China is coming down hard on GlaxoSmithKline's ($GSK) local operation. After a months-long bribery probe, Chinese police have charged Glaxo's former country chief and two other top execs with several counts of bribery. All could face life in prison.
Mark Reilly, who headed up the China office when the initial bribery allegations emerged, is accused of masterminding an elaborate scheme to bribe doctors to prescribe GSK products. According to police, Reilly created a "massive bribery network" that funneled secret payments to doctors, hospital staffers and government officials, the London Evening Standard reports.
Two other executives, Zhang Guowei and Zhao Hongyan, are also suspected of bribing provincial officials in Beijing and Shanghai, according to the Xinhua news service, which cited Hunan province police. Officials say a total of 46 people were implicated in the Glaxo case.
The charges are much harsher than industry executives and Chinese insiders had expected. And the potential penalties are equally harsh. The maximum sentence for a bribery charge in China is life in prison.
"It is an extremely serious accusation that they are making here," a lawyer close to the case told the Financial Times. "They are looking at corporate liability. Mark has really been singled out as being responsible for creating a corrupt organization."
When the first corruption allegations emerged last July, Reilly was in the U.K. working at headquarters, but he returned to cooperate with police. Company execs said at the time that they believed the alleged corruption only involved top Chinese staffers, not Reilly. Nonetheless, GSK brought in Hervé Gisserot to replace him at the helm in China.
Now, Glaxo says it's in communication with the Chinese Ministry of Public Security about the charges. "We take the allegations that have been raised very seriously," a spokesman told the Evening Standard, adding that they are "contrary" to the company's values. The British consulate in Shanghai is reportedly helping Reilly with his case.
Other Glaxo comments suggested that it's afraid China will bar the company from the country. The company certainly could be forced to pay fines and disgorge profits tainted by corruption, the FT reports. Officials said the bribery generated "illegal revenue worth billions of renminbi"; 1 billion is worth about $160 million.
"We want to reach a resolution that will enable the company to continue to make an important contribution to the health and welfare of China and its citizens," the GSK spokesman told the Evening Standard.
Corruption allegations against Glaxo have spread since the China scandal broke. The company is investigating potential bribery in 9 Middle Eastern countries, plus Poland.
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