* Biggest graft case involving foreign firm for years
* GSK says it is cooperating fully with authorities
* Lawyer says too early to say what punishment might be
By Michael Martina and Adam Jourdan
BEIJING/LONDON, July 11 GlaxoSmithKline
executives in China have confessed to bribery and tax
violations, the country's security ministry said on Thursday,
during one of a string of investigations into foreign firms in
the world's second-biggest economy.
The ministry said the case against Britain's biggest
drugmaker involved a large number of staff and a huge sum of
money over an extended period of time, with bribes offered to
Chinese government officials, medical associations, hospitals
and doctors to boost sales and prices.
GlaxoSmithKline Plc (GSK) executives also used fake receipts
in unspecified tax law violations, it added.
China has targeted foreign firms on multiple fronts in
recent months, including alleged price-fixing, quality controls
and consumer rights, forcing companies to defend their
reputations in a country where international brands often have a
valuable edge over local competitors in terms of public trust.
Last week, European food groups Nestle and Danone
said they would cut the price of infant formula milk
in China after Beijing launched an investigation into the
China is an increasingly important country for international
drugmakers such as GSK, which are relying on growth in emerging
markets to offset slower sales in Western markets where many
former top-selling medicines have lost patent protection.
IMS Health, which tracks pharmaceutical industry trends,
expects China to overtake Japan as the world's second biggest
drugs market behind the United States by 2016.
"We take all allegations of bribery and corruption
seriously," GSK said in a statement.
"We continuously monitor our businesses to ensure they meet
our strict compliance procedures - we have done this in China
and found no evidence of bribery or corruption of doctors or
government officials," it added, saying it would cooperate with
The charges of bribery make the GSK case the highest profile
probe in China since four executives of mining giant Rio Tinto
Plc were jailed in March 2010 for taking bribes
and stealing commercial secrets.
The four - one a China-born Australian citizen and three
Chinese nationals - received jail terms of between seven and 14
years after being found guilty of getting information from
confidential strategy meetings of the body representing China's
steel industry in negotiations with iron ore suppliers.
Under China's legal system, the GSK executives will be
formally charged after the completion of the preliminary
The security ministry did not give details on the number of
executives questioned, their identities, nor when the
questioning took place.
It is still too early in the process to know the extent of
potential punishments, said Jerry Ling, a Shanghai-based partner
for law firm Jones Day who specialises in U.S. and Chinese
However, according to guidance set by China's top court last
December, there are a number of factors about the case that
could increase any fine or punishment, including the involvement
of bribes to government officials and the sensitivity of
"The fact that the Ministry of Public Security is running
this investigation means that the exposure is more serious,"
In smaller bribery cases, China's State Administration for
Industry and Commerce tends to take the lead. While these cases
could lead to fines, they rarely results in criminal sentences.
A full confession - which China says the executives have
given - could mean GSK benefits from leniency measures linked to
A Britain-based analyst, who covers GSK and who declined to
be named, said the company had worked hard to eradicate
malpractice. It pleaded guilty to misdemeanour charges in the
United States and paid a $3 billion fine a year ago.
"Given the past experience they've had with depression drugs
in the U.S., they would be ultra cautious on anything to do with
corrupt practices," the analyst said.
However, the analyst noted that China was an under-developed
market where it would be difficult to monitor all sales
practices and, in addition, authorities were likely to take a
hard line with foreign firms.
GSK shares closed down 0.6 percent on Thursday, compared
with a 0.6 percent rise in the wider FTSE 100 index.
GSK has had problems in China before.
It said on Monday it was investigating separate allegations
that its staff had used improper tactics to market the cosmetic
treatment Botox in China, but had so far found no evidence of
bribery or corruption.
GSK, Merck & Co Inc and other foreign and domestic
drugmakers are also being investigated by China's top economic
planning agency on cost and pricing issues.