Pharma executives, distributors arrested by South Korean prosecutors for rigging bids on public tenders for vaccines, in a probe that could stretch to more than 50 companies

02 Apr 2020 12:33 pm by Hyung-jo Choi

Several executives of South Korean pharmaceutical companies have been arrested by the country’s prosecutors’ office in its first independent antitrust probe since the inauguration of the new prosecutor-general, with investigators suspecting collusive schemes on public tenders among dozens of vaccine producers and distributors covering a wide swathe of the South Korean vaccine market. The arrests are only the beginning of an investigation that could involve billions of dollars in vaccine tenders won through suspected collusion, as the probe expands to more than 50 companies, MLex has learned.

The Seoul Central Prosecutors’ Office said it arrested the president of Korea Vaccine on Monday. Earlier this month, prosecutors also arrested the head of a vaccine distributor on various charges including playing a role in a collusive scheme. MLex has learned that a total of four executives of pharmaceutical companies — two from vaccine producers and two from distributors — have so far been arrested in an investigation that started on Nov. 13.

MLex understands that prosecutors suspect more than 50 pharmaceutical companies and distributors, including several major South Korean firms, have colluded on public tenders placed by the Public Procurement Service for the supply of various vaccines for the national immunization programs.

In May, the Korea Fair Trade Commission, or KFTC, fined Korea Vaccine 990 million won ($828,746) and referred two of its executives to prosecutors. The regulator found that Korea Vaccine and its two affiliates, which control more than 50 percent of the market for Bacillus-Calmette Guerin, or BCG, vaccines, deliberately reduced the supply of intradermal BCG vaccine imports from Japan in order to boost demand for an alternative type of percutaneous BCG vaccine, which is as much as 30 times more expensive than the intradermal vaccine.

MLex understands, however, that this case which the KFTC referred to prosecutors is just the tip of the iceberg, with what has now become visible from an independent probe by the prosecutors’ office that kicked off just a month ago. It is understood that South Korean prosecutors obtained raw data from the Public Procurement Service on purchases of various vaccines for the government immunization programs for citizens as well as for the military. The BCG vaccine that was at the center of the issue during the KFTC probe is now one of several types of vaccines that prosecutors suspect were involved in possible collusion.

The suspected amount of a tender landed by a distributor whose executive was arrested earlier this month is around 370 billion won ($310 million). Together, MLex understands that the total amount of vaccine purchases by the government affected could be in the range of billions of dollars, which could make the case one of the biggest antitrust investigations handled by South Korean prosecutors to date.

This is understood to be the first major antitrust case launched by the South Korean prosecutors’ office since the appointment of new prosecutor-general Yoon Seok-yeol.

Yoon’s tenure was expected to lead to more aggressive antitrust enforcement by South Korean prosecutors, because he was seen emphasizing “fair competition” as he took office in July. In the wake of his appointment, the prosecutors’ office underwent a reshuffling, in which a senior prosecutor, Koo Sang-yeop, who oversaw the Antitrust Division of the Seoul Central Prosecutors’ Office was assigned as the chief director of the Special Investigation Division 1. Koo recently earned a doctorate in juridical science at Seoul National University, with a thesis on criminal antitrust enforcement for cartels. That division, which was recently renamed as the Anti-corruption Investigation Division 1, handles high-profile cases with significant social and economic interests. The investigation into alleged bid rigging on vaccine procurement is currently being handled by that newly named division.

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