Chinese police allege GSK had transferred as much as 3 billion yuan ($489 million) in bribes to Chinese officials and doctors through 700 travel agencies and consultancies since 2007 to boost sales illegally and raise the price of its drugs in the country.
Gao Feng, the police chief leading the investigation into GSK, claimed GSK hid the corruption in its accounts by over-inflating the sum paid to middlemen for services such as conferences. The extra money would then be split: some going to bribe doctors, some retained by the middlemen and some given as kickbacks to GSK executives.
GSK sales in China jumped 20 percent to reach $1.5 billion in 2012, almost quadruple the pace of growth across its emerging markets.
“Regardless of whether it’s a Chinese company or a foreign company, whoever breaks China’s laws will be punished and will have to bear the corresponding legal responsibility,” the ministry said in its first direct comments on the GSK case.
In a commentary, the People’s Daily, a mouthpiece for the ruling Communist Party, accused some multinationals of using their market dominance to exploit gaps in regulatory systems in developing countries, adding that the GSK case is an illustration of the “the commercial anti-corruption struggle” in China.
“A crackdown on commercial bribery by multinationals is deeply significant to safeguarding the order of the market economy and protecting an environment of fair competition,” said the People’s Daily.
“In recent years, some multinationals have utilised strong market and technological advantages, operated through intermediary agents, and taken advantage of the imperfect regulatory system in developing countries to drill loopholes,” the commentary said.
But Shen Danyang, spokesman for the Commerce Ministry, rejected any suggestion that China was singling out foreign companies. He said the police probe into GSK demonstrated the government’s “determination to improve the investment environment and create a fair and level playing field for investors from around the world”.
In a statement, GSK said it “shares the desire of the Chinese authorities to root out corruption” and said it was “deeply concerned and disappointed by these serious allegations of fraudulent behaviour and ethical misconduct”.
GSK added that it will cooperate fully with the Chinese authorities in the investigation and vowed to review all-third party agency relationships after the damning allegations surfaced.
Healthcare is a fast-growing industry in China, where increasingly affluent consumers demand better care and services. Healthcare spending in China is forecast to triple to $1 trillion by 2020, according to McKinsey and Co. Sales of pharmaceuticals in China reached $82 billion in 2012, up 18.2 percent from a year earlier, according to risk-assessment firm Business Monitor International.
This article originally appeared on economywatch