Glaxo faces investigation into alleged corruption in China

Executives 'confessed' to offering bribes to officials to raise the price of medicines

Senior executives at Britain's biggest drug maker, GlaxoSmithKline, are facing a criminal investigation in China for allegedly bribing officials as the company stands accused of being at the centre of a "huge" scheme to raise drug prices in the country.

The Ministry of Public Security claimed the executives had confessed, under interrogation by Chinese officials, to handing government workers and hospital personnel cash and perks for prescribing medications.

It said an investigation in three of the country's biggest cities, Shanghai, Changsha and Zhengzhou, had found that GSK tried to increase medicine prices by bribing doctors, hospitals, government officials and pharmaceutical industry associations.

The ministry said GSK executives had admitted to paying and accepting bribes via conference rebates and project fees. "After initial questioning, the suspects have admitted to the crimes and the investigation is ongoing," it said.

The claims could be a major blow for the FTSE 100 drugs giant, which has been pushing its Chinese business for major growth as key medicines fall out of patent in the West. Glaxo earned £875m from China in 2012, and has five manufacturing plants in the country, employing 5,000.

A spokesman for GSK said the public statement was the first it had heard of the allegations. He added that the company was "willing to co-operate with the authorities in this inquiry".

He said: "We take all allegations of bribery and corruption seriously. 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."

GSK has faced heavy scrutiny of its work in China on several fronts this week. Officials in Beijing are investigating potential price-fixing by GSK and other drug makers, including its rivals Merck, Novartis and Baxter.

They faced claims that its staff used improper tactics to market Botox in China. GSK said it had found "no evidence to support allegations" that staff handed doctors cash and other kickbacks for prescribing Botox.

'Gifts' that carry risks

On a trip to Hong Kong last year, I had dinner with a bunch of high-flying legal expats who told me how business is done across China.

How to accept a business card (two hands, look very excited), the imperativeness of small talk – and the huge importance of gifts. "They're part of how we do business," I was told.

Nowhere are those gifts more important in China than in its healthcare system, where doctors' low salaries are topped up by payments from patients and bribes from equipment-makers and drug suppliers. There are big prizes for cracking China – which drug makers need as Western markets flatten – but major risks too.

Just ask the Australian citizen Stern Hu and the other ex-Rio Tinto employees currently languishing in Chinese prisons after being charged with taking bribes. Hu was sentenced to a decade in a shared cell, sleeping on communal wooden boards.

Lucy Tobin

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