Sex video new twist in GSK China bribery scandal

SHANGHAI/LONDON Mon Jun 30, 2014 3:47pm EDT

A Chinese national flag flutters in front of a GlaxoSmithKline (GSK) office building in Shanghai July 12, 2013.  REUTERS/Aly Song

A Chinese national flag flutters in front of a GlaxoSmithKline (GSK) office building in Shanghai July 12, 2013.

Credit: Reuters/Aly Song

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SHANGHAI/LONDON (Reuters) - GlaxoSmithKline Plc's (GSK.L) tangled web of problems in China, including a sex video of its former China chief and anonymous emails alleging corruption, are highlighted in a lengthy draft report prepared for the British drugs firm and seen by Reuters.

The report into the origin of the video and emails was compiled at the request of GSK by ChinaWhys, a Shanghai-based company founded by British investigator Peter Humphrey and his American wife Yu Yingzeng. Presented to GSK on June 6, 2013, it did not reach a conclusion as to who was behind the actions.

On July 10, 2013, authorities detained Humphrey and Yu for illegally buying and selling private information. The couple were subsequently arrested, which typically means the police believe they have enough evidence for the case to be brought to trial.

Five days after their detention, police accused GSK of funneling up to 3 billion yuan ($482 million) through travel agencies to bribe doctors and officials in China.

A GSK spokesman in London confirmed the video existed but did not comment on how it related to the alleged bribery scandal. He also said GSK, Britain's biggest pharmaceutical firm, had hired ChinaWhys to investigate the video.

Reuters was not independently able to verify any link between the video and the bribery case.

The British newspaper the Sunday Times first reported the existence of the video on Sunday.

ChinaWhys was employed in April 2013 to investigate an ex-employee suspected of sending anonymous emails of an intimate video of GSK's then China chief Mark Reilly with his Chinese girlfriend as well as allegations of widespread bribery at the firm.

Chinese authorities charged Mark Reilly and other colleagues with corruption last month, after a government investigation found the firm made billions of yuan from elaborate schemes to bribe doctors. The Briton, who has been barred from leaving China, could face decades in prison.

Reilly has not been reachable for comment and his lawyer has declined to talk to the media. Sources close to Reilly have said that he was still in Shanghai but had not been detained.

Humphrey and Yu have not commented. They are expected to go on trial late next month, a source familiar with the case told Reuters.

GRAPHIC BEDROOM VIDEO

On March 16, 2013, an anonymous person sent an email to GSK senior executives, including the company's chief executive officer Andrew Witty, alleging the firm had used travel agent partners to funnel kickbacks to medical staff, the draft report said. The email also included the graphic bedroom video involving Reilly.

The recording was shot without Reilly's knowledge or consent at his Shanghai flat and showed the Briton, who is separated from his wife, with another woman, the draft report said. It was not clear who shot the video or with what motivation.

In total, at least 23 emails making allegations of widespread bribery at GSK's China operations were sent to government bodies, including China's State Administration of Industry and Commerce, the watchdog that leads probes against corporate bribery, the draft report said.

The GSK investigation was sparked by at least one high-ranking whistleblower, a person with direct knowledge of that investigation previously told Reuters. The person declined to be identified because of the sensitivity of the case.

WIDER RIPPLES

China's investigation into GSK and its scrutiny of numerous other foreign and local drugs companies have frightened foreign pharmaceutical executives so much that some fear they could be jailed and have asked their lawyers if they should temporarily leave the country, legal and industry sources have said.

GSK, which described the bribery allegations as "shameful" when they came to light last year, said it was continuing to cooperate fully with Chinese authorities on the ongoing investigation.

"The issues relating to our China business are very difficult and complicated," it added in a statement.

The bribery case has hit GSK's sales in China, according to the company's quarterly results, as buyers have shied away from doing business with the company and GSK itself has revamped its sales and marketing model.

Bribery allegations involving GSK have come to light since then in other countries and GSK is now investigating claims that bribes were also paid to doctors in Poland, Iraq, Jordan and Lebanon.

Last month, Britain's Serious Fraud Office (SFO) launched a formal criminal investigation into the commercial practices of GSK and its subsidiaries. GSK said it was cooperating fully with the SFO.

(Additional reporting by Kazunori Takada in Shanghai; Editing by Jane Barrett, Diane Craft, Dean Yates and David Evans)

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