Recruiting in China

GlaxoSmithKline has admitted that some of its senior Chinese executives broke the law in a £320m cash and sexual favours bribery scandal.

Abbas Hussain, the drug maker's head of emerging markets who was dispatched to Shanghai to oversee the crisis, apologised to the Chinese authorities and promised the company was taking the charges "extremely seriously".

"Certain senior executives of GSK China who know our systems well appear to have acted outside of our processes and controls which breaches Chinese law," Hussain, the brother of England cricketer Nasser Hussain, said on Monday. "We have zero tolerance for any behaviour of this nature."

Hussain's apology and admission comes a month after Britain's biggest drug company said a four-month internal investigation had found "no evidence of corruption or bribery in our China business".

The Chinese public security ministry welcomed Hussain's apology and issued a fresh statement saying GSK's executives "violated China's laws and damaged markets by engaging in bribery to raise drug prices, expand sales and reap inappropriate profits".

Andrew Witty, GSK's chief executive, who was paid £3.9m last year, will repeat the apology on Wednesday when the company announces its half-year results.

The Chinese authorities have arrested four senior Chinese GSK executives as part of the investigation into claims that doctors were bribed with cash and sexual favours in return for prescribing GSK's drugs.

One of the arrested executives has confessed to the allegations on Chinese state television from what appeared to be his detention cell.

GSK China's British finance director, Steve Nechelput, has been prevented from leaving the country. The leading Chinese investigator has raised questions over why Mark Reilly, the UK head of GSK's Chinese operations, left China for Britain just before the charges were announced and has not returned. GSK said Reilly is not scheduled to return to China.

Chinese police have also detained Peter Humphrey, a British private investigator who has worked with GSK in the past. Humphrey, founder and managing director of risk advisory and investigations firm ChinaWhys, was arrested in Shanghai on 10 July.

The ChinaWhys website boasts: "Combining detective skills with our understanding of business operations and financial management, we assist multinationals to prevent, detect or investigate fraud, employee corruption or other white-collar crime to protect their bottom line, reputation and regulatory integrity, as well as providing support for dispute resolution and other business crises."

GSK has a long history of problems in China, and conducts up to 20 internal audits in the country every year. Last year more than a sixth of the 312 staff it sacked worldwide for breaching policy violations were in China. China accounts for just 3% of GSK's £27bn annual sales.

A GSK spokesman said Humphrey was "never a GSK employee", but refused to say whether or not it had contracted Humphrey, who has previously worked for corporate investigations firm Kroll.

The Foreign and Commonwealth Office (FCO) said it was aware of Humphrey's arrest and said diplomats are providing consular assistance to the family.

Hussein said GSK shared the Chinese authorities' desire to "root out corruption wherever it exists" and said the company would "take all necessary actions required as this investigation progresses". GSK is also regularly briefing the Serious Fraud Office (SFO) in London.

GSK also promised to radically change its business model and pass on the savings to Chinese consumers by reducing drug prices. One of the arrested GSK executives, Hong Liang, told Chinese state TV last week that bribes paid to doctors and officials pushed up the prices Chinese patients pay for GSK drugs by as much as 30%.

The Chinese investigation appears to have widened to other western pharmaceutical companies. AstraZeneca said [on Mondayits Shanghai office was raided by police and one employee was detained for questioning. Belgian drug company UCB has also been visited by the police.

GSK last year paid a $3bn (£1.9bn) fine in the US to settle claims that it tricked and bribed doctors into prescribing dangerous antidepressants to children.