China probe: GSK’s local executives may face charges; steps against firm unlikely

Nov 05 2013, 02:35 IST
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Chinese police investigating allegations of widespread corrupt practices at GlaxoSmithKline Plc (GSK) are likely to charge some of its Chinese executives but not the British drugmaker itself, legal and industry sources said.

A charge against GSK itself would be a much more serious outcome for the company because it would imply higher-level corporate involvement and could result in major fines and even disruption to its operations in China.

Police are also unlikely to lay criminal charges against Briton Mark Reilly, GSK’s former head of China operations, the sources said. Reilly has been voluntarily assisting authorities following Chinese police accusations in July that GSK funnelled up to 3 billion yuan ($492 million) to travel agencies to facilitate bribes to doctors and officials to boost its drug sales. The alleged bribery took place over a six-year period from 2007.

The accusations are the most serious made against a multinational in China in years. GSK’s sales in China, one of its most important emerging markets, dived 61 per cent in the third quarter after hospital staff shunned visits by its sales teams in the wake of the probe. The investigation has coincided with stepped-up Chinese scrutiny of how foreign firms do business in the world’s second biggest economy, with the spotlight especially on graft and pricing in the pharmaceutical and infant milk formula markets.

The police investigation into GSK is likely to be concluded around the end of November or in December, said a person with direct knowledge of the probe.

The sources noted it was difficult to predict what Chinese authorities would ultimately do. But the most likely legal scenario was that they would charge Chinese GSK executives, said the person with direct knowledge of the investigation and two other sources familiar with the matter. The sources declined to be identified because of the sensitivity of the case.

The official Xinhua news agency in early September said the police investigation had found that the bribery of doctors was coordinated by GSK and was not solely the work of individual employees.

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