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 Mark Reilly and two Chinese executives, Zhang Guowei and Zhao
Hongyan, were also suspected of bribing officials in the industry
and commerce departments of Beijing and Shanghai, the official
Xinhua news agency reported, quoting police in Hunan province.
The case is the biggest corruption scandal to hit a foreign company
in China since the Rio Tinto affair in 2009, which resulted in four
executives, including an Australian, being jailed for between seven
and 14 years.
GSK is Britain's biggest drugmaker.
"(GSK) departments offered bribes to hospitals and doctors as well
as personnel to boost their sales. The money involved was in the
billions of yuan," a Ministry of Public Security official told a
press conference in Beijing.
The charges - which carry a maximum sentence of life in prison in
the case of bribery - were seen as harsher than many industry
insiders and China-based foreign executives had expected.
Officials gave no specific details on the amount of bribes paid or
exactly how much the company had illegally earned, although they had
previously accused the firm of funneling up to 3 billion yuan ($482
million) to travel agencies to facilitate bribes to doctors and
officials.
GSK said the case was deeply concerning.
"We take the allegations that have been raised very seriously. They
are deeply concerning to us and contrary to the values of GSK," the
drugmaker said in a brief statement issued in London, its
headquarters.
"We want to reach a resolution that will enable the company to
continue to make an important contribution to the health and welfare
of China and its citizens."
Shares of London-listed GSK were trading down 1.2 percent,
underperforming a 0.2 percent drop in the broader FTSE 100 index.
GSK has said that some of its senior Chinese executives appeared to
have broken the law. It has also said it has zero tolerance for
bribery, calling the allegations in China "shameful".
Reilly briefly left China when the scandal broke in July last year
but voluntarily returned to cooperate with police. Attempts to reach
him on Wednesday were unsuccessful. He was replaced as GSK's China
head on July 25 last year, 10 days after the initial Chinese police
accusations.
A spokesman for the British consulate in Shanghai said officials
were in regular contact with Reilly and were providing consular
assistance. The spokesman declined to comment on Reilly's
whereabouts.
FOREIGN EXECUTIVES SURPRISED
The charges against the British executive shocked the business
community as GSK had previously said it believed the alleged
corruption involved senior Chinese staff only.
Kenneth Jarrett, president of the American Chamber of Commerce
Shanghai, said he was surprised at the "strong response" from the
police.
"I would agree that it's not what I would have expected because it
seemed like GSK were cooperating very closely with the authorities,"
he told Reuters.
"I don't think that anyone had been lulled back into complacency,
but if anybody had this will wake them up," Jarrett added. The GSK
scandal had spurred many foreign corporations in China to increase
vigilance against bribery.
The allegations have damaged GSK's reputation, thrown its China
management team into turmoil and forced it to change its China
business model, although the firm says head office had no knowledge
of alleged wrongdoing.
China is a key growth market for large drugmakers, which are
counting on its swelling middle class to offset declining sales in
Western countries. China is set to be the second-biggest
pharmaceuticals market behind the United States within three years,
according to consultants IMS Health.
But bribery between sales staff and doctors is rife in the world's
second-biggest economy, and it remains to be seen whether the GSK
case will be a one-off or the first of a broader campaign to clean
up the Chinese health sector.
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Reilly and the executives were charged with corporate bribery,
bribing non-government officials and bribing business units.
Chinese officials on Wednesday made no mention of possible sanctions
against GSK itself, although Xinhua said the firm had forged
accounts, faked transactions to inflate revenue, pressed sales staff
to engage in bribery and tried to cover its tracks. "Later they
could bring an action against the company and seek penalties against
the company and I wouldn't be surprised if they did that actually,
because the claim is so egregious that the company could be charged
and fined," said Steven Dickinson, Qingdao-based partner with law
firm Harris Moure.
"But the thing is you can't put a company in jail and they want
someone in jail. They want Mr. Reilly in jail for about 10 years.
That's what they're looking to do," he added.
Any bribery charges against GSK as a company could also lead to the
authorities stripping it of its business licenses.
BUSINESS IMPACT
GSK's revenue in China leapt to 6.9 billion yuan ($1.11 billion) in
2012 from 3.9 billion yuan in 2009, the first year that Reilly
headed operations, Xinhua said.
Before the scandal, GSK's China sales had risen 14 percent
year-on-year in the three months to end-June, but revenue in the
country plunged 61 percent in the third quarter. Since then, the
decline has moderated but sales were still down by 20 percent from a
year ago in the first quarter of 2014.
Since the bribery scandal, GSK has announced an overhaul of its
sales and marketing practices worldwide in a bid to prevent future
wrongdoing. The company, however, has continued to face corruption
allegations in other countries and is now investigating claims that
bribes were also paid to doctors in Poland, Iraq, Jordan and
Lebanon.
In an attempt to clean up its reputation, GSK aims to become the
first company in the drugs industry to stop paying outside doctors
to promote its products. It also wants to end payments for medics to
attend conferences and separate incentives for sales representatives
from individual sales targets.
A key challenge in the process, which is due to be completed by
2016, is how to make the transition without ceding business to
rivals in the $1 trillion-a-year global drugs industry.
The crackdown on GSK reflects a growing determination by Chinese
authorities to stamp out corporate bribery and corruption, which can
drive up prices for consumers.
"This GSK case is very well-known in the public domain, drawing
everyone's attention. The government wants to kill the chicken to
scare the monkey and I think this will have a ripple effect," said
Shanghai-based lawyer John Huang, co-founder and managing partner at
MWE China.
($1 = 6.2291 Chinese Yuan)
(Additional reporting by Adam Jourdan and John Ruwitch in SHANGHAI
and Michael Martina in BEIJING; Editing by Stephen Coates and Miral
Fahmy)
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