UK fraud office probes GSK after claims of foreign bribery

By Ben Hirschler

LONDON (Reuters) - Britain's fraud office has launched a formal criminal investigation into GlaxoSmithKline, posing a new challenge to the drugmaker, which already faces claims of bribery in China and four other countries.

The Serious Fraud Office (SFO) said on Tuesday that its director had "opened a criminal investigation into the commercial practices of GlaxoSmithKline and its subsidiaries", confirming an earlier brief statement from the company.

"GSK is committed to operating its business to the highest ethical standards and will continue to cooperate fully with the SFO," Britain's biggest drugmaker said.

Neither the SFO nor GSK gave any further details about the case, and a company spokesman declined to elaborate.

The SFO action comes less than two weeks after Chinese police announced on May 14 that they had charged the former British boss of GSK's China business and other colleagues with corruption, after an investigation there found evidence of an elaborate scheme to bribe doctors and hospitals.

The case is the biggest corruption scandal to hit a foreign company in China since the Rio Tinto affair in 2009, which resulted in four executives, including an Australian, being jailed.

The decision by the British fraud office does not come as a complete surprise, since lawyers and industry analysts had pointed out that allegations against GSK in overseas markets could expose it to charges under the UK Bribery Act.

The new act, like the long-established U.S. Foreign Corrupt Practices Act, prohibits payments to government officials, including state-employed doctors, to obtain business overseas.

U.S. authorities are already investigating British drugmaker for possible violations of U.S. anti-bribery laws in China, sources familiar with the matter told Reuters last September.

CHINA ALLEGATIONS "SHAMEFUL"

Authorities in China first accused GSK last July of funnelling up to 3 billion yuan (285 million pounds) in bribes to encourage doctors to use its medicines in a case that the company described in 2013 as "shameful".

Since then allegations have surfaced in other countries and GSK is now investigating claims that bribes were also paid to doctors in Poland, Iraq, Jordan and Lebanon.

The allegations that bribes were paid in Poland could be particularly damaging, according to some lawyers, since the country belongs to the European Union and GSK would be expected to uphold the same standards there as in any other EU state.

Despite the barrage of bribery reports, GSK has insisted it does not have a "systemic issue with unethical behaviour" and says it has a clear system for dealing with violations, which resulted in 48 dismissals and 113 written warnings last year.

In a bid to try and put the problems behind it, GSK is rolling out a new sales model designed to eliminate sharp marketing practices.

The firm aims to become the first in the industry to stop paying outside doctors to promote its products, end payments for medics to attend conferences and delink incentives for sales representatives from individual sales targets.

($1 = 6.2486 Chinese Yuan)

(Additional reporting by Andy Bruce, editing by David Milliken and David Evans)