China detains four senior GSK employees over bribery

Chinese police have detained four senior executives of British drug giant GlaxoSmithKline (GSK) over suspicion of bribing Chinese officials, doctors and others to prescribe its medicines and arbitrarily raising drug prices in the country.

The executives include Liang Hong, vice president and operation manager of GSK (China) Investment Co, director and vice president of human resources Zhang Guowei, director of legal affairs Zhao Hongyan and business development manager Huang Hong.

At a press conference in Beijing today, Gao Feng, head of the economic crimes cell at the Public Security Ministry, said the alleged offences date back to 2007 and involve GSK China's Chinese employees paying a total of $489 million as bribes routed through 700 travel agencies.

According to a report in People's Daily today, the investigation into GSK is part of China's larger plan of cleaning up its drug industry.

''There is always a gang leader in criminal organizations, and in this case GSK is the big boss ……. In order to win the favor of GSK, some travel agencies not only offered money to their GSK executives, but were also offered "sex bribes" to maintain business with the companies, Gao said in the briefing, an audio of which was uploaded online by a Daily Telegraph correspondent.

China's ministry of Public Security had last week said in the statement on its website that employees of GSK in China have confessed to bribing doctors, hospitals, government officials and others to prescribe its medicine in order to increase drug sales.

The ministry also suspects GSK of tax fraud, while in a separate case, Chinese regulators are probing GSK and other pharmaceutical companies over forming a cartel to fix prices.

The four employees are alleged to have offered 20 per cent to 30 per cent of drug prices through travel agencies as bribes to doctors, hospitals, government officials, medical industry associations and foundations, in order to raise prices and prescribe the company drugs.

Xinhua reported that it spoke to one of the suspects, Liang, who said that since drug prices are controlled by the government, by paying bribes a drug costing only 30 yuan could be priced at 300 yuan.

GSK executives had an understanding with Shanghai-based Linjiang International Travel Agency, which regularly inflated bills for organising GSK meetings and training in return for cash that would later be used for bribes.

China is one of the fastest-growing markets for GSK, which has major manufacturing and research facilities employing around 5,000 people in the country. The company's China sales were up 17 per cent in 2012 at $1.2 billion compared to the previous year.

Probe into GSK and other drugmakers is the latest instance of growing cases of bribery and corruption charges on multinational corporations in China.

This is the second Chinese investigation into price fixing by foreign entities that has surfaced last week.

China's National Development and Reforms Commission (NDRC), the country's economic planning agency, has also launched a probe into five foreign companies including Swiss nutrition giant Nestle, France's Danone Dumex, Abbott Laboratories and Mead Johnson Nutrition Co of the US and Dutch cooperative FrieslandCampina for allegedly violating competition laws by manipulating the prices of baby milk products.

In response, Nestle, Abbott and Danone cut prices of some of their infant milk formula products.

Many consumers are buying more expensive foreign infant milk formula because of their concerns over the quality of Chinese products after the baby-milk related scandals that occurred in 2004 and 2008 and also subsequent revelations of high levels of toxic contents in milk products.