UPDATE 1-GSK case a "warning" to all foreign firms in China: Xinhua

Fri May 16, 2014 12:22am EDT

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By Adam Jourdan

SHANGHAI May 16 (Reuters) - Corruption charges against GlaxoSmithKline Plc executives in China are a warning to other foreign firms and could do irreparable damage to the British drugmaker's Chinese operations, the official Xinhua news agency said on Friday.

Chinese police charged GSK's former China boss, Briton Mark Reilly, and two other colleagues with corruption on Wednesday after a 10-month probe found the firm made billions of yuan from bribing doctors and hospitals.

Healthcare is a highly sensitive area in China and has become a focal point for President Xi Jinping's attack on corporate graft, with a number of global and Chinese drugmakers coming under the spotlight for corruption.

"GSK's practices eroded its corporate integrity and could cause irreparable damage to the company in China and elsewhere. The case is a warning to other multinationals in China that ethics matter," Xinhua said in an English-language editorial.

Xinhua's commentaries are often seen as reflective of the government's thinking.

Officials at GSK in China did not immediately respond to requests for comment.

Britain's biggest drugmaker so far has not been charged with any crime although lawyers said that by charging Reilly, who was GSK's legal representative in the country, authorities were leaving the door open for a charge against the firm.

Any bribery charges against GSK could mean the cancellation of its business licenses, crippling its operations in a major growth market for Western pharmaceutical giants.

GSK could also incur huge fines, while Reilly himself - who sources say was caught off-guard by the allegations - faces decades in jail if the charges are upheld as expected.

Lawyers said the charges were the most serious corruption case against a major multinational firm and a senior expatriate executive in China's history, and are a wake-up call for other foreign firms in the country.

Foreign firms in China are firming up compliance efforts in the wake of the GSK investigation, executives and lawyers said.

The last major corruption scandal to hit a foreign company in China involved miner Rio Tinto in 2009, which resulted in four executives including a Chinese-born Australian being jailed for between seven and 14 years. (Reporting by Adam Jourdan; Editing by Kazunori Takada and Stephen Coates)

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