Glaxo used travel firms for bribery, says China

David Barboza

SHANGHAI: Earlier this year, 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.

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, which is also known as GSK, to sell its products for higher prices in China.

At a news conference in Beijing on Monday, 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, authorities said, travel companies eager to sign long-term deals with GSK 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.”

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.

On Monday, the government said four senior executives from GSK’s China offices were being detained, including the head of the drugmaker’s legal department, the head of business development and two vice presidents. The four held are all Chinese nationals, police said.

Mark Reilly, head of GSK’s operations in China, a British national, recently left the country, police said. The departure took place shortly after investigators raided the company’s offices.

“This is a very serious allegation, and the chief of China has left China,” Gao said.

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 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 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.”

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 Monday in Beijing, 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,” Gao said of GSK.

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.”