China bars Glaxo exec from leaving country

July 17, 2013: 9:35 AM ET
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China has stepped up its media campaign against GlaxoSmithKline, which stands accused of running a huge bribery operation.
LONDON (CNNMoney)

China has barred a GlaxoSmithKline executive from leaving the country as it turns up the heat on the drugmaker over allegations of corruption.

Steve Nechelput, finance director for GlaxoSmithKline China, has been prevented from traveling outside China since the end of June, the company said Wednesday.

The U.K. drugmaker has been accused by China of using a network of more than 700 travel agencies and other firms to channel bribes to health officials since 2007.

Four senior Chinese executives of GSK have been detained, according to state news agency Xinhua, although the company says Nechelput was not among them.

"At no time has [Nechelput] been questioned or arrested, and he is not one of the individuals in detention," a GSK spokesperson said.

Nechelput, who holds a British passport, remained in his post. Mark Reilly, the top GSK executive in China, is currently in the U.K.

Meanwhile, Chinese state media has put the government's allegations against GlaxoSmithKline on public display.

The company was the subject of an editorial published Wednesday in the Communist Party's mouthpiece publication, and state central television aired the apparent confession of one of the four GSK executives.

The media campaign is the latest in a series of actions in recent days that suggest China is embarking on a concerted effort to crack down on corruption.

The commentary in the People's Daily was written under a pseudonym -- but one that sounds like "voice of China" when spoken.

"GlaxoSmithKline's bribery case shows how complicated and difficult the fight against commercial corruption can be," the commentary said. "Seriously attacking multinational companies' commercial bribery is of great significance to maintaining market economy order and keeping a fair competition environment."

GSK (GSK) is accused of funneling hundreds of millions of dollars in kickbacks to doctors, hospital and government officials in China. The activities appear to have been designed to encourage the use of GSK products, and to keep prices at artificially high levels.

Related story: China drugs scandal set to grow

The CCTV report featured GSK executive Liang Hong explaining how the bribery scheme worked, including the use of fake conferences and travel agencies to create receipts for services that were never performed. The surplus funds were then used to pay bribes.

The circumstances of the interview are difficult to discern and it wasn't clear whether the confession was coerced.

How much damage the scandal will do to GSK's reputation or bottom line remains unclear. But the episode underscores the challenges of doing business in China, an enormous, rapidly developing market in which bribes and corruption are often deeply ingrained.

Related story: Rolls-Royce in China corruption probe

GlaxoSmithKline -- which makes Paxil, Avandia and Wellbutrin -- declined to comment on the CCTV report and reiterated a statement from earlier this week that it was "deeply concerned and disappointed" by the allegations.

"GSK shares the desire of the Chinese authorities to root out corruption," a spokesperson said Monday. "These allegations are shameful and we regret this has occurred."

China's investigation could expose the company to legal action in the U.K., and possibly the United States, under laws relating to the bribery of foreign public officials.

GlaxoSmithKline said it had informed the U.K.'s Serious Fraud Office about the allegations but had not yet been asked to provide any further information. The agency, which investigates and prosecutes corruption cases, said it could neither confirm nor deny an interest in the claims against GSK at this stage.

Asked about Nechelput's travel restrictions, the U.K. Foreign Office said it was seeking more information from the Chinese authorities and was in contact with GSK.

-- CNN's Esther Pang and Vivian Kam contributed reporting

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