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| GlaxoSmithKline Accused of Corruption by China | GlaxoSmithKline Accused of Corruption by China |
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| SHANGHAI — Chinese investigators said Thursday that executives from GlaxoSmithKline, the British drug giant, had admitted to using bribes, kickbacks and other fraudulent means to bolster drug sales in China. | SHANGHAI — Chinese investigators said Thursday that executives from GlaxoSmithKline, the British drug giant, had admitted to using bribes, kickbacks and other fraudulent means to bolster drug sales in China. |
| The Ministry of Public Security said people working for the drug maker had bribed doctors, hospitals and government officials and funneled illicit payoffs through travel agencies, pharmaceutical industry associations and project financing. | The Ministry of Public Security said people working for the drug maker had bribed doctors, hospitals and government officials and funneled illicit payoffs through travel agencies, pharmaceutical industry associations and project financing. |
| The government did not name any executives or detailed figures. But it said the case involved “huge amounts of money.” | |
| The investigation appears to be part of a broad government crackdown on fraud and corruption involving foreign companies. | The investigation appears to be part of a broad government crackdown on fraud and corruption involving foreign companies. |
| The announcement came about a week after the authorities raided offices and detained people working for GlaxoSmithKline in three different cities, including Shanghai, according to the state-run news media. | The announcement came about a week after the authorities raided offices and detained people working for GlaxoSmithKline in three different cities, including Shanghai, according to the state-run news media. |
| The government findings released Thursday were unexpected because executives at GlaxoSmithKline had said just last week that an internal investigation of its China operations found no evidence of bribery or corrupt activities. | The government findings released Thursday were unexpected because executives at GlaxoSmithKline had said just last week that an internal investigation of its China operations found no evidence of bribery or corrupt activities. |
| A spokesman for the company said last week that the company had initiated its own investigation after a whistle-blower at the company came forward this year with accusations of wrongdoing in the China operation. | A spokesman for the company said last week that the company had initiated its own investigation after a whistle-blower at the company came forward this year with accusations of wrongdoing in the China operation. |
| On Thursday, a spokesman for GlaxoSmithKline said that the company was willing to cooperate with the investigation and that the Chinese announcement represented the first details of the case the company had been informed about. | On Thursday, a spokesman for GlaxoSmithKline said that the company was willing to cooperate with the investigation and that the Chinese announcement represented the first details of the case the company had been informed about. |
| The company also released a statement saying: “We take all allegations of bribery and corruption seriously. We continuously monitor our businesses to ensure they meet our strict compliance procedures. We have done this in China and found no evidence of bribery or corruption of doctors or government officials. However, if evidence of such activity is provided we will act swiftly on it.” | The company also released a statement saying: “We take all allegations of bribery and corruption seriously. We continuously monitor our businesses to ensure they meet our strict compliance procedures. We have done this in China and found no evidence of bribery or corruption of doctors or government officials. However, if evidence of such activity is provided we will act swiftly on it.” |
| Like many other large pharmaceutical companies, Glaxo has been investing significantly in China and other emerging markets, seeking to capitalize on a growing middle class that can increasingly afford to pay for prescription drugs. | |
| Although China still accounts for a small fraction of Glaxo’s business, sales in the country grew 17 percent in 2012, to $1.2 billion. | |
| Sales in emerging markets accounted for about a quarter of the company’s business in 2012. | |
| Earlier this year, The Wall Street Journal reported that a whistle-blower had shared some information with the newspaper and claimed that executives at the company had bribed doctors and hospitals. | |
| It is unclear whether the investigation by the Ministry of Public Security is linked to the whistle-blower. | |
| Regulators in China are reviewing the prices and production costs of major Chinese and global drug companies in what appears to be an effort to lower drug prices. | Regulators in China are reviewing the prices and production costs of major Chinese and global drug companies in what appears to be an effort to lower drug prices. |
| Feng Zhanchun, who specializes in public health at Huazhong University of Science and Technology in Wuhan, China, said that the Chinese pharmaceutical market was struggling to adapt to market forces. | Feng Zhanchun, who specializes in public health at Huazhong University of Science and Technology in Wuhan, China, said that the Chinese pharmaceutical market was struggling to adapt to market forces. |
