The bribery and tax-evasion scandal unfolding in China has enveloped at least 30 GlaxoSmithKline employees, including as many as six executives who are under house arrest, according to The Telegraph. Among them is the drugmaker's legal counsel in China and one UK national, although Reuters reports no UK nationals have been detained.
The details are emerging one day after China's Ministry of Public Security issued a statement accusing Glaxo of involvement in a "huge" scheme and 'serious economic crimes' to raise drug prices by bribing doctors and government officials in three cities - Changsha, Shanghai and Zhengzhou. The Telegraph adds that Glaxo offices in the central city of Chongqing were also raided by the police. The drugmaker is also suspected of being involved in a form of tax evasion, by falsely issuing exclusive value-added tax invoices and colluding with travel agencies to issue false invoices for 'project sponsorships' (back story).
The drama has quickly reached crisis proportions for Glaxo, which reportedly hired Jun He, one of the leading law firms in Beijing. Although the pharmaceutical industry in China widely known for corruption - doctors, for insance, are paid much lower wages than their counterparts in the West - the episode underscores the challenges global drugmakers faces as they attempt to expand operations at a time when the government has made noise about cracking down on corruption and also investing heavily in its domestic industry.
The allegations against Glaxo (GSK) first raised early last year when an internal whistleblower provided several information to the State Administration for Industry and Commerce, The Telegraph writes. As reported previously, the drugmaker began its own probe and continues to maintain there has been no evidence of wrongdoing. As part of its effort, Glaxo held a meeting with some 20 mid and high-level execs in China last summer, during which one participant claimed that senior managers promised to root out the whistleblower, the paper adds.
Internally, suspicion fell on Vivian Shi, the Glaxo head of government affairs, who reported to John Lepore, the former Glaxo vp in China. However, he left China in October 2012 and then left Glaxo in April for a job at Reed Elsevier, the Telegraph continues, adding that he could not be reached for comment and there was no indication that he has been involved in the ruckus. Shi, meanwhile, left Glaxo last Decemer. Yesterday, she denied being the whistleblower and insisted she had no access to the information that had been submitted to authorities.
As we have noted before, Glaxo operations in China have been a mess. Last month, the drugmaker determined a scientific paper that was published in Nature Medicine contained fabricated data and dismissed Jingwu Zang, one of the listed authors, who was a senior vp and head of R&D in Shanghai. The drugmaker is also seeking a retraaction, and three other employees were placed on administrative leave pending a final review and a fifth has resigned (back story).
STORY ENDS HERE
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