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China blocks GSK finance head from leaving country

A flag (L) bearing the logo of GlaxoSmithKline (GSK) flutters next to a Chinese national flag (C) and a Union Flag (R), outside a GlaxoSmith
A flag (L) bearing the logo of GlaxoSmithKline (GSK) flutters next to a Chinese national flag (C) and a Union Flag (R), outside a GlaxoSmith

By Ben Hirschler

LONDON (Reuters) - Chinese authorities investigating the alleged bribery of doctors and officials by GlaxoSmithKline have stopped the drugmaker's head of finance for China, a British citizen, from leaving the country, a company spokesman said on Wednesday.

The travel restriction on Steve Nechelput was imposed at the end of June, but he has continued to work and remains free to move around China. Nechelput has not been questioned, arrested or detained by police, the spokesman said.

GSK has hired auditors Ernst & Young to carry out an independent review of its systems in China in the wake of the scandal, according to a person familiar with the situation.

It has also sent internal auditors to China as part of an effort to get to the bottom of what happened, the source added.

On Monday, Chinese police accused GSK of bribing officials and doctors to boost sales and raise the price of its medicines in China. They said GSK transferred up to 3 billion yuan ($489 million) to 700 travel agencies and consultancies over six years to facilitate the bribes.

Britain's biggest drugmaker said it was deeply concerned by the developments, which it called "shameful".

The action against Nechelput underscores the pressure on GSK, which has come attack in Chinese state media this week.

The British Foreign Ministry said it stood ready to provide consular assistance to Nechelput.

Asked if London was concerned about the travel restriction, a spokesman said: "If there's an inquiry under way then that's a matter for the Chinese authorities."

Nechelput's boss Mark Reilly, GSK's general manager for China, left the country for Britain on July 5 to attend what a separate source familiar with the situation said were routine meetings.

Police have detained four senior Chinese executives from GSK, including vice president and operations manager Liang Hong, who told state television this week he had funneled money through travel agencies by arranging conferences, some of which were never held. That money was then used to pay bribes.

With investigations focused on malpractice by a certain number of GSK's Chinese employees, one industry insider said it was likely China wanted Nechelput to remain in the country to provide financial information, if needed, as inquiries progress.

As a British company, GSK could also face prosecution under Britain's Bribery Act, which came into force in 2011.

The Wall Street Journal, citing people familiar with the matter, said the UK Serious Fraud Office (SFO) was reviewing the bribery allegations GSK faces in China. An SFO spokeswoman declined to confirm or deny the report.

CULTURE OF PAYMENTS

China has long been known for a culture in which drug companies make payments to doctors, since physicians rely on rewards for writing prescriptions to offset meager salaries.

Those practices, however, are increasingly at odds with a crackdown on corruption under President Xi Jinping, leaving companies struggling to toe the line while not losing business in a highly competitive market.

Similar money transfers to those seen at GSK had been made by other multinational pharmaceutical companies in China, Gao Feng, head of the economic crimes investigation unit at the Ministry of Public Security, said on Monday.

He did not name any other foreign companies.

When asked, the following major drugmakers said they had not been contacted by Chinese authorities in connection with similar bribery allegations: Novartis , Roche , Abbott , Eli Lilly , Bayer , Novo Nordisk , Takeda <4502.T>, Astellas <4503.T>, AbbVie , Merck & Co , Johnson & Johnson and Pfizer .

China is increasingly important for big drug groups, which rely on growth in emerging markets to offset slower sales in Western countries where many former top-selling medicines have lost patent protection.

IMS Health, which tracks pharmaceutical industry trends, expects China to overtake Japan as the world's second-biggest drugs market behind the United States by 2016.

But the industry has come under the spotlight from Chinese regulators.

China announced a nationwide crackdown on the sale of illegal medicine on Wednesday and said it would tighten industry regulation.

The State Food and Drug Administration said the six-month campaign would also target illegal online drug sales and the sale of fake traditional Chinese medicine. It gave no details on possible changes to regulation.

Separately, GSK said its chief executive Andrew Witty was stepping down from his role on the board of the UK government's department for business at the end of 2013, as had been planned.

"His decision is not related in any way to the current issues the company is facing in China," GSK said.

(Additional reporting by Andrew Osborn in LONDON and Ransdell Pierson in NEW YORK; Editing by Louise Heavens, David Holmes and Dean Yates)

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