Monday, July 22, 2013

Files Suggest a Graft Case in China May Expand - NYT

SHANGHAI — A few weeks ago, when Chinese investigators raided a small travel agency in this fast-growing city, they came upon something startling.

The agency appeared to be using fake contracts and travel invoices to help executives at the British pharmaceutical giant GlaxoSmithKline bribe doctors, hospitals, foundations and government officials, Chinese authorities said.

Soon after, the police shut Shanghai Linjiang International Travel Agency and detained its boss, Weng Jianyong. Four Chinese-born Glaxo executives were also held on suspicions of bribery and tax fraud.

But documents obtained by The New York Times show that in the last three years at least six other global pharmaceutical companies, including Merck, Novartis, Roche and Sanofi, used the same travel agency to make arrangements for events and conferences.

The records included invoices for hotel bookings, travel visas and airline tickets to Chinese cities, and to Australia, Italy, Japan, Korea and the United States. One of the drug companies appears to have used the travel agency to make a $2,500 grant to the Cancer Foundation of China.

The documents contain no indication of wrongdoing. But they suggest that big drug makers other than Glaxo could come under scrutiny as the Chinese government widens its investigation into fraud and corruption in the nation’s fast-growing market for pharmaceutical products. Chinese authorities did not respond to requests for interviews.

Over the weekend, Merck and Roche acknowledged using Shanghai Linjiang International Travel Agency. But they gave few other details about the nature of the relationship.

A spokeswoman in China for Merck would say only that the American company stopped using the travel agency in 2011, when Merck introduced a new procurement system.

Roche said it had worked with various agencies in China for business travel or organizing events, including Shanghai Linjiang International Travel Agency.

“Once allegations of illegal behavior by this agency on behalf of other parties were made public, we made an internal decision to immediately stop working with this agency, and we have begun to review the documentation of our previous interactions with them,” Roche said in a statement on Saturday. “This review is currently ongoing.”

A spokesman for Novartis said by e-mail that the company could not confirm or deny whether it had used the agency. Sanofi did not respond to repeated requests for an interview.

The scandal has battered the reputation of GlaxoSmithKline, which is also known as GSK. At a news conference last week, investigators likened the British drug maker to a boss in a criminal organization. They said it used the travel agency to bribe officials in hopes of illegally increasing drug sales and raising the prices of its products in China.

GlaxoSmithKline has said that what the government says its staff engaged in was “shameful,” and at odds with its policies. It pledged to cooperate with investigators. Over the weekend, the company’s chief executive, Andrew Witty, who is based in London, dispatched three top executives to China to deal with the scandal. On Sunday, one of the Glaxo executives met with investigators and apologized, according to Xinhua, the state-run news agency.

Meanwhile, the company’s China finance chief, Steve Nechelput, a British national, has been barred by Chinese authorities from leaving the country, though a person familiar with his case says he is not a target of the investigation.

According to the authorities, Glaxo has used 700 travel and consulting firms and spent nearly $500 million on conferences since 2007. Some travel agencies helped Glaxo executives commit fraud, the government asserts. But investigators have named just one: Shanghai Linjiang International Travel Agency.

The government said the Linjiang agency did very little booking on its own and mostly acted as a “money platform” that allowed Glaxo to create a huge slush fund. 

Lynn Zhang and Yiyi Dong contributed research.

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According to the government, the travel agency was handling about $16 million worth of Glaxo business a year, but seemed to be doing very little work. The government also said Mr. Weng had said that several other foreign drug companies were also “involved” in such actions, though he did not elaborate.

Corporate fraud specialists say using travel agencies, and marketing or consulting firms, to launder money, embezzle or create slush funds to bribe officials is common in China, even at multinational corporations operating in the country.

“People don’t realize there’s an active market for fake receipts and that shell companies are used to make bribe payments,” said Violet Ho, head of greater China operations at Kroll Advisory Solutions.

On Thursday, a handful of employees could be seen at the office of Shanghai Linjiang International Travel Agency in a modest building in Shanghai, but they declined to talk to visitors. Neighbors said they noticed the Linjiang staff was busy shredding documents, some of which could be seen piling up in hallway trash bags.

Reached by telephone Saturday, one Linjiang manager said: “Our main business was organizing conferences. Everything we did was standard practice.” He declined to say much more.

How the small agency secured business with many of the world’s biggest drug makers remains a mystery.

According to corporate records, the agency was formed in 2006 by Shanghai Linjiang Holdings, a local property company, the former Chinese soccer star Wu Chenying and the family of the company’s current manager, Mr. Weng. In a telephone interview on Sunday, Tan Yidao, the chairman of Shanghai Linjiang Holdings, said he sold his stake and surrendered control to Mr. Weng and his wife six years ago, after trouble occurred when some tourists died while traveling to Thailand with the agency.

“I sold because I didn’t think the travel business would do well,” Mr. Tan said.

He said he did not know that Mr. Weng or his wife had contacts in the pharmaceutical business. Mr. Weng, he said, had been in the restaurant business and his wife had worked at a travel agency before forming Linjiang Travel. According to the Chinese government, Linjiang’s  business with Glaxo took off in about 2010. Rather than organize tours, the government said, the travel agency created fake invoices for Glaxo, and that helped touch off an investigation. Records reviewed by The Times include invoices listing payments to other travel agencies to book hotels and flights, suggesting that Linjiang acted as a liaison in the deals. Some large Chinese pharmaceutical companies and other multinationals were also listed in the records.

The government says Mr. Weng and the GSK executives have confessed to faking invoices and bribing doctors and officials. 

In an interview seen last week on China Central Television, the big state-run broadcaster, Mr. Weng said he schemed with a senior GSK executive named Liang Hong, who is among the four who have been detained.

“Liang would tell me he is going to visit some experts, or some government officials and he needs to send some gifts,” Mr. Weng said in the interview. “Gifts approved by the company are about $15 to $30. That won’t be enough. Liang would say, ‘Mr. Weng, please arrange some cash for me.’ That’s basically how it was done.”

Lynn Zhang and Yiyi Dong contributed research.


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