Reuters: GlaxoSmithKline likely to escape China charges, but execs probably won't

GlaxoSmithKline ($GSK) bigwigs can breathe a sigh of relief, if a tentative one. The company probably won't face corruption charges in China, Reuters sources say. But Glaxo's local executives probably will.

Mark Reilly, former head of GSK's China operations and a British citizen, could escape criminal charges as well, Reuters sources say. Reilly traveled back to China in July to help authorities with the investigation, which centers on up to $290 million in illicit payments funneled through travel agencies to Chinese doctors.

Chinese media previously reported that the company's China unit had masterminded the alleged bribery scheme, meant to persuade doctors and other providers to use more of GSK's drugs. The home office had set very ambitious growth goals for the office, and, feeling threatened, the locals turned to corruption, Xinhua suggested in September. Police sources said the China office deliberately foiled internal audits to keep their activities from raising red flags.

Escaping criminal charges would give Glaxo some relief in the China case, which has roiled its operations in China, depressing sales and sullying its reputation. Still, criminal charges for its executives would be a blow, especially given China's history of severe punishment in corruption cases. One official was actually executed for circumventing drug regulations.

Plus, Chinese authorities reportedly are considering "astronomical" fines against the company. Reuters sources say big fines are likely. The company will be allowed to continue operating in China, however, the news service says.

During an emergency trip to the country as the scandal mounted, GSK's emerging markets chief Abbas Hussain admitted "breaches" of Chinese law and apologized to government officials, offering price cuts into the bargain. Since then, some doctors and hospitals have barred pharma reps, including Glaxo's, and the company warned its China sales would suffer. Suffer they did: The company reported a 61% drop in sales there for the third quarter.

Glaxo CEO Andrew Witty has said that "certain senior executives" at GSK China acted "outside our processes and controls." He has also said that London headquarters knew nothing of the alleged fraud. During the third-quarter earnings call, he quashed any thought of Glaxo pulling out of China, saying the company is committed to the market.

- read the Reuters news

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