An executive at the British drugs company GlaxoSmithKline has been accused of running a “massive bribery network” in China in which hospital staff were paid to use the firm’s medical products and boost sales.
Mark Reilly has been charged with bribery and fraud for allegedly instructing his subordinates to pay off health officials, forcing up drug prices and generating illegal sales for Glaxo worth more than £89 million.
Police claim secret payments were made to doctors, hospital staff and government officials. The scale of the charges, following a 10-month investigation, will come as a blow to David Cameron who lobbied on behalf of Glaxo when he visited China in December.
The Prime Minister mounted a staunch defence of the company’s record, saying at the time: “They are a very important, very decent and strong British business that is a long-term investor in China.”
Mr Reilly stepped down as head of China for Glaxo last July and briefly left the country but returned there late last year. It is not clear if he has been detained since, but British embassy officials said they were in regular contact with him.
Two Chinese executives, Zhang Guowei and Zhao Hongyan, were also accused of bribing officials in the industry and commerce departments of Beijing and Shanghai, the official Xinhua news agency reported, quoting police in Hunan province.
At a news conference in Beijing, police said the cost of the drugs sold by GSK in China was far higher than that of similar drugs sold by the company in other countries.
“The more drugs they sold, the more bribes they gave,” said Gao Feng, head of the economic crimes investigations unit at the Public Security Ministry. “The more bribes they gave, the higher the drug price was. GlaxoSmithKline’s behaviour demonstrates a complete chain of bribery.”
Police added that the company’s headquarters had been “very responsible” and had given them its “full support”, but claimed that its Chinese operation had tried to organise another round of bribes to obstruct their investigation.
The charges – which carry a maximum sentence of life in prison in the case of bribery – were seen as harsher than many industry insiders and China-based foreign executives had expected.
Glaxo said it had seen an official at the Chinese Ministry of Public Security yesterday. A spokesman said: “We take the allegations that have been raised very seriously. They are deeply concerning to us and contrary to the values of GlaxoSmithKline. We will continue to fully co-operate with the authorities in this matter.
“We want to reach a resolution that will enable the company to continue to make an important contribution to the health and welfare of China and its citizens.”
Chinese officials said 46 people were implicated in the case which was launched last June.
Kenneth Jarrett, president of the American Chamber of Commerce in Shanghai, said he was surprised at the “strong response” from the police.
“I would agree that it’s not what I would have expected because it seemed like Glaxo were co-operating very closely with the authorities,” he said. “I don’t think that anyone had been lulled back into complacency, but if anybody had this will wake them up.”
Under Mr Reilly, Glaxo’s revenues in China have soared from 3.9 billion yuan in 2009 to 6.9 billion, according to Xinhua.
Glaxo’s could face prosecution in both the UK under the Bribery Act and the US under the Foreign Corrupt Practices Act if the allegations are proved. It is illegal for companies based in either country to bribe government employees abroad.
The case is the biggest bribery affair involving a foreign company in China since Rio Tinto saw four executives, including an Australian, jailed for between seven and 15 years in 2009.