| “Economic crimes, including commercial bribery and kickbacks, are one of the negative results generated in the transitional period in China,” he said in a telephone interview. “In the midst of a transition from a planned economy to a market economy, laws and regulations are not fully in place, and medical institutions have no perfect operational mechanisms.” | “Economic crimes, including commercial bribery and kickbacks, are one of the negative results generated in the transitional period in China,” he said in a telephone interview. “In the midst of a transition from a planned economy to a market economy, laws and regulations are not fully in place, and medical institutions have no perfect operational mechanisms.” |
| China is one of the world’s fastest-growing markets for pharmaceutical products, but the government has long held tight control over pricing of certain drugs. | China is one of the world’s fastest-growing markets for pharmaceutical products, but the government has long held tight control over pricing of certain drugs. |
| Still, in a country where kickbacks are common and the sales channels for many products are swayed by bribery, travel vouchers and payoffs, it is not unusual for major corporations to come under scrutiny from Chinese or Western regulators. | Still, in a country where kickbacks are common and the sales channels for many products are swayed by bribery, travel vouchers and payoffs, it is not unusual for major corporations to come under scrutiny from Chinese or Western regulators. |
| In 2012, the American drug maker Eli Lilly agreed to pay $29 million to settle accusations of making improper payments to government officials and physicians in Brazil, China, Poland and Russia. | In 2012, the American drug maker Eli Lilly agreed to pay $29 million to settle accusations of making improper payments to government officials and physicians in Brazil, China, Poland and Russia. |
| In the Eli Lilly case, the United States government said employees from the company’s China subsidiary had “falsified expense reports in order to provide gifts and cash payments to government-employed physicians.” | In the Eli Lilly case, the United States government said employees from the company’s China subsidiary had “falsified expense reports in order to provide gifts and cash payments to government-employed physicians.” |
| Among other things, the company’s sales representatives used reimbursements to provide doctors with meals, card games and “visits to bath houses.” | Among other things, the company’s sales representatives used reimbursements to provide doctors with meals, card games and “visits to bath houses.” |
| In recent years, the United States Department of Justice has scrutinized the world’s biggest drug companies to determine whether they have made improper payments to doctors and hospitals around the world in an effort to increase sales of their drugs. | In recent years, the United States Department of Justice has scrutinized the world’s biggest drug companies to determine whether they have made improper payments to doctors and hospitals around the world in an effort to increase sales of their drugs. |
| In the case of GlaxoSmithKline, Chinese investigators seemed to have moved with lightning speed, detaining workers, raiding offices in various cities and then publicizing their findings Thursday. | In the case of GlaxoSmithKline, Chinese investigators seemed to have moved with lightning speed, detaining workers, raiding offices in various cities and then publicizing their findings Thursday. |
| The authorities said that to “open the sales channel and increase prices” in China, GlaxoSmithKline, also called GSK, had bribed or paid off a wide range of people who could aid the company’s sales operations. | The authorities said that to “open the sales channel and increase prices” in China, GlaxoSmithKline, also called GSK, had bribed or paid off a wide range of people who could aid the company’s sales operations. |
| Among other things, the China subsidiary of GlaxoSmithKline “committed crimes” by writing special bills related to the value-added tax and issued fake invoices through travel agencies, officials said. The government said there was “ample evidence to show that some senior executives at GSK and certain travel agencies committed several commercial bribery and tax-related crimes.” | Among other things, the China subsidiary of GlaxoSmithKline “committed crimes” by writing special bills related to the value-added tax and issued fake invoices through travel agencies, officials said. The government said there was “ample evidence to show that some senior executives at GSK and certain travel agencies committed several commercial bribery and tax-related crimes.” |
| The government also said the company’s senior executives had confessed to many of the crimes, including taking kickbacks from business meetings and accepting commission fees through travel agencies. | The government also said the company’s senior executives had confessed to many of the crimes, including taking kickbacks from business meetings and accepting commission fees through travel agencies. |
| GlaxoSmithKline’s problems in China deepened this month when the company fired the head of its research and development center in Shanghai for misrepresenting data in a paper he co-wrote. | GlaxoSmithKline’s problems in China deepened this month when the company fired the head of its research and development center in Shanghai for misrepresenting data in a paper he co-wrote. |
Stephanie Yifan Yang contributed research. | Stephanie Yifan Yang contributed research. |