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China accuses Glaxo of bribery operation

A Chinese national flag flutters in front of a GlaxoSmithKline (GSK) office building in Shanghai.

Aly Song /REUTERS

A Chinese national flag flutters in front of a GlaxoSmithKline (GSK) office building in Shanghai.

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.

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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 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 the drug maker hired young women to engage in “sexual bribery” with GlaxoSmithKline 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 company executives had confessed to engaging in bribery and tax fraud.

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The possible punishments or fines for the drug maker 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 GlaxoSmithKline’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, police said.

Mark Reilly, head of GlaxoSmithKline’s operations in China and 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 the drug maker, 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, GlaxoSmithKline 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.

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