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| Former Head of Glaxo in China Is Accused of Bribery | Former Head of Glaxo in China Is Accused of Bribery |
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| SHANGHAI — Chinese authorities sent a strong warning to the pharmaceutical industry on Wednesday, implicating a top Western executive at GlaxoSmithKline in a long-running bribery scheme. | SHANGHAI — Chinese authorities sent a strong warning to the pharmaceutical industry on Wednesday, implicating a top Western executive at GlaxoSmithKline in a long-running bribery scheme. |
| While major pharmaceuticals have faced increased scrutiny of their marketing practices from governments around the world, China’s actions go significantly further by singling out a foreign national, a move that could potentially prompt drug companies to rethink their strategy in the fast-growing market. | While major pharmaceuticals have faced increased scrutiny of their marketing practices from governments around the world, China’s actions go significantly further by singling out a foreign national, a move that could potentially prompt drug companies to rethink their strategy in the fast-growing market. |
| On Wednesday, Chinese police accused Mark Reilly, the former head of Glaxo’s China operations, of ordering his subordinates to form a “massive bribery network” that resulted in higher drug prices and illegal revenue of more than $150 million. As part of that scheme, Mr. Reilly, a Briton, and two Chinese-born Glaxo executives, Zhang Guowei and Zhao Hongyan, had even arranged to bribe government officials in Beijing and Shanghai, authorities said at a news conference in Beijing. | On Wednesday, Chinese police accused Mark Reilly, the former head of Glaxo’s China operations, of ordering his subordinates to form a “massive bribery network” that resulted in higher drug prices and illegal revenue of more than $150 million. As part of that scheme, Mr. Reilly, a Briton, and two Chinese-born Glaxo executives, Zhang Guowei and Zhao Hongyan, had even arranged to bribe government officials in Beijing and Shanghai, authorities said at a news conference in Beijing. |
| Such accusations are an escalation in the case and increase the pressure on Glaxo and other industry players in China. Major American and European drug makers have spent the last several years bolstering their presence in the country, hiring sales agents and opening research centers in the hope of gaining a foothold in what many think will soon be the world’s second-largest pharmaceutical market, ahead of Japan and behind the United States. | Such accusations are an escalation in the case and increase the pressure on Glaxo and other industry players in China. Major American and European drug makers have spent the last several years bolstering their presence in the country, hiring sales agents and opening research centers in the hope of gaining a foothold in what many think will soon be the world’s second-largest pharmaceutical market, ahead of Japan and behind the United States. |
| But as foreign drug companies have rushed to gain market share, Beijing has increasingly pressed multinational companies on their pricing strategies. Authorities have accused Glaxo executives of inflating drug prices in the Chinese market, making them as much as seven times as expensive as other countries. | But as foreign drug companies have rushed to gain market share, Beijing has increasingly pressed multinational companies on their pricing strategies. Authorities have accused Glaxo executives of inflating drug prices in the Chinese market, making them as much as seven times as expensive as other countries. |
| The new charges against Mr. Reilly appear to challenge Glaxo’s previous statements that the employees involved in the scheme were “outside of our systems of controls.” It also said repeatedly that the scandal involved just a handful of rogue Chinese-born employees. Chinese authorities now seem to be implying that the problems may have been more widespread. | The new charges against Mr. Reilly appear to challenge Glaxo’s previous statements that the employees involved in the scheme were “outside of our systems of controls.” It also said repeatedly that the scandal involved just a handful of rogue Chinese-born employees. Chinese authorities now seem to be implying that the problems may have been more widespread. |
| Mr. Reilly, 52, has worked at Glaxo since 1989, holding several finance positions before moving to Shanghai in 2009. Mr. Reilly left China after the investigation got underway last summer, but then returned to assist in the company’s own inquiry. Glaxo hired the law firm Ropes & Gray to conduct the inquiry, which is continuing. | Mr. Reilly, 52, has worked at Glaxo since 1989, holding several finance positions before moving to Shanghai in 2009. Mr. Reilly left China after the investigation got underway last summer, but then returned to assist in the company’s own inquiry. Glaxo hired the law firm Ropes & Gray to conduct the inquiry, which is continuing. |
| A spokesman for Glaxo said that Mr. Reilly was still employed by the company and that he was in China, but had not been detained by authorities. The two Chinese executives — Mr. Zhang, the company’s human resources director, and Mr. Zhao, the head of the legal affairs department — are being held in China and are expected to face prosecution. | A spokesman for Glaxo said that Mr. Reilly was still employed by the company and that he was in China, but had not been detained by authorities. The two Chinese executives — Mr. Zhang, the company’s human resources director, and Mr. Zhao, the head of the legal affairs department — are being held in China and are expected to face prosecution. |
| In a statement, Glaxo said it was cooperating with the investigation and had been updated Wednesday on the case by China’s Ministry of Public Security. “We take the allegations that have been raised very seriously,” the statement reads. “They are deeply concerning to us and contrary to the values of GSK.” | In a statement, Glaxo said it was cooperating with the investigation and had been updated Wednesday on the case by China’s Ministry of Public Security. “We take the allegations that have been raised very seriously,” the statement reads. “They are deeply concerning to us and contrary to the values of GSK.” |
