Sex, bribes and videotape: Clandestine video of GSK exec adds to China scandal

GlaxoSmithKline CEO Andrew Witty

Last year, as the GlaxoSmithKline ($GSK) bribery probe was heating up, a British P.I. and his wife appeared on Chinese television, wearing handcuffs and prison orange. Word was, their sleuthing firm, ChinaWhys, had been working for pharma companies. Their alleged crime: collecting private information on Chinese citizens.

Now, one ChinaWhys connection to GSK is clear. And it wasn't about collecting private information on locals. It was about finding the person who secretly made a sex video starring GSK's country chief, Mark Reilly, and his Chinese girlfriend--and emailed that video to top Glaxo officials, including CEO Andrew Witty.

The salacious behind-the-scenes details give new dimension to the corruption scandal that erupted in China last summer. Chinese authorities rounded up Glaxo employees and accused the company of running a $489 million bribery scheme to promote its products to doctors and hospital officials. The company's image took an obvious blow, but so did its sales, which immediately sank by 30% and have yet to fully recover.

Reilly is now facing Chinese prison time for his role in the alleged bribery scheme. And Glaxo's image is growing more tarnished, with allegations of corruption in 9 other countries and an official bribery probe by British officials.

When the sex video arrived in Witty's inbox last March, it came along with accusations that the company was paying kickbacks to doctors and hospitals for using Glaxo products. GSK saw the video as a "serious security breach," the Financial Times reports, and brought in ChinaWhys owners Peter Humphrey and his wife, Yu Yingzeng, to investigate. Code-named 'Project Scorpio', according to the Daily Mail, it focused on a former GSK employee, Vivien Shi, whose family is well-connected in China.

That was in April 2013. Humphrey and his wife were arrested by Chinese police in July, and Humphrey confessed on TV the next month. Meanwhile, some 43 Glaxo employees had been detained, and the company was deep into damage control--replacing Reilly as country chief, apologizing for probable "breaches" of the law and promising price cuts on its products.

Sunday, after The Times of London reported the sex-tape news, GSK released its latest statement on the bribery probe. "[T]he issues relating to our China business are very difficult and complicated," the statement said (as quoted by the FT).

The company says it's still "deeply" concerned about the bribery accusations and reiterated its "zero tolerance" for corruption. The company continues "to make fundamental changes" to its China business, it says.

"We have committed significant resources to find out what happened in China, including an independent legal review," the statement says, going on to add, "We are learning lessons from this situation and we are determined to take all actions necessary as a result."

Glaxo isn't the only drugmaker under investigation in China as the country cracks down on alleged corruption. State authorities have "visited" a host of multinational drugmakers. And this in a country drugmakers have been counting on for growth as mature markets stagnate. The Chinese government has also instituted new price controls on foreign brands. Some China-watchers figure officials are using the corruption crackdown to gain further price concessions.

- check out the Daily Mail piece
- read the FT story (sub. req.)

Special Reports: Top 10 drugmakers in emerging markets - GSK | Top 10 pharma companies by 2013 revenue - GSK

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