The Chinese Ministry of Public Security's probe over the past month also involves possible tax-related violations and has widened to include common employees of the British pharmaceutical giant as well as in-country management, official media say.
Eighteen people were arrested last week, China's official media reported.
I won't offer an opinion on what the company did or didn't do.But if the courts say laws were broken, what happens to GlaxoSmithKline will probably follow one of three formulas for foreign multinationals facing legal problems in China. Scenario 1. GSK has enough experience in China to know it should cooperate with investigators and keep a low public profile. Violations of the sort suspected in the current probe are considered standard operating procedures for Chinese companies. But if a foreign firm gets charged, despite any history of living closer to the law than its local peers, the charges stick at least in the media because China's ubiquitous nationalism favors local firms over foreign rivals. Consider Foxconn (2317.TW), a Taiwanese consumer electronics assembler. A rash of suicides in 2010 and a mass worker strike hurt its public image and raised questions about labor conditions. One answer seeker was Apple (AAPL), which had hired Foxconn to make consumer electronics in China. Analysts said at the time mainland Chinese firms were treating workers worse than Foxconn, but none faced the same scrutiny. In November last year, labor rights activists accused Samsung Electronics of hiring girls as young as 16 at two China plants and requiring workers to sign blank contracts. The allegations grabbed attention because Samsung is a global brand. What about its local counterparts? GSK, one of the world's biggest pharmaceutical makers, shows signs of working with Chinese authorities. If that cooperation goes well, the company might need to pay a fine and develop a well-publicized internal cure for whatever legal ailments that that the police find. Its executives have condemned whatever happened but not explained the acts in much detail.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV