* GSK used travel agencies to funnel bribes - Chinese police
* Four senior Chinese executives from GSK detained - police
* Police say examining $490 million in transfers
* Similar practices found at other foreign drug firms
* GSK says very concerned, stops use of travel agencies
By Michael Martina
BEIJING, July 15 (Reuters) - Chinese police on Mondayaccused British drugmaker GlaxoSmithKline of channellingbribes to Chinese officials and doctors through travel agenciesto boost sales illegally and raise the price of its medicines inthe country.
The charges make the GSK case the highest profile corporateinvestigation in China since four executives from mining giantRio Tinto were jailed in March 2010 for takingbribes and stealing commercial secrets.
Gao Feng, head of the economic crimes investigation unit atChina's Ministry of Public Security, said since 2007, GSK hadtransferred as much as 3 billion yuan ($489 million) to morethan 700 travel agencies and consultancies over six years.
Four senior Chinese executives from GSK had been detained,Gao said at a news conference. The Ministry of Public Securityhad said last week that GSK executives in China had confessed tobribery and tax violations.
GSK said it was deeply concerned by the developments and hadstopped using the travel agencies identified by theinvestigation. It said it was reviewing all third party agenciesand all historic transactions related to the travel agencies.
"GSK shares the desire of the Chinese authorities to rootout corruption," it said in a brief statement. "Theseallegations are shameful and we regret this has occurred."
GSK supplies key products such as vaccines in China, as wellas drugs for lung disease and cancer.
Sources familiar with the situation said GSK's generalmanager for China, Mark Reilly, had left the country for London10 days ago to attend routine meetings and was now working inBritain, where he is in regular contact with the team in China.
The probe into Britain's biggest drugmaker is one of astring of investigations into foreign firms and their pricingpractices in the world's second-biggest economy.
The official People's Daily newspaper said GSK collaboratedwith travel agencies to funnel bribes to doctors and officialsby creating fake "conference services" as expenditure for GSK tomisappropriate funds, some of which would be spent on bribes.
"We have sufficient reason to suspect that these transferswere conducted illegally," Gao said. "You could say the travelagencies and GSK were criminal partners. Among the partners, GSKwas mainly responsible. In a criminal organisation there isalways a leader."
Gao gave no examples of how the bribery involving the GSKexecutives worked. He said there were also instances of "sexualbribery", although he did not elaborate.
He said police had uncovered information that pointed tosimilar money transfers made by other multinationalpharmaceutical companies in China.
"Whether they were engaged in illegal behaviour, you can gointerview them ... You just need to ask them one question: Areyou sleeping well at night?" Gao said.
He did not name any other foreign companies.
KEY MARKET
China has targeted foreign firms on multiple fronts in thepast few months, including over alleged price-fixing, qualitycontrols and consumer rights, forcing companies to defend theirreputations in a country where international brands often have avaluable edge over local competitors in terms of public trust.
European food groups Nestle and Danone said they would cut infant milk formula prices in China afterBeijing launched an inquiry into the industry.
China is increasingly important for big drug groups, whichrely on growth in emerging markets to offset slower sales inWestern markets where many former top-selling medicines havelost patent protection.
IMS Health, which tracks pharmaceutical industry trends,expects China to overtake Japan as the world's second-biggestdrugs market behind the United States by 2016.
GSK sold 759 million pounds ($1.15 billion) ofpharmaceuticals and vaccines in China in 2012, up 17 percent on2011, representing around 3.5 percent of the group total.
The detained GSK executives include Liang Hong, vicepresident and operations manager of GSK (China) Investment CoLtd and Zhang Guowei, the company's vice president and humanresources director, the official Xinhua news agency reported.
It was not immediately clear if the executives had legalrepresentation.
Xinhua said it was given access to one detained travel agentwho said he did business with Liang. The agent said he sometimesarranged money for bribes and delivered it to the recipient. Theagent also paid kickbacks to Liang, Xinhua reported.
Xinhua, given access to Liang by the authorities, quoted thedetained executive as saying medicine which cost 30 yuan to makecould be sold to patients for 300 yuan. It did not specificallysay Liang was referring to GSK drugs.
The police last Thursday said the case against GSK involvedmany staff, with bribes offered to Chinese government officials,medical associations, hospitals and doctors.
Police said they had taken no action against any Britishnationals in the GSK case. No information had been received fromGSK's UK headquarters, they said.
Rio Tinto (RIO)
Glaxosmithkline (GSK)
