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Glaxo Used Travel Firms in Bribery, China Says Glaxo Used Travel Firms in Bribery, China Says
(about 4 hours later)
SHANGHAI — Earlier this year, the authorities here began looking into suspicious activity involving a Shanghai travel agency that was rumored to have huge revenue but few bookings.SHANGHAI — Earlier this year, the authorities here began looking into suspicious activity involving a Shanghai travel agency that was rumored to have huge revenue but few bookings.
What they uncovered, they said Monday, was a conspiracy involving tens of millions of dollars and directed by senior executives at the British drug giant GlaxoSmithKline.What they uncovered, they said Monday, was a conspiracy involving tens of millions of dollars and directed by senior executives at the British drug giant GlaxoSmithKline.
Investigators said that for years, senior executives at the company joined with travel agencies and consulting firms in China to funnel bribes to doctors, hospitals, medical associations, foundations and government officials. Investigators said that for years, high-ranking executives at the company’s China operations worked with travel agencies to funnel bribes to doctors, hospitals, medical associations, foundations and government officials.
The payoffs, investigators said, helped bolster drug sales and allowed GlaxoSmithKline, also known as GSK, to sell its products for higher prices in China. The payoffs, investigators said, helped bolster drug sales and allowed GlaxoSmithKline, which is also known as GSK, to sell its products for higher prices in China.
At a news conference in Beijing, the authorities accused senior executives at GSK of organizing fictitious conferences, overbilling for training sessions and accepting kickbacks in the form of cash and luxury travel. At a news conference in Beijing on Monday, the authorities accused senior executives at the company’s China operations of organizing fictitious conferences, overbilling for training sessions and accepting kickbacks in the form of cash and luxury travel.
In some cases, the authorities said, travel companies eager to sign long-term deals with GSK hired young women to engage in what officials called “sexual bribery” with managers at the drug maker. In some cases, the authorities said, travel companies eager to sign long-term deals with GSK even hired young women to engage in “sexual bribery” with GSK managers.
“It’s like a criminal organization — there’s always a boss,” Gao Feng, head of the economic crime unit of the Chinese Ministry of Public Security, said at the news conference. “And in this case, GSK is the boss.” “It’s like a criminal organization — there’s always a boss,” Gao Feng, head of economic crime unit of the Chinese Ministry of Public Security, said at the news conference. “And in this case, GSK is the boss.”
The revelations come just days after the police announced that GSK managers had confessed to engaging in bribery and tax fraud. The revelations came just days after the police announced that several GSK executives had confessed to engaging in bribery and tax fraud.
On Monday, the government said four senior executives at GSK were being detained, including the head of the drug maker’s legal department and two vice presidents and the head of business development in China. The four named are all Chinese nationals, the police said. The possible punishments or fines for GSK are unclear, experts said, but the investigation is almost certain to cause concern among the ranks of major multinational companies operating in China.
Mark Reilly, the head of GSK’s operations in China, a British national, recently left the country, the police said. The departure took place shortly after investigators raided the company’s offices. In recent weeks, regulators in China have stepped up their scrutiny of multinationals. After dairy producers were accused of price-fixing, several of them announced price cuts.
“This is a very serious allegation, and the chief of China has left China,” Mr. Gao said. GSK is one of the world’s leading pharmaceutical companies. Last year, it recorded nearly $40 billion in revenue worldwide by selling popular drugs like Paxil, Avandia and Zantac.
Although China still accounts for a small portion of GSK’s revenue — about $1.2 billion last year — it is one of the company’s fastest-growing markets and home to 6,000 employees as well as large manufacturing and research and development facilities.
On Monday, the government said four senior executives from GSK’s China offices were being detained, including the head of the drug maker’s legal department, the head of business development and two vice presidents. The four held are all Chinese nationals, the police said.
Mark Reilly, head of GSK’s operations in China, a British national, recently left the country, the police said, shortly after investigators raided the company’s offices in late June.
“This is a very serious allegation, and the chief of China has left China,” Mr. Gao, one of the lead investigators, said at the news conference.
The investigation is a huge embarrassment for GSK, which recently fired the head of its research and development department in Shanghai for misrepresenting data in a paper he co-wrote in 2010.The investigation is a huge embarrassment for GSK, which recently fired the head of its research and development department in Shanghai for misrepresenting data in a paper he co-wrote in 2010.
