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Chinese authorities investigate bribery claims
A number of multinational drug companies are being investigated by Chinese authorities over allegations they paid hundreds of millions of dollars in bribes.

Thom Cookes reports.
JIM MIDDLETON, PRESENTER: China's rapidly-growing middle class is demanding far better access to hospitals to and modern drugs, turning health care into a boom industry.

And where there's money, corruption is often not far behind.

A number of multinational drug companies are being investigated by Chinese authorities over allegations that they paid hundreds of millions of dollars in bribes.

The pharmaceutical giant, GlaxoSmithKline, has already apologised for its role in the scandal.

Thom Cookes reports.

(Footage of raid of GlaxoSmithKline offices is shown)

THOM COOKES, REPORTER: Officials from China's Public Security Bureau are raiding the offices of GlaxoSmithKline, one of the largest drug companies in the world.

They've accused Glaxo of laundering almost $490 million through travel agencies to bribe the Kokoda Track Organisation and hospital staff to buy their drugs.

The investigation is ongoing but so far around 40 Chinese hospital staff are to be punished for taking bribes.

PHIL THOMSON, GLAXOSMITHKLINE SPOKESPERSON: These allegations are shameful and we regret that this has occurred. We will cooperate fully with the Chinese authorities in their investigation and will take all necessary action required.

THOM COOKES: It's not clear yet whether any charges have been laid against drug company employees, but a number of both local and foreign international staff have been detained for questioning.

UNIDENTIFIED CHINESE GOVERNMENT SPOKESPERSON (translation): The company is an international enterprise, if its employees offering commercial bribes they will not only be punished by law in China but also punished in the country of its parent company. So they chose to cash out through the travel agencies to avoid legal penalties in both China and abroad.

THOM COOKES: The reputational damage of bribery allegations to a company like Glaxo is immense.

The United Kingdom, where Glaxo is based, has recently introduced anti corruption laws that could be used, even if all of the alleged crimes occurred overseas.

MONTY RAPHAEL QC, BRITISH FRAUD AND CORRUPTION LAW SPECIALIST: There is no obligation to prosecute. So that the prosecution authorities in the UK have a discretion, they have a choice whether they're going to prosecute or not. And they have to consider is there any evidence and then, if there is evidence, is it the public interest?

THOM COOKES: Obtaining proof of corruption that would stand up in a UK court could prove difficult, in which case a large fine is more likely.

JAMES MCGREGOR, CHINA BUSINESS ANALYST: It's much tougher here for foreign business now, and it's all about market survival because there's local companies that want their market share. At the same time there's political reforms coming here on the state sector that I think will be going after some very tough players. And so if you go after the foreigners first, it may soften the way a little bit.

THOM COOKES: A number of multinational drug companies have been drawn into the current investigation, which is expected to widen significantly. But according to local observers, the Chinese health industry suffers from endemic corruption.

ZHOU XIAOQIN, CHINESE LEGAL COMMENTATOR (translation): Corporate bribery is currently widespread in the field of pharmaceutical sales. Foreign companies aren't an exception in such an environment.

Almost every county in China has a state owned pharmaceutical factory. And on top of that there are the private pharmaceutical companies, which means there are tens of thousands of companies. There are so many that they need to sell their products, resulting in a vicious competition. Many companies resort to bribery as a way of selling their products.

THOM COOKES: Glaxo and other drug companies are accused of funnelling hundreds of millions of dollars through travel agencies to hide the bribes.

China's booming middle class is creating a demand for expensive western drugs and for treatment for conditions that used to go unmedicated or sometimes even undiagnosed.

Around 95 per cent of the population had health insurance in 2001, compared with just 43 per cent in 2006. The same research predicts that China's total spending on health care is expected to grow from 357 billion to around $1 trillion in the next 10 years.

ZHOU XIAOQIN (translation): The purpose of medical representatives is to explain the side effects of their drugs, how the drugs are used to hospital staff and doctors. But now their real role is to calculate how much of their products are used by doctors and pay them a rebate. This situation is very common.

THOM COOKES: And it's this endemic corruption that Chinese officials claim is driving up the cost of health care. Something that Glaxo's Chinese operations manager, who is in detention, says he now understands.

LIANG HONG, CHINESE OPERATIONS MANAGER GSK (subtitled): Through my reflections in the last 10 days, I realised that the prices of the medicines were raised due to the cost of these sorts of operations. Because they are part of the cost right?

PETER J WANG, SHANGHAI-BASED PARTNER, JONES DAY LAW FIRM: I think bribery is a problem and corruption is an issue in China, it's an issue for the US as well. It's an issue all around the world these days. And you are seeing companies and officials in all of these places on both sides and many different industries implicated in these sorts of things.

So I don't think it's particularly picking on multinationals, but they're not going to be safe from investigation either.

THOM COOKES: And for Chinese officials, the consequences of corruption can be especially severe.

In 2007, the former head of the State Food and Drug Administration was convicted of taking close to $1 million in bribes. He allowed drug companies to register unsafe products without adequate checks, and for that he was executed.
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