Gao Feng, an official from China’s Ministry of Public Security charged with the probe of the U.K. pharmaceutical company, alleges that from 2009 when Reilly took over as China chief that several billion yuan were handed out and that the drug maker then raised prices to fund the bribery itself. He also alleges that GlaxoSmithKline plc (ADR) (NYSE:GSK) (LON:GSK) set up an emergency team to throw off bribery investigations and that “GlaxoSmithKline ‘s acts of bribery penetrated all aspects of the company’s business operation.”
Time for the courts to decide
“We take the allegations that have been raised very seriously. They are deeply concerning to us,” a GlaxoSmithKline plc (ADR) (NYSE:GSK) (LON:GSK) spokesperson said while pledging the company’s cooperation with the probe. Mr. Reilly didn’t make himself available to the Wall Street Journal to comment and remains in China to “assist” in the investigation after leaving the country last summer.
Now that the investigation is over, it’s a matter for the courts. Gao said it “now the duty of the prosecutors and the court to deal with it.” The MPS have turned the case over to the Changsha People’s Procurator in Hunan Province.
The pharmaceutical industry views China, rightfully, as a huge market and the statements by Gao today are more than just a thorn in the side of GlaxoSmithKline plc (ADR) (NYSE:GSK) (LON:GSK). The company has enjoyed tremendous sales growth in recent years but is likely to get a black eye from Mr. Reilly’s involvement in throwing cash at an industry that encourages corruption, among hospitals, staff and local governments. Given the severe penalties for being found guilty of accepting bribes in China, it may be some time before anyone wants to get in bed with Glaxo again.
Not just GlaxoSmithKline’s chief
According to Xinhua news agency, Reilly is not alone in the accusations derived from the investigation. Zhang Guowei and Zhao Hongyan are also suspected of bribing officials in Beijing and Shanghai and, unlike Reilly, were detained last year and certainly not made available for comment.
Today’s announcement comes just shy of a year from detaining four GlaxoSmithKline plc (ADR) (NYSE:GSK) (LON:GSK) employees on suspicions of holding fake conferences in order to funnel money to doctors, government officials, and hospital administrators through a handful of travel agencies. It’s believed that nearly half a billion dollars was distributed through travel agencies since 2007.