rare exceptions, the U.S. Government’s corporate FCPA settlements have either preceded any foreign enforcement action (e.g., Total) or been announced as part of a coordinated global settlement (e.g., Siemens). But China’s prosecution of GSK has put U.S. regulators in a relatively unfamiliar position: that of the second mover. And in doing so, China has forced the Department of Justice to confront a difficult question: Should it care that China has already fined GSK for the same conduct that DOJ is investigating.

Because the United States does not recognize international double jeopardy, China’s action poses no legal obstacle to an FCPA prosecution. In fact, the only legal obligation imposed on U.S. authorities as a result of China’s prosecution derives not from domestic law but from the UN Convention Against Corruption (UNCAC) art. 42(5) and OECD Anti-Bribery Convention art. 4.3. But these sections only require the United States to consult with China regarding the two nations’ overlapping investigations, and even then, only “as appropriate.”

Nevertheless, it’s a safe bet that when it comes time to resolve the GSK matter, DOJ will (1) consider the impact of the prior Chinese penalty and (2) soften its settlement terms as a result. How do we know that? Well, to start, the U.S. Attorney’s Manual — in two relevant provisions (here and here) — advises federal prosecutors to consider the effect of another jurisdiction’s (realized or potential) prosecution when deciding whether it is necessary to charge a particular target. More importantly, though, whether we are speaking of the rare FCPA case where DOJ was the second mover (e.g., Statoil or Alcatel-Lucent) or the many instances where DOJ resolved an investigation as part of a global settlement (e.g., Siemens), on several occasions DOJ seems to have adjusted its settlement demands in order to accommodate penalties exacted by foreign enforcers.

But even if DOJ has done this sort of thing in the past, it’s worth considering why it makes sense to do it again here. After all, the GSK case is a world apart from the Statoil or Alcatel-Lucent resolutions, which followed foreign settlements totaling only a few million dollars. And unlike massive global settlements like Siemens, there was — perhaps unsurprisingly — no coordination here between U.S. and Chinese enforcers.

Stepping back, there are a few reasons to believe DOJ both will and should stick to its past practice and lower its settlement demands even in a case like GSK:

  1. Doing so may encourage additional demand-side prosecutions:  For years, the anticorruption world has decried the lack of demand-side enforcement. (This blog being no exception.) The good news is that a policy of accommodating foreign penalties may help address the problem, even if only marginally and only in the long term. This practice shows respect for a demand-side nation’s sovereignty and its interest in redressing harm caused to it by the defendant’s bribery. Furthermore, a regular and open practice of deference to foreign actions will encourage goodwill between demand- and supply-side authorities, possibly leading to greater coordination of future investigations. (If demand-side officials believe they’ll be afforded their due at the bargaining table, they may be more willing to cooperate with foreign authorities in the future.) Lastly, companies are more likely to cooperative with demand-side investigations when they know that any associated penalty will be taken into account in future supply-side settlement negotiations.
  2. Such reductions may be necessary to avoid overdeterrence:  While many of us would like to stamp out transnational bribery, there is a theoretical point at which enforcement penalties become so high as to pressure companies into taking inefficient precautions (or avoiding certain high-risk markets altogether). To the extent we care about cost-effective responses to corruption, the prospect of overdeterrence is worrisome. Keeping that concern in mind, one could argue that over the past few decades — an era in which U.S. enforcement was the only big game in town — FCPA penalties were inflated to account for harm done to both supply- and demand-side countries. If that’s true, then it makes sense to reduce penalties in FCPA cases that follow (e.g., GSK) or foreseeably precede (e.g., Akzo Nobel) demand-side prosecutions in order to avoid cumulative penalties disproportionate to the underlying conduct.
  3. In some cases, DOJ won’t have a choice:  At the end of the day, there are going to be some companies (e.g., Innospec) who would fold under the financial pressure of successive penalties for the same underlying bribery conduct. It’s not a stretch to say that in a post-Arthur Andersen world, that is an outcome rarely desired by prosecutors. Sure, there are closely-held corporations who will not survive FCPA prosecutions (e.g., Nexus), but more often DOJ officials will treat the policy requirement that they weigh the collateral consequences of initiating a corporate prosecution as reason not to push the boundaries of the defendant’s financial well-being. And even with a company as large as GSK, half of a billion dollars may be a penalty large enough to make DOJ officials worry about not pushing the business too far towards the financial breaking point.

At the end of the day, I wouldn’t be surprised if DOJ’s FCPA prosecutors never quite adjust to the prospect of being second-in-line. But for the health of the global effort to combat transnational bribery — and the reasons given above — it might be best for DOJ to get used to that position. I’ve got my fingers crossed, after all, that GSK is just the latest sign of a growing phenomenon: that of demand-side countries charging forward with their own enforcement actions, even before supply-side countries can do the same.

