Sex, bribes and videotapes see GlaxoSmithKlein ex-boss Mark Reilly deported

Judgment takes City by surprise because the trial was held in secret and its date had not been made public in advance

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Britain’s biggest drug maker, GlaxoSmithKline, was on Friday fined £297m by a Chinese court for bribing officials, while its top executive in the country, the subject of an infamous sex tape, faces deportation

The rulings follow a year-long investigation by Chinese officials into GSK’s activities in the country, where it was accused of funnelling up to 3bn yuan (£297m) in cash, as well as offering gifts including prostitutes, to doctors and other officials to boost sales of its products.

Now a court in Hunan province has ruled that GSK was guilty of “offering money or property to non-government personnel in order to obtain improper commercial gains”.

GSK was ordered to pay the £297m fine – the largest the Chinese Government has ever handed out. It published an apology to “the Chinese government and the Chinese people” on its website, saying it had “reflected deeply and learned from its mistakes”.

GSK’s China boss, Mark Reilly was given a three-year suspended prison sentence with a four-year probation period. He is to be deported from the country, although the drug maker said he remained in the country as he waited to hear if he had to spend his probation period in China.

Mr Reilly and his Chinese girlfriend featured in a sex tape that was emailed to several senior executives of the drug maker last March. GSK then hired Peter Humphrey, a British investigator based in China, to look into the origin of the video. Mr Humphrey was jailed for two and a half years in August for illegally acquiring the personal information of citizens.

Four other Chinese nationals who worked for GSK were today handed suspended sentences of between two and four years.

The court’s judgment took City analysts by surprise because the trial – which took a day – was held in secret and its date had not been made public in advance by the Chinese authorities.

The chief executive Sir Andrew Witty maintained the drug maker would keep working in China, where sales fell 60 per cent in the wake of the inquiry.

“Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK,” he said. “We have and will continue to learn from this. GSK has been in China for close to a hundred years and we remain fully committed to the country and its people. “

The company said its “illegal activities” were “a clear breach of GSK’s governance and compliance procedures” and that it has overhauled its incentive programme for its sales forces in the country – divorcing sales targets from pay, and cutting back on activities with doctors and hospital workers.

Xinhua, the official Chinese news agency, which reflects the Government’s opinion, said: “If GSK China can learn a profound lesson and carry out its business according to the rule of law, then it can once again win the trust of China’s government and people.”

The fine, which was lower than analysts had expected, will be paid from the drug giant’s existing cash reserves. Its shares rose 12.5p to 1,449p yesterday.

However, it is still investigating other allegations that it paid incentives to secure sales of its products such as Panadol painkillers in countries including Syria, Poland, Iraq, Jordan and Lebanon.

US authorities are investigating whether it breached the Foreign Corrupt Practices Act, while the UK’s Serious Fraud Office (SFO) launched a formal criminal investigation into its overseas practices in May.

“The SFO criminal investigation into the commercial practices of GlaxoSmithKline and its subsidiaries continues,” a spokeswoman at the SFO told Reuters in an email yesterday.

GSK has said it has fundamentally changed the incentive scheme for its sales force, and increased the monitoring of invoicing and payments.