Glaxo in trouble in China

[Gem]

GlaxoSmithKline accused of 'criminal godfather' behaviour in China

 

http://www.telegraph.co.uk/finance/newsbysector/pharmaceuticalsandchemicals/10179241/GlaxoSmithKline-accused-of-criminal-godfather-behaviour-in-China.html

 

 

Malcolm Moore. 6:01AM BST 15 Jul 2013

 

GlaxoSmithKline behaved like a criminal "godfather" in China, dispensing some 3 billion yuan (£323m) in bribes since 2007, Chinese police said on Monday.

 

During a half-year investigation, Chinese police said they had uncovered more than 700 middlemen through which the pharmaceutical giant allegedly funnelled money to health officials and doctors in order to prescribe GSK drugs.

 

The company also allegedly committed some unspecified "tax-related crimes."

 

"This company has been investigated for bribery allegations in many countries. From our investigation, bribery is part of the strategy of this company. This is why they have bribery activities in China," said Gao Feng, the head of the economic crimes investigation unit at the Ministry of Public Security.

 

Four senior GSK executives, all Chinese, are now in detention, Mr Gao said.

 

According to the Beijing News, the detainees are Zhao Hongyan, 41, GSK's legal counsel and head of compliance, Liang Hong, 49, a vice president in charge of operations, Huang Hong, 45, a general manager in charge of commercial development and Zhang Guowei, 50, the company's human resources director.

 

Mark Reilly, the English head of GSK's China business, departed China on June 27 and has not returned, he added.

 

GSK has previously said it conducted a lengthy internal investigation into worries over corruption and found no widespread evidence of wrongdoing. It said it would cooperate with Chinese police over their ongoing investigation.

 

However, Mr Gao said Chinese investigators had not "received any information from the UK headquarters". He added: "This is a very serious violation and a high profile case, we are wondering why we have not yet received any information".

 

"As for the chief of the China business, you better ask him yourself why he has left China and is not willing to return so far. We did not take any measures to stop his departure".

 

Mr Gao said the Chinese police "is willing to work closely with our overseas partners to fight this serious crime [of corruption]".

 

The police described a system by which GSK had used "travel agencies" and "consultancies" to disburse bribes.

 

"We could not find the evidence [of corruption] in their accounts. They used travel agents as a money platform. But I must make it clear that among these partners, GSK is the main party responsible. It is like a criminal organisation, there is always a boss. In this game, GSK is the godfather."

 

He said senior GSK executives had been drawn into close relationships with some of the middlemen, who would give them both financial and sexual kickbacks in order to win their business. "To win GSK's favour some agencies not only offered money, but also sexual favours," he said.

 

Mr Gao denied that the investigation into GSK had been triggered by a disgruntled executive and that the clues into the case had been uncovered solely by police investigators.

 

One travel company named by the Chinese media was Shanghai Linjiang International Travel Agency. "It never had any business in tourism, but its turnover rose to tens of millions," said the Beijing News.

 

The newspaper said the travel agencies would invent corporate meetings that required staff travel. The budget for these fictitious meetings would then be used to bribe doctors to prescribe GSK drugs.

 

"Each doctor had a credit card from the company. The kickbacks were transferred to the cards the day after drugs were prescribed," the newspaper claimed.

 

Mr Gao emphasised that Chinese consumers were being defrauded by the practice. The official Xinhua news agency, which was given access to Mr Liang in detention, quoted him saying that medicine that cost 30 yuan to make could be sold for 300 yuan.

 

The sums quoted by the police, if correct, suggest that GSK was spending a significant proportion of its annual sales revenue on bribing doctors. In 2012, the company’s sales in China rose 17pc, to nearly £759m, from 2011, according to the company’s annual report.

 

Mr Gao also hinted that other foreign pharmaceutical giants could be caught up in the investigation.

 

"Frankly speaking, from our investigation we have also found some clues of illegal money transfers involving other foreign companies. Whether they have been involved in these allegations we are not so sure now. Probably you better ask them yourself. One question is enough: Can you sleep well at night?" he said.