Officials 鈥榳ere bribed to thwart investigation鈥
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STAFF at UK drugmaker GlaxoSmithKline, including its former China general manager Mark Reilly, are facing bribery charges after the completion of a police investigation.
Police in central China’s Hunan Province said the case had been handed over to prosecutors in Changsha, the provincial capital.
Bribery charges carry a maximum sentence of life in prison.
Reilly is accused of operating a “massive bribery network” involving hundreds of millions of yuan, Gao Feng, deputy director of the Ministry of Public Security’s economic crimes unit, told a news conference.
Gao said Reilly remains in China but didn’t disclose his whereabouts.
The British Embassy in Beijing said yesterday it couldn’t comment on the case, while GSK issued a statement saying it would continue “to fully cooperate with the authorities in this matter.”
Reilly engaged in “wanton” bribery to meet high sales targets set by GSK’s head office, Gao said, and drug prices were inflated by declaring high costs at Chinese customs.
Police found GSK was selling its drugs at prices much higher than those of the same products in other countries, sometimes as much as seven times.
“The more it bribed, the more drugs it could sell,” Gao told reporters.
Police said industry and commercial regulators received tip-offs about suspected bribery at the company as early as 2012, but Reilly and two other executives, Zhang Guowei and Zhao Hongyan, bribed government officials in Beijing and Shanghai to thwart an investigation.
However, a formal probe was launched last July, led by police in Changsha. At the time, police said GSK employees were making payments totaling as much as 3 billion yuan (US$490 million) to medical personnel via a backdoor arrangement with a travel agency.
Police previously said four detained Chinese employees of GSK confessed to bribery.
During Reilly’s four-year tenure, GSK’s revenue in China surged 77 percent to 6.9 billion yuan, Xinhua reported. After the investigation was announced, Reilly was replaced by Herve Gisserot.
A second foreign drugmaker, British-Swedish AstraZeneca, said last July that police in Shanghai were investigating one of its salespeople. The company has given no details since.
Analysts familiar with the health care system in China say kickbacks are commonly used by domestic drug manufacturers, and doctors and hospitals routinely accept informal payments from patients and suppliers of medical goods to top up salaries and cover gaps in budgets. Hospitals also raise money by adding surcharges to drug prices and encouraging overuse of expensive drugs or procedures.
The GSK case is the biggest corruption scandal involving a foreign company in China since the Rio Tinto affair in 2009, which resulted in four executives of the Anglo-Australian mining giant, including an Australian-Chinese executive, being jailed for between seven and 14 years.
GSK, Britain’s biggest pharmaceutical company, operates a global research and development center in Shanghai and six manufacturing sites in China. It has invested more than 500 million yuan in China, according to its official website.
“We take the allegations very seriously,” GSK said in the statement issued from its London headquarters.
“They are deeply concerning to us and contrary to the values of GSK. We want to reach a resolution that will enable the company to continue to make an important contribution to the health and welfare of China and its citizens.”
GSK announced in December that it was severing the link between sales targets and staff income as part of an overhaul of its marketing activities in China.
The case has been a shot across the bow for other foreign companies in China.
“I don’t think that anyone has been lulled back into complacency, but if anybody has, this will wake them up,” said Kenneth Jarrett, president of the American Chamber of Commerce in Shanghai.
Shanghai-based lawyer John Huang of MWE China said: “This GSK case is drawing everyone’s attention. The government wants to kill the chicken to scare the monkey, and I think this will have a ripple effect.”
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