China Arrests Dozens of Glaxo Employees in Epic Scandal

China Arrests Dozens of Glaxo Employees in Epic Scandal

July 12th, 2013 // 1:28 pm @

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The very serious tax evasion and bribery scandal that has engulfed GlaxoSmithKline in China has resulted in the arrest of more than 30 employees. Among that number is at least six executives who are being confined to their homes. One of them is the legal counsel for GSK and one is a UK national.

Details are coming out a day after the Ministry of Public Security in China stated that GSK was involved in a huge scheme and very serious tax crimes and economic crimes. The firm tried to bribe doctors and officials int he government in Changsha, Shanghai and Zhengzhou. GSK offices in Chongqing also were raided by the authorities. GSK also is thought to have issued fake value added tax statements and worked illegally with travel companies to send out fake invoices for project sponsorships.

This drama has reached major crisis level for GSK, which has now hired June He, which is a top legal firm in China. The drug industry in China is known for a lot of corruption, where doctors are usually paid a lot less than doctors in the West. But this very serious episode reveals the challenges that drugmakers have as they try to expand their operations, just as the Chines government is starting to crack down on corruption.

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The serious allegations against Glaxo started last year when a whistleblower gave information to the Chinese government. The firm started to do its own investigation and it maintained that GSK did not do anything wrong. GSK conducted a meeting with 20 executives in China, and one attendee said senior managers promised that they would find the people responsible for the scandals.

Suspicion first came to Vivian Shi, who is the head of government affairs at GSK. She worked for John Lepore, who is a former VP in China. He left the country in 2012 and then left the firm for a new job. Shi went to another company in 2012 as well. She denied that she was the whistleblower this week and said that she has no access to the information that has been given to Chinese officials.

GSK operations overall are in disarray. In June, the company found that a scientific paper in Nature Medicine had faked data and it fired one of the authors of the paper.

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