Four GSK China executives held in criminal investigation

China detained four senior GlaxoSmithKline Plc executives on suspicion of economic crimes involving 3 billion yuan ($489 million) of spurious travel and meeting expenses, and receiving sexual favours.

The alleged offences date to 2007 and involved 700 travel agencies, Gao Feng, head of the economic crimes investigations unit of the Public Security Ministry, said at a briefing in Beijing on Monday. The executives are Chinese nationals, the Xinhua News Agency said. Glaxo is "deeply concerned and disappointed" and will stop using agencies identified in the probe, the company said in a statement.

The Glaxo case is the most high-profile probe into a foreign company in China since four Rio Tinto Plc executives pleaded guilty in 2010 to receiving 92 million yuan in bribes. The probe into London-based Glaxo is part of a broader effort to clean up China's drug industry, the People's Daily, the mouthpiece of the ruling Communist Party, reported on Monday, citing an unidentified ministry official.

"There is always a big boss in criminal organisations and in this case GSK is the big boss," Gao told reporters. Audio from the briefing was uploaded online by a correspondent for the Daily Telegraph. "In order to win the favor of GSK, some travel agencies don't just offer money to their executives, but also sexual bribes."

'Sufficient evidence'
The Glaxo investigation was announced June 28 when police in Changsha city, in central China, said senior executives were being probed on suspicion of economic crimes. The ministry has been handling the Glaxo case for more than half a year following police investigations, Gao said.

"We have sufficient evidence to suspect these funds involved illegal activities," he said.

The ministry also found clues of money transfers involving other foreign drugmakers, Gao said, without identifying them.

The detained executives are Liang Hong, vice-president and operations manager of Glaxo China; Zhang Guowei, a human resources director; Zhao Hongyan, a legal affairs director; and Huang Hong, a business development manager, Xinhua reported.

The crackdown aims to frighten companies into spurning bribery and focusing solely on research and on producing cheaper and better drugs, it said.

Glaxo rose 0.1 per cent to 1,751 pence at 2:30 pm in London trading.

No proof
Some Glaxo executives admitted to corruption after Chinese authorities found evidence of serious commercial bribery and tax-related crimes, the Public Security Ministry said on its website on July 11, without identifying the individuals.

They are suspected of trying to increase sales channels and inflate prices by using avenues such as travel agencies to bribe government officials, medical associations, hospitals and doctors, and faking tax receipts, the ministry said on its website on Monday.

Glaxo, the UK's biggest drugmaker, has repeatedly said it has found no evidence of bribery or corruption in China, most recently on July 11, in response to the ministry's comments.

"We are deeply concerned and disappointed by these serious allegations of fraudulent behaviour and ethical misconduct by certain individuals at the company and third-party agencies," Glaxo said in an emailed statement on Monday. "Such behaviour would be a clear breach of GSK's systems, governance procedures, values and standards. GSK has zero tolerance for any behaviour of this nature."

Reviewing relationships
Glaxo will cooperate with the investigation, it said. The company is reviewing all third-party agency relationships and reviewing all transactions with travel agencies, Glaxo said.

Executives in China worked with Shanghai-based Linjiang International Travel Agency to falsely inflate budgets meant for organising meetings and training in return for cash that could be used for bribes, according to the People's Daily report.

The newspaper also cited interviews with local police in Changsha city and suspects in the case.

The newspaper report cited one of the detained Glaxo executives describing how he listed some meetings as having more attendees than were present to increase his allowance.

Some meetings for which he obtained funds never took place, the report said.