| Although bribery is common in China, it is rare for foreign-born executives from multinational companies to be prosecuted. In 2009, a Chinese-born Australian executive at the British-Australian mining giant Rio Tinto was arrested in a bribery and money-laundering case. | Although bribery is common in China, it is rare for foreign-born executives from multinational companies to be prosecuted. In 2009, a Chinese-born Australian executive at the British-Australian mining giant Rio Tinto was arrested in a bribery and money-laundering case. |
| Some said the accusations against Mr. Reilly might cause some companies to rethink their investment in the country. | Some said the accusations against Mr. Reilly might cause some companies to rethink their investment in the country. |
| “It may be that there’s no middle ground, and that’s going to cause people to hesitate,” said Michael Li-Ming Wong, a partner at Gibson, Dunn & Crutcher who specializes in white-collar crime and has experience in overseas corruption investigations. The legal landscape in countries like the United States, he said, is better understood. But multinationals may find it more difficult to navigate the Chinese government. “It’s very different to be subjected to a different country’s laws, especially a country that is just not known for the rule of law, and protection of individual rights,” Mr. Wong said. | “It may be that there’s no middle ground, and that’s going to cause people to hesitate,” said Michael Li-Ming Wong, a partner at Gibson, Dunn & Crutcher who specializes in white-collar crime and has experience in overseas corruption investigations. The legal landscape in countries like the United States, he said, is better understood. But multinationals may find it more difficult to navigate the Chinese government. “It’s very different to be subjected to a different country’s laws, especially a country that is just not known for the rule of law, and protection of individual rights,” Mr. Wong said. |
| The case, which was first uncovered by the police in June, has dealt a devastating blow to Glaxo’s fast-growing business in China and has shaken up other global drug makers operating here. Many were using the same small Shanghai travel agency that the authorities said specialized in altering corporate travel expenses to pay cash bribes to doctors, hospital staff and government employees. Authorities say that 46 people have been implicated in the case. | The case, which was first uncovered by the police in June, has dealt a devastating blow to Glaxo’s fast-growing business in China and has shaken up other global drug makers operating here. Many were using the same small Shanghai travel agency that the authorities said specialized in altering corporate travel expenses to pay cash bribes to doctors, hospital staff and government employees. Authorities say that 46 people have been implicated in the case. |
| When the case broke, many pharmaceutical executives complained privately that it was part of a Chinese government effort to control drug prices in China and punish highly profitable multinational companies. The authorities, though, have said that the big drug companies have done similar things in other countries and that the case involved extensive fraud against consumers. | When the case broke, many pharmaceutical executives complained privately that it was part of a Chinese government effort to control drug prices in China and punish highly profitable multinational companies. The authorities, though, have said that the big drug companies have done similar things in other countries and that the case involved extensive fraud against consumers. |
| Authorities in China said last summer that several of the Chinese executives had confessed to “economic crimes.” The police had also shut down the Shanghai Linjiang International Travel Agency for its role in what they called a kickback and money-laundering scheme. Documents reviewed by The New York Times showed that at least six other global pharmaceutical companies had used the same small travel agency, though it was unclear whether any wrongdoing had taken place. | |
| In the months since the case was first announced, Glaxo has moved to repair its image. The company said in December that it would stop paying doctors to promote its products, and that it would stop providing financial support directly to doctors to attend medical conferences, a practice that is prohibited in the United States through an industry-imposed ethics code, but that still occurs in other countries. | In the months since the case was first announced, Glaxo has moved to repair its image. The company said in December that it would stop paying doctors to promote its products, and that it would stop providing financial support directly to doctors to attend medical conferences, a practice that is prohibited in the United States through an industry-imposed ethics code, but that still occurs in other countries. |
| On Wednesday, the police said its 10-month investigation had found that under Mr. Reilly, Glaxo had pushed its staff to meet aggressive sales targets and that the company had conducted “false transactions” through its financial department to transfer “illegal gains” made in China to overseas companies. The authorities also said Mr. Reilly and other senior executives at Glaxo had bribed officials to stop investigations of wrongdoing at the company. | On Wednesday, the police said its 10-month investigation had found that under Mr. Reilly, Glaxo had pushed its staff to meet aggressive sales targets and that the company had conducted “false transactions” through its financial department to transfer “illegal gains” made in China to overseas companies. The authorities also said Mr. Reilly and other senior executives at Glaxo had bribed officials to stop investigations of wrongdoing at the company. |
| Glaxo said it hoped to reach a resolution with the Chinese government “that will enable the company to continue to make an important contribution to the health and welfare of China and its citizens.” | Glaxo said it hoped to reach a resolution with the Chinese government “that will enable the company to continue to make an important contribution to the health and welfare of China and its citizens.” |