Last updated: July 11, 2013 7:49 pm

China accuses GlaxoSmithKline of bribing officials over prices

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An employee of British drug firm GlaxoSmithKline (GSK) enters their office headquarters in Shanghai on July 1, 2013. Chinese police are investigating senior management staff GlaxoSmithKline in China for suspected 'economic crimes', according to a statement which was reported by state media.©Getty

China has accused GlaxoSmithKline of being at the centre of a “huge” scheme to raise drug prices in three of the country’s biggest cities and said the UK-based drugmaker’s staff had confessed to bribing government officials and doctors.

China’s Ministry of Public Security said a probe in Changsha, Shanghai and Zhengzhou found that GSK had tried to generate sales and raise drug prices by bribing government officials, pharmaceutical industry associations and foundations, hospitals and doctors.

“Following initial questioning, the suspects have confessed,” the ministry said, adding that the investigation was still in progress. It did not state the number of suspects or their positions in the company.

“There are many suspects, the illegal behaviour continued over a long time and its scale is huge,” the ministry said. The probe had only previously been reported on a microblogging site that referred to Changsha, a provincial capital in central China.

Company staff had issued fake VAT receipts and used travel agents to issue fake documents to gain cash, according to the ministry. Some executives had also taken advantage of their positions to take kickbacks from organising conferences and projects, it said.

GSK, which with other multinationals is under investigation in a separate probe into drug pricing in China, said Thursday’s ministry statement was the first formal communication it had received from the authorities detailing the allegations. The company said it was willing to co-operate with the authorities.

“We continuously monitor our businesses to ensure they meet our strict compliance procedures – we have done this in China and found no evidence of bribery or corruption of doctors or government officials. However, if evidence of such activity is provided we will act swiftly on it,” the company said.

GSK said it had conducted an internal four-month investigation after a tip-off that staff had bribed doctors to issue prescriptions for its drugs. The internal inquiry found no evidence of wrongdoing, it said.

Neither GSK’s general manager nor any expatriates had been detained or questioned, said a person familiar with the investigation. However, the UK Foreign Office said consular assistance was being provided to a British national in relation to the investigation over an incident in Shanghai on June 27.

The allegations, if proved, could make the company vulnerable to enforcement action by the UK’s Serious Fraud Office and the US Department of Justice, both of which can levy heavy penalties under their sweeping anti-bribery laws if they find evidence of wrongdoing.

GSK said it was regularly in touch with the SFO and other authorities on various matters, but declined to say if it had had any communication in relation to the Chinese investigation.

Last month GSK dismissed its top researcher in China following claims of fraud in a scientific paper.

China last year accounted for less than 3 per cent of GSK’s global sales, but the company has invested heavily in the country, including opening a research and development facility and manufacturing sites in addition to its commercial operations.

GSK’s shares, which have risen by a fifth in the last year, closed down 0.6 per cent at £17.43.

Jo Walton, pharmaceuticals analyst at Credit Suisse, said the immediate effect on the company was unlikely to be very significant, but the accusations could not be ignored.

“Emerging markets are seen as important for future growth and the China market is going to be one of the biggest markets in the world, and you have to grow in line with the market,” she said.

Additional reporting by Caroline Binham and Andrew Jack in London, Zhao Tianqi in Beijing and Kara Scannell in New York

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