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GSK executive caught off-guard by China graft charges: sources

A British Airways airplane flies past a signage for pharmaceutical giant GlaxoSmithKline (GSK) in London April 22, 2014. REUTERS/Luke MacGre
A British Airways airplane flies past a signage for pharmaceutical giant GlaxoSmithKline (GSK) in London April 22, 2014. REUTERS/Luke MacGre

By Adam Jourdan and Kazunori Takada

SHANGHAI (Reuters) - GlaxoSmithKline Plc executive Mark Reilly had little inkling he would be charged with leading a network of corruption in China's pharmaceutical industry, two sources with ties to the businessman and knowledge of the investigation said.

The allegations against the Briton, who as GSK's China head was the firm's legal representative in the country, are the most serious charges ever laid against a foreign national for corporate corruption in China, lawyers said.

Police said they had charged Reilly and two Chinese colleagues with multiple offences on Wednesday after a 10-month probe found the firm made billions of yuan from schemes to bribe doctors and hospitals.

"The fact that Mark's name was on the list of people charged was definitely a surprise," said a source with direct knowledge of the investigation. The source declined to be named because of the sensitivity of the case.

Police findings are usually upheld in Chinese courts, meaning Reilly and the other executives could face decades in jail.

GSK's China-based spokeswoman declined to comment on Thursday.

Britain's biggest drugmaker said in a statement on Wednesday that the allegations were "deeply concerning" and it hoped to "reach a resolution" that would enable it to continue to operate in China, a key growth market for Western pharmaceutical giants.

Reilly, a scientist and accountant who has been with GSK for over two decades, briefly left China after the scandal broke in July last year. He voluntarily returned to assist authorities with the probe, with insiders saying the understanding was this would shield him from charges.

"I've had regular contact with Mark over the past few months. I would think that this state of affairs is a surprise to him. I don't think he is prepared or thought that he could be culpable," an industry executive in China who has personal ties to Reilly said.

Attempts to reach Reilly were unsuccessful.

NEXT STEPS

The last major corruption scandal to hit a foreign company in China involved miner Rio Tinto in 2009, which resulted in four executives including a Chinese-born Australian being jailed for between seven and 14 years.

Reilly and two Chinese executives, Zhang Guowei and Zhao Hongyan, are charged with corporate bribery, bribing non-government officials and bribing business units.

Officials gave no specific details on the amount of bribes paid or how much the company had illegally earned, although previously they accused the firm of funneling up to 3 billion yuan ($482 million) to travel agencies to facilitate bribes to doctors and officials.

According to normal process, Reilly should have been detained as soon as authorities laid charges against him.

Police could not be reached for comment, and the British consulate declined to comment on Reilly's whereabouts. The industry executive said he believed the Briton was still in Shanghai.

Reilly has probably been barred from leaving China after his return to help with the investigation, lawyers said.

He and other executives, as well as the company itself, could also face charges in U.S. and British courts.

Sources have told Reuters that U.S. authorities are investigating GSK for violations of U.S. anti-bribery laws, which forbid U.S. companies from engaging in bribery while doing business abroad. GSK is also under U.S. legal jurisdiction because its shares are listed on a U.S. stock exchange.

A spokesman at Britain's Serious Fraud Office said they were aware of the charges in China.

"But I'm afraid we really can't comment further than that as we can't comment on potential cooperation with overseas or other authorities," he said.

WAKE-UP CALL

The prosecution will now examine the case before passing it to the courts, which could take as little as a month or much longer if further investigation is required, lawyers said.

The GSK case is the most prominent of a number of graft probes that have been launched against global drug firms since last year, and authorities are unlikely to risk the investigation being overturned in the courts.

"For a sensitive and closely followed case like this, the police and prosecutors will have consulted with each other already," said Leon Liu, a Shanghai-based partner at law firm MWE China.

Chinese officials visited other international drugmakers including Novartis AG , AstraZeneca Plc , Sanofi SA , Eli Lilly & C o and Bayer AG last year as part of a broad investigation into the sector, which is rife with bribery between sales staff and doctors.

Legal experts said the GSK case was a wake-up call to foreign companies that thought their top expatriate executives were immune from criminal charges as authorities step up a crackdown on corruption ordered by President Xi Jinping.

"There's a notion that only people of Chinese nationality are going to go to jail here," said Steven Dickinson, a Qingdao-based partner with law firm Harris Moure.

"People always say they'll never put a Briton or an American in jail. But they will, and this is just that example."

(Additional reporting by John Ruwitch in SHANGHAI, Kirstin Ridley and Ben Hirschler in LONDON; Editing by Stephen Coates and Jane Baird)

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