China calls GSK 'godfather' in alleged bribery scheme

Western drugmakers holding their breath, worried that they may be the next target for bribery in China, can't yet come up for air. Chinese law enforcement officials investigating GlaxoSmithKline ($GSK) for allegedly bribing docs to get business say that in the process, they have uncovered information on the same kinds of tactics used by other foreign drugmakers. They have not said if they will follow up on those leads.

Authorities and Chinese media today laid out charges against GSK of some of the same kinds of crimes that have led it and other drugmakers to huge marketing settlements in the U.S. Gao Feng, the head of the economic crimes investigation unit at the Ministry of Public Security, however, said police have evidence GSK is not the only company using these kinds of tactics to pump up sales. He would not identify the other companies explicitly or say whether they are under investigation, according to the Telegraph.

Gao and media instead described a 7-year scheme in which GSK allegedly funneled about $490 million to more than 700 travel agencies and consultants as part of a plan to sell more drugs. Gao said GSK executives played the "godfather," allegedly using bribes to get more business and also receiving financial and "sexual" kickbacks to give business to middlemen.

The company, which had been saying an internal investigation could find no evidence of corruption, today said that it severed business relations with the travel agencies named by Chinese authorities. "GSK shares the desire of the Chinese authorities to root out corruption. These allegations are shameful and we regret this has occurred," GSK said.

While the travel agencies were also allegedly paying bribes, and in some cases offering sexual favors, to get in on the action, Gao said he wanted to make clear that GSK was at the center of the alleged enterprise. "It is like a criminal organization, there is always a boss. In this game, GSK is the godfather." Gao pointed out that GSK has been investigated for bribery allegations in other countries. "From our investigation, bribery is part of the strategy of this company. This is why they have bribery activities in China," he said.

The probe, which police said was set off by a disgruntled executive, comes about a year after GSK agreed to the largest healthcare fraud settlement in U.S. history. In that deal, the company paid an unprecedented $3 billion to wrap up wide-ranging civil and criminal probes. That settlement topped Pfizer's ($PFE) $2.3 billion deal from 2009.

According to the Telegraph, in the alleged scheme in China, middlemen created phony corporate meetings that GSK employees could turn in for expenses. The employees would then use their reimbursements to bribe doctors. Citing Chinese media reports, the Telegraph said that doctors received their own credit card from GSK and would get a payment the day after they prescribed GSK drugs.

Authorities also identified four Chinese GSK executives who have been arrested, the Telegraph reported. They are Liang Hong, vice president and operations manager; Zhang Guowei, vice president and human resources director; Zhao Hongyan, legal affairs director, and Huang Hong, business development manager. The newspaper previously said as many as 30 GSK employees have been rounded up in the investigation.

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