6 thoughts on “Prosecuting GSK: How to Deal with Being Second in Line

  1. Interesting arguments. Is the Chinese subsidiary of GSK actually registered and trading on the US stock exchange, or is it the parent company; and is this or should it be relevant to the possibility of the same action being taken in multiple jurisdictions? In the case of this British company, what, if anything, would inhibit the UK from filing against this company for the same events pursuant to the UK Antibribery law? In this same line of thought, we have not only the risk of multinational companies being fined in two, but three or as many countries as may have similar antibribery laws and registered stock, which may or may not take such multiple fines into consideration depending upon their particular laws, jurisprudence and customs. Perhaps the time is coming near for a review of the reach of the FCPA.

    • I believe the US is asserting FCPA jurisdiction over GSK on the basis of its status as an issuer on a US exchange. I also believe that you are correct that, under the UK Bribery Act, the UK would also have jurisdiction, though the UK (unlike the US) recognizes the principle of international double jeopardy (ne bis in idem), and so wouldn’t be able to bring a prosecution after a US settlement, and is probably already barred from doing so by the Chinese settlement. (It’s possible I’m wrong, as I’m not an expert in this feature of British law, but I think that’s the case.)

      Your more general observation seems to me to be correct: We’re moving into a world in which multiple sovereigns may have jurisdiction to bring corruption charges against the same entities for the same underlying conduct: If a Korean subsidiary of a British company listed on the New York Stock Exchange pays bribes in China, then four country’s laws have been simultaneously violated, and in principle any of the four, or some combination, might be able to pursue criminal enforcement actions.

      I’m not sure I agree with your last sentence, though. I think it would be a mistake to narrow the reach of the FCPA, both because it remains by far the most robust and effective law against transnational bribery, and because if a foreign company avails itself of US securities markets or territory, than the US has every right to impose and enforce legal restrictions on that firm’s conduct. Rather than narrowing the scope of the law, I’d be more inclined to deal with the problem — as Jordan suggests — through formal or informal agreements between the DOJ/SEC and other countries’ law enforcement agencies about which country or countries should take the lead in which prosecutions, and how they should coordinate.

  2. Great analysis (and comment). I’m going beyond the scope of your post here but, to pick up on something you touched upon briefly, one way for DOJ prosecutors to avoid being second-in-line is to coordinate investigations. There are obvious benefits to global coordination on actions against cross-border crime like bribery and a number of law firms have flagged the huge growth potential for such cooperation. In the GSK case, for instance, the SFO worked closely with Chinese authorities for the first time.

    For a variety of reasons, collaborating with demand-side jurisdictions seems markedly different from working alongside other supply-side authorities (although, if the Chinese government is serious about its anti-corruption campaign, maybe not as different as it first appears). At any rate, I don’t see Chinese and U.S. prosecutors cozying up to each other anytime soon.

    But, particularly given the likelihood that Chinese enforcement is on the rise, what do you think of the prospects for increased investigation and settlement coordination between the U.S. and China?

    • Absolutely, coordinated enforcement is the way to go in most of these cases. The cooperation between the US and German authorities in the Siemens case is a great example.

      The problem, as I understand it, in the GSK case is precisely the lack of coordination — due in part to lack of familiarity and lack of trust — between the Chinese and US authorities. (I don’t have a public source for this, but I’ve had informal conversations with lawyers on both the US and Chinese side about this, and they all made more or less that claim.) That’s not to say that this issue is unique to China, but I think it’s likely to be especially acute in that case. But your note about the degree of cooperation between the Chinese authorities and the SFO — which is something I wasn’t aware of — is perhaps encouraging.

  3. This is a pretty basic question–just informational–but in relation to your first point and your references to fostering good will and demonstrating respect, is there a sense among demand-side countries that they would prefer the U.S. NOT prosecute for conduct for which the demand-side country has already secured a conviction? Assuming they’ve already received the fine they’ve assessed/been able to enact the punishment they’ve decided on, do they care what the U.S. does? If so, why? From their perspective, is it a matter of being afraid that the U.S. will (as you allude to in your third point) assess a penalty that causes the company to fold and not be able to pay the demand-side country? Just a philosophical matter of it seeming that the U.S. doesn’t view their legal decision as “real” enough to prevent further prosecution (i.e., basically objecting to the U.S. choice not to recognize international double jeopardy)?

  4. Pingback: Revisiting GSK’s Chinese Corruption Scandal… | GSK : Licence To (K) ill : Documenting The Unethical Behaviour Of GlaxoSmithKline: With Particular Focus On The Notorious Seroxat Scandal

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