Barclays and GlaxoSmithKline Get Off Easy


More could be “learnt” by asking tough questions

Are a top pharmaceutical and a huge bank celebrating?  Why not: Their profits from wrong-doing covered the costs of the fines. GlaxoSmithKline bribed doctors and misrepresented a drug. Barclays manipulated interest rates worldwide to boost profits. According to Sir Andrew Witty, CEO of GlaxoSmithKline, “we have learnt from the mistakes.”*  GSK will pay a record-breaking $3bn fine. Barclays will pay a few hundred million. GSK stock went up after the fine was announced.

Will fines change Barclays and GSK behavior?  Nope: The Financial Times quoted Harvard Medical School Professor Jerry Avorn on the GSK fine and similar fines in the pharma industry: “It’s clear that these are not viewed as anything more than speeding tickets on the cost of doing business.”* The financial services and pharmaceutical industrial complexes already have learnt how to manage regulators and occasional fines. The fines sound bigger than they are.

Are any portions of GSK and Barclays  fines deductible from corporate taxes?  Could be: Often neglected in stories like these is whether part of the fines will be legal deductions to reduce corporate income taxes. Some penalties can be partially written off as a cost of doing business. When that happens, a corporation pays lower taxes, i.e., the tax code reduces the real cost of the penalties. Example: Fines paid by BP for the oil spill in the Gulf of Mexico were half deductible because they went to rebuilding what BP’s negligence destroyed.

Why is this stuff important to consumers? Consumers indirectly pay: GSK deceived the public about the benefits and dangers of a drug—and bribed doctors to prescribe it. Barclays manipulated interest rates higher, a cost passed on in higher prices for consumers. Both GSK and Barclays knew what they were doing.

*For more, see GSK pays $3bn to settle charges over ‘happy, horny, skinny pill’ (Financial Times, 3 July 2012, page 1) and Barclays Executives Tied to Actions on Low Rates (New York Times Business Day, 3 July 2012, page B1).

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