Qilu Pharmaceutical Embroiled in $1.86 Billion Fake Invoicing Scandal Amid IPO Filing

Recently, a criminal judgment (2024) An 0181 Criminal Initial No. 327 from the Chaohu People's Court of Anhui Province has drawn widespread attention online. The judgment revealed a shocking case of invoice fraud in the industry: Between December 2019 and September 2021, Chaohu Yitong Tianxia Health Consulting Co., Ltd., without any real transactions, issued fake value-added tax invoices to Qilu Pharmaceutical Co., Ltd. and its affiliated companies, with a total amount including tax reaching 1.351 billion yuan.

Case Process: A Complex and Concealed Chain of Fictitious Invoicing

According to the content of the verdict, the background of this case can be traced back to 2018. At that time, Feng Mouxin, the founder of Beijing Yitong Tianxia Company, took advantage of Qilu Pharmaceutical's need to withdraw funds for off-the-books expenditures and other purposes. He registered and established Chaohu Yitong Tianxia Health Consulting Co., Ltd. in Chaohu City, and reached a cooperation agreement with Qilu Pharmaceutical.

Over a period of nearly two years, according to the arrangement of Chaohu Yitong Tianxia, Qilu Pharmaceutical provided the identity information of more than 300 employees, assisting in the establishment of several individual businesses in Chaohu City and the opening of bank accounts. The business licenses and official seals of these individual businesses were uniformly kept and used by Chaohu Yitong Tianxia. Without receiving any pharmaceutical promotion services or engaging in pharmaceutical transactions, Qilu Pharmaceutical, based on its own off-book funding needs, sent invoicing information and fund reflux accounts monthly via email to the Operations Department of Chaohu Yitong Tianxia, which then issued VAT special invoices equivalent to the settlement amount.

In the end, Chaohu Yitong Tianxia issued 13,925 fake value-added tax invoices to Qilu Pharmaceutical Co., Ltd. and its affiliated companies without any real transactions, with a total amount of 1.275 billion yuan, a total tax amount of 76.48 million yuan, and a combined price and tax total of 1.351 billion yuan.

Legal Verdict: Accomplice Sentenced, Principal Culprit Convicted

In this case, the defendant Zhao Mou, as the Director of the Operations Department of Beijing Yitong Tianxia, was responsible for managing and guiding the work of the Chaohu Yitong Tianxia Operations Department. The court determined that he played a secondary role in the fake invoice case and was an accomplice. In the end, Zhao Mou was sentenced to three years in prison, suspended for three years, and fined 50,000 yuan for the crime of issuing fake value-added tax invoices. The principal offender, Feng Mouxin, had already been sentenced previously.

Notably, the verdict did not mention whether Qilu Pharmaceutical, as the company that accepted the falsely issued invoices, would be held criminally responsible. Although this verdict primarily targeted individuals, Qilu Pharmaceutical, as the enterprise involved in accepting the falsely issued invoices, may still face various risks and impacts. According to reports, Qilu Pharmaceutical has not yet responded to this matter.

The exposure of this fake invoice case once again sounds the alarm for compliance management in the pharmaceuticals industry. While pursuing commercial interests, enterprises must strictly abide by laws and regulations, strengthen internal audits and compliance management, and eliminate any form of illegal activities. Only in this way can they achieve steady development in fierce market competition and win societal trust and support.

Source: China Judgments Online, China Business Journal, etc.