* GlaxoSmithKline investigation rocks business community
* Choose compliance over winning business, employees at onepharma firm told
* Probe will "shake up anyone responsible for compliance" -expert
* Bribery rife in pharmaceutical industry
By Michael Martina
BEIJING, July 17 (Reuters) - A Chinese bribery investigationinto British drugmaker GlaxoSmithKline has sent tremorsthrough multinational pharmaceutical firms in China, promptingat least one to review how they do business in the country.
Experts said foreign companies across the spectrum werewatching closely to see what happened to GSK and its fourdetained Chinese executives given bribery and business gohand-in-hand in the world's second biggest economy.
Chinese police on Monday accused GlaxoSmithKline of bribingofficials and doctors to boost sales and raise the price of itsmedicines. They said GSK transferred up to 3 billion yuan ($489million) to 700 travel agencies and consultancies over six yearsto facilitate the bribes.
Britain's biggest drug maker said it was deeply concerned bythe developments, which it called "shameful".
On the same day police announced their revelations, seniormanagers from another multinational pharmaceutical firm in Chinawere telling staff to make sure they complied with Chineseregulations governing the industry, one employee said.
"The message from the top is that if I have to choosebetween compliance and winning business, I would rather lose thebusiness," the employee told Reuters, requesting anonymitybecause of the sensitivity of the matter.
Bribes to government officials, underfunded hospitals andpoorly paid doctors have long facilitated the regulatoryapproval, distribution and the pricing of medicines in China.
Experts said it was too soon to tell if the GSKinvestigation would change such practices.
On top of the police probe, China's National Development andReform Commission is examining prices charged by 60 local andinternational drugmakers including units of GSK, Merck & Co Inc and Astellas Pharma Inc.
"All the other players in the industry will be taking a lookat their procedures, whether they face any active investigationsor not," said John McFarland, head of fraud prevention at Hill &Associates, based in Singapore.
CORPORATE BRIBERY RIFE
The GSK investigation is the highest profile corporate probein China since four executives from mining giant Rio Tinto were jailed in March 2010 for taking bribes andstealing commercial secrets. Three of those executives wereChinese while the fourth was a Chinese-born Australian.
Past improper payouts in China have also landed otherWestern drugmakers in trouble - although with U.S. rather thanChinese authorities.
Pfizer Inc and Eli Lilly & Co have bothsettled with Washington in the past 11 months over allegedcorrupt payments in foreign markets, including China, and morecases under the U.S. Foreign Corrupt Practices Act are pending.
China is increasingly important for big drug makers, whichrely on growth in emerging markets to offset slower sales inWestern markets. IMS Health, which tracks pharmaceuticalindustry trends, expects China to overtake Japan as the world'ssecond-biggest drugs market behind the United States by 2016.
Some lawyers in China said corporate bribery was sowidespread that a single action in one industry was unlikely tohalt the practice without sustained enforcement from theauthorities.
But Richard Cassin, an expert on the U.S. Foreign CorruptPractices Act and author of a popular FCPA blog, said China haddrawn a line in the sand for foreign companies.
"The China investigation and detentions of executives of agiant Western company will shake up anyone responsible forcompliance," he said.
A legal and compliance executive at a major multinationalconglomerate in China said all eyes were on GSK.
"Businesses outside of the sector are really watching thisto see whether this is an isolated circumstance," the executive,who was not authorized to speak to the media, told Reuters.
When announcing the accusations against GSK, Chinese policesaid they had uncovered information that pointed to similarviolations made by other multinational pharmaceutical firms,although they have not named any companies.
BIG PHARMA AN EASY TARGET
Pharmaceutical companies are at the mercy of Chineseregulators in getting products licensed for import ormanufacture in China, or to get them listed on the national drugregistry. They typically rely on hired distributors to get theirdrugs to market and into hospitals.
State broadcaster CCTV on Tuesday night aired an interviewwith one of the detained GSK executives, who said he funnelledmoney through travel agencies by arranging conferences, some ofwhich were never held.
That money was then used to bribe officials, doctors andmedical associations to facilitate sales or drug registrations.
According to sources with knowledge of the industry, China'ssophisticated and thriving market for fake documents also allowslocal employees to provide forged paperwork to more senior orglobal managers.
Efforts made by drug firms at compliance training can evenbackfire, as some employees learn how to avoid detection.
Politics could also be playing its part in the focus onforeign drugs companies.
China's government is faced with a $1 trillion healthcarebill by 2020, according to a report by consultants McKinsey, andis keen to cut the prices of medicines while at the same timetrying to provide universal access to healthcare.
That has made pharmaceutical companies vulnerable, saidJames Zimmerman, managing partner of law firm Sheppard MullinRichter & Hampton and a former chairman of the American Chamberof Commerce in China.
"My take is that the PRC government is targeting theindustry given that cost-effective health care for the masses isa critical current policy objective for China's agingpopulation, and the government's legitimacy is at risk if itfails to deliver on its promise of affordable and accessiblehealth care," Zimmerman said.