As the United Kingdom government prepares for a trade mission visiting China to woo the country’s investors to trade with Britain, a controversy involving a British company threatens to destabilise relations between the U.K. and China, overshadowing the upcoming visit. The international pharmaceutical giant GlaxoSmithKline (GSK) is currently under investigation by the Chinese government over alleged accusations that it behaved like a ‘criminal godfather’ in an expansive network of bribes and kickbacks.
The British Prime Minister David Cameron has stepped into the debacle by inviting the GSK chief executive officer Andrew Witty to join his delegation on the trade mission to the People’s Republic. Cameron’s invitation to Witty has raised concerns in some quarters that relations between Britain and China could degenerate if Witty participates in the mission, according to an article published today by the Huffington Post blog and news magazine.
The offices of GSK in Brentford, Middlesex, UK. One of the company’s main management offices in Britain.
GSK’s Chinese division, which employs a workforce of around 7,000, was placed under investigation in July 2013 over allegations that it behaved as a Mafia godfather, using its prominence in the Chinese drugs market to act as the ringleader of a nationwide medicines bribery network. The manufacturer is accused of channelling up to 3 billion yuan (£303 million) to several doctors, hospitals and clinics to boost its drug sales and rig the country’s pharma market in its favour. The bribery operations are believed to have run since 2007.
In an investigation lasting six months, Chinese police uncovered 700 middlemen who operated via GSK and transferred funds to hospitals and medical staff to encourage them to only prescribe GSK’s drugs to patients. The money was funnelled through a series of bogus travel agencies and consultancies, according to Chinese investigators. Middlemen would bribe senior GSK executives with favours, including alleged ‘sexual kickbacks’ and cash bribes, to win trading privileges. Doctors involved in the bribery network would be issued with special credit cards tied to GSK business accounts. The doctors would then collect financial incentives to prescribe GSK drugs rather than generics or products of rival manufacturers. One travel agency suspected by police to have links to the GSK bribery network never sold any airline tickets or holiday packages but still had a turnover of tens of millions of yuan. One Chinese newspaper claimed that the agencies would set up fictitious corporate meetings that required staff travel. The budgets for these meetings that were officially meant to go on staff travel expenses were taken off-book and used to line corrupt medical professionals’ pockets.
Four senior Chinese members of GSK’s staff have already been detained and the head of Chinese operations for GSK’s headquarters in the UK has left the country and not returned, according to The Telegraph newspaper. GSK has also been investigated over tax irregularities concerning its drug sales.
Gao Feng, head of the economic crimes investigation unit at the Ministry of Public Security, has expressed publicly the controversial belief among Chinese lawmakers that bribery is an ingrained part of GSK’s business dealings. Feng said in July: “From our investigation, bribery is part of the strategy of this company. This is why they have bribery activities in China.“
“They used travel agents as a money platform. But I must make it clear that among these partners, GSK is the main party responsible. It is like a criminal organisation, there is always a boss. In this game, GSK is the godfather.“
The investigators also claim that requests for information from GSK’s British headquarters have met with no response. Feng also stated then that similar bribery networks set up by other international pharmaceutical firms operating in China could also be uncovered by the police and ministerial investigation. Chinese patients have to pay up to 300 yuan for tablets that cost only 30 yuan to manufacture.
Andrew Witty is not only CEO of GlaxoSmithKline but also a business confidante of the British prime minister. He serves as a member of Cameron’s business advisory group. In response to the Chinese probe into his company’s financial dealings, Witty sent head of emerging markets Abbas Hussain to manage GSK’s response to the authorities’ accusations. The probe is expected to be completed this month.
GSK’s drug sales in the growing Asian superpower have plummeted since the probe began with a decline of 61%, which Witty has blamed on ‘scaremongering’ by the Chinese media. Last year, GSK made sales revenues of £759 million through pharmaceuticals and vaccines and had sustained a year-on-year increase in profitability in China’s rapidly growing medicines market, until Chinese consumers’ confidence in GSK was dampened by strong local media coverage of the scandal.
In response to the allegations, Witty said: “The activities described by the authorities are very serious and totally unacceptable. They are contrary to our values and to everything I believe in. We very clearly recognise there is a profound need to earn the trust of Chinese people again. We will take every action to do so.
“We continue to fully co-operate with the authorities and respect the progress of the investigation. As such there is very little further I can say.“
Earlier in July, GSK had promised full co-operation with authorities including closing down the travel agencies and conducting a ‘thorough review’ of all historic transactions conducted via the agencies and medics. An unidentified GSK spokesperson said “GSK shares the desire of the Chinese authorities to root out corruption. These allegations are shameful and we regret this has occurred“. The company has carried out a prior investigation internally into its financial practices and has found no evidence of wrongdoing or corruption, and promised to co-operate fully with the Chinese police.
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