The company also said earlier that it had conducted an internal investigation into its China operations this year after a whistle-blower said bribery had been used to bolster drug sales. The company said it had found no evidence of wrongdoing or bribery in its China operation. The company also said that it had conducted an internal investigation into its China operations this year after a whistle-blower claimed that bribery was used to bolster drug sales. The company said it found no evidence of wrongdoing or bribery in the China operation.
But on Monday, GSK issued a statement from London indicating grave worry: “We are deeply concerned and disappointed by these serious allegations of fraudulent behavior and ethical misconduct by certain individuals at the company and third-party agencies. Such behavior would be a clear breach of GSK’s systems, governance procedures, values and standards. GSK has zero tolerance for any behavior of this nature.” But on Monday, GSK released a lengthy statement that expressed frustration.
The statement went on: “GSK shares the desire of the Chinese authorities to root out corruption. These allegations are shameful and we regret this has occurred.” The company said it would cooperate with the authorities in China and take immediate action to stop dealings with travel agencies that may have committed fraud. “We are deeply concerned and disappointed by these serious allegations of fraudulent behavior and ethical misconduct by certain individuals at the company and third-party agencies,” the company said. “Such behavior would be a clear breach of GSK’s systems, governance procedures, values and standards. GSK has zero tolerance for any behavior of this nature.” The statement added: “GSK shares the desire of the Chinese authorities to root out corruption. These allegations are shameful and we regret this has occurred.”
At the news conference Monday in Beijing, the authorities said that the investigation was continuing and that the case involved scores of travel agencies as well as other multinational corporations that also may have fabricated travel bookings. The company said it would cooperate with the authorities and take immediate action to improve compliance procedures and end its dealings with travel agencies that might have committed fraud.
By detailing what they called GSK’s fraud, the investigators suggested it was a common business tactic that effectively cheats the purchasers of drugs. At the news conference Monday in Beijing, the authorities said the investigation was continuing and that the case involved scores of travel agencies as well as other multinational corporations.
In detailing its allegations against GSK, investigators suggested that using travel agencies to engage in bribery was a common business tactic in China.
“From our investigation, we found that bribery was part of the strategy of the company,” Mr. Gao said of GSK.“From our investigation, we found that bribery was part of the strategy of the company,” Mr. Gao said of GSK.
The investigation is certain to heighten concerns among other global drug makers, some of which are under growing scrutiny from regulators in the United States and elsewhere over the incentives they give to doctors or clients. The investigation is certain to heighten concerns among other global drug makers, some of which are already under scrutiny from regulators in the United States and elsewhere over the incentives they give to doctors or clients.
Some of the toughest penalties could come in the United States, because most major drug makers are subject to the U.S. Foreign Corrupt Practices Act, which bars companies from making payoffs to government officials in foreign countries in exchange for business. Some of the toughest penalties could come in the United States, since most major drug makers are subject to the U.S. Foreign Corrupt Practices Act, which bars companies from bribing foreign officials in order to gain or retain business.
Kim Nemirow, a Hong Kong-based attorney at the U.S. law firm Ropes & Gray, said global drug companies face stiff challenges in China: their sales agents deal mostly with Chinese government officials because much of the health care sector is controlled by the state.Kim Nemirow, a Hong Kong-based attorney at the U.S. law firm Ropes & Gray, said global drug companies face stiff challenges in China: their sales agents deal mostly with Chinese government officials because much of the health care sector is controlled by the state.
“The government is pervasive in all aspects of this industry — the doctors, the pharmacies, the distributors, the state-owned hospitals. And that means what they do could come under the U.S. F.C.P.A.,” Ms. Nemirow said, referring to the corrupt practices act. “The government is pervasive in all aspects of this industry — the doctors, the pharmacies, the distributors, the state-owned hospitals. And that means what they do could come under the U.S. F.C.P.A.,” she said, referring to the corrupt practices act.
Investigators in the GSK case have not yet filed criminal charges. But in an unusual move, they released information about some of the confessions.
The Shanghai Linjiang International Travel Agency, they said, appeared to be colluding with GSK and other companies to funnel bribes and payoffs to corporate executives by creating phony bookings of conferences and training sessions.
In some cases, GSK and Linjiang might report that 100 people attended a conference when only 80 people showed up. The receipts would be used as reimbursement for expenses from the company. Some of the money made would be used for bribes or kickbacks for GSK executives, the government said.
“That’s the way the business works,” the government quoted one of the GSK executives saying in a confession. “It’s quite common to do this.”