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| Glaxo Used Travel Firms for Bribery, China Says | |
| (35 minutes 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, 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, directed by senior executives at the British drug giant GlaxoSmithKline. |
| Investigators said that for years, high-ranking executives at the company’s China operations used travel agencies as money-laundering shops 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 used travel agencies as money-laundering shops 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, also known as GSK, to sell its products for higher prices in China. |
| 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 in various other ways filing sham expenses for which the cooperating travel agencies would issue bogus receipts. That enabled the GSK executives to get reimbursed by their company with money they could use for bribes, investigators said, while the travel agencies skimmed off shares of the money for themselves. | 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 in various other ways filing sham expenses for which the cooperating travel agencies would issue bogus receipts. That enabled the GSK executives to get reimbursed by their company with money they could use for bribes, investigators said, while the travel agencies skimmed off shares of the money for themselves. |
| The practice is said to be so common a form of money laundering, and so lucrative for travel agencies, that they would compete for the chance to take part. Sometimes they would induce GSK executives to throw the business their way by offering cash, luxury travel or even by hiring young women to engage in sexual activities — or “sexual bribery” — with GSK managers, Chinese officials said. | The practice is said to be so common a form of money laundering, and so lucrative for travel agencies, that they would compete for the chance to take part. Sometimes they would induce GSK executives to throw the business their way by offering cash, luxury travel or even by hiring young women to engage in sexual activities — or “sexual bribery” — with GSK managers, Chinese officials said. |
| “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. | “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,” he said, “GSK is the boss.” | “And in this case,” he said, “GSK is the boss.” |
| The revelations came just days after the police announced that several GSK executives 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. |
| 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. | 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. |
| In recent weeks, regulators in China have stepped up their scrutiny of multinationals. After dairy producers were accused of price-fixing, for instance, several of them announced price cuts. | In recent weeks, regulators in China have stepped up their scrutiny of multinationals. After dairy producers were accused of price-fixing, for instance, several of them announced price cuts. |
| 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 the antidepressant Paxil, the diabetes treatment Avandia and the ulcer medicine Zantac. | 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 the antidepressant Paxil, the diabetes treatment Avandia and the ulcer medicine Zantac. |
| Although China still accounts for but a small portion of GSK’s revenue — about $1.2 billion last year, out of nearly $40 billion over all — 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. | Although China still accounts for but a small portion of GSK’s revenue — about $1.2 billion last year, out of nearly $40 billion over all — 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. | 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. | 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,” Mr. Gao, one of the lead investigators, said at the news conference, while noting that the head of the company’s China operations had left the country. | “This is a very serious allegation,” Mr. Gao, one of the lead investigators, said at the news conference, while noting that the head of the company’s China operations had left the country. |
| 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 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. | 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 released a lengthy statement that expressed its frustration. | But on Monday, GSK released a lengthy statement that expressed its frustration. |
| “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.” | “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.” |
| 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. | 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. |
| At the news conference on 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. | At the news conference on 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 accusations against GSK, investigators suggested that using travel agencies to engage in bribery was a common business tactic in China. | In detailing its accusations 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 already under 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, since most major drug makers are subject to the Foreign Corrupt Practices Act, which bars companies from bribing foreign officials to gain or retain business. | Some of the toughest penalties could come in the United States, since most major drug makers are subject to the Foreign Corrupt Practices Act, which bars companies from bribing foreign officials to gain or retain business. |
| Kim Nemirow, a lawyer based in Hong Kong for the United States law firm Ropes & Gray, said global drug companies faced 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 lawyer based in Hong Kong for the United States law firm Ropes & Gray, said global drug companies faced 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.,” she 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. | 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 fake bookings of conferences and training sessions. | 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 fake 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. | 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.” | “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.” |