Former head of GlaxoSmithKline in China is accused of bribery

A British senior executive working in China for the global pharmaceutical giant GlaxoSmithKline helped orchestrate a long-running bribery and fraud scheme that involved making secret payments to doctors, hospital staff and government officials to bolster drug sales, Chinese authorities said Wednesday.

The Chinese police accused the executive, Mark Reilly, the former head of Glaxo’s China operations, of ordering his subordinates to form a “massive bribery network” that resulted in higher drug prices and illegal revenue of more than $150 million.

At a news conference in Beijing on Wednesday, the authorities said Mr. Reilly, who is British, and two Chinese-born Glaxo executives, Zhang Guowei and Zhao Hongyan, had even arranged to bribe government officials in Beijing and Shanghai.

The police did not say whether they had detained Mr. Reilly, who left China after the investigation got underway last summer. He then returned to assist in the investigation and may still be in China. A spokesman for the British Embassy in Beijing said Wednesday that the embassy was assisting Mr. Reilly.

The two Chinese executives — Mr. Zhang, the company’s human resources director, and Mr. Zhao, the head of the legal affairs department — are being held in China and are expected to face prosecution.

In a statement, Glaxo said it was cooperating with the investigation and had been updated Wednesday on the case by China’s Ministry of Public Security. “We take the allegations that have been raised very seriously,” the statement reads. “They are deeply concerning to us and contrary to the values of GSK.”

None of the executives could be reached for comment, and the company declined to comment on their whereabouts.

The authorities say that 46 people have been implicated in the case and that part of the scheme involved inflating drug prices in the Chinese market, making them as much as seven times as expensive as they were elsewhere.

The case, which was first uncovered by the police in June, has dealt a devastating blow to Glaxo’s fast-growing business in China and has shaken up other global drug makers operating here. Many were using the same small Shanghai travel agency that the authorities said specialized in altering corporate travel expenses to pay cash bribes to doctors, hospital staff and government employees.

Although bribery is common in China, it is rare for foreign-born executives from multinational companies to be prosecuted. In 2009, a Chinese-born Australian executive at the British-Australian mining giant Rio Tinto was arrested in a bribery and money laundering case.

The current case could deepen the challenges Glaxo faces elsewhere, because it could fall under antibribery laws in Britain or under the United States Foreign Corrupt Practices Act.

Glaxo said it hoped to reach a resolution with the Chinese government “that will enable the company to continue to make an important contribution to the health and welfare of China and its citizens.”

Last year, Glaxo apologized in a similar statement for the “shameful” conduct of some of its senior executives in China. It also said repeatedly that the scandal involved just a handful of rogue Chinese-born employees who were billing the company with phony travel receipts, then using the cash to bribe doctors and others, as well as siphoning off extra money for themselves.

The authorities in China said in June that several of the Chinese executives had confessed to “economic crimes.” The police had also shut down the Shanghai Linjiang International Travel Agency for its role in what they called a kickback and money laundering scheme.

Documents reviewed by The New York Times showed that at least six other global pharmaceutical companies had used the same small travel agency, though it was unclear whether any wrongdoing had taken place.

When the case broke in July, many pharmaceutical executives complained privately that it was part of a Chinese government effort to control drug prices in China and punish highly profitable multinational companies.

The authorities, though, have said that the big drug companies have done similar things in other countries and that the case involved extensive fraud against consumers.

The police said the 10-month investigation had found that under Mr. Reilly, Glaxo had pushed its staff to meet aggressive sales targets and that the company had conducted “false transactions” through its financial department to transfer “illegal gains” made in China to overseas companies. The authorities also said Mr. Reilly and other senior executives at Glaxo had bribed officials to stop investigations of wrongdoing at the company.