Corporate detectives linked to GlaxoSmithKline on trial in Shanghai

Email Simon Stratford

Before the sex tape, there were the emails.

They came sporadically throughout the first two months of 2013 – long, unsigned, highly detailed missives alleging malfeasance at the China office of UK pharmaceutical company GlaxoSmithKline. The sender was "gskwhistleblower". Recipients included the chief executive, Sir Andrew Witty, and 12 other GSK executives.

They received the sex tape in March. The male subject was clearly the company's then China boss, Mark Reilly, 52, who had been living in Shanghai since 2009. The tape had been filmed surreptitiously in his guarded luxury home. The woman was his Chinese girlfriend, a young secretary at a travel company.

Reilly was troubled and GSK approved an investigation, so he called in Peter Humphrey, a UK citizen, and his American wife, Yu Yingzeng, known as two of the best corporate detectives in China. They had operated the small firm ChinaWhys since 2003, conducting "wide-ranging discreet inquiries into difficult commercial matters", according to the firm's website. Humphrey had previously spent two decades as a foreign correspondent for Reuters, based in Asia and eastern Europe, before breaking into corporate investigation. Yu, 61, was trained as a forensic accountant.

Humphrey, 58, has a round, affable face; he wears gold wire-frame spectacles beneath a shock of salt-and-pepper grey hair. Reilly offered him £20,000 from GSK's coffers to find out how the camera had ended up in his home. Humphrey named the investigation "Project Scorpion" and spent months reviewing the emails. Although he never found a definitive answer, bit by bit, he began to suspect the corruption claims – accusations that health officials had been bribed to buy GSK drugs – were true.

The couple had planned for the GSK investigation to be one of their last jobs in China. Their 19-year-old son was to attend university in the UK, and they hoped to move back too. But last summer their world came crashing down. In late June, authorities raided GSK's China headquarters in Shanghai, confiscating documents and detaining employees. Over six years, they said, GSK may have spent £285m on bribing doctors and hospital officials to sell their drugs.

On 10 July, the authorities ransacked the ChinaWhys office and detained the couple on suspicion of "running an illegal company". Humphrey and Yu "illegally trafficked a huge amount of personal information on Chinese citizens to seek profits", state media reports said.

A few weeks later, they appeared on state-run television. "To obtain this information, I sometimes used illegal means," Humphrey said, handcuffed and in an orange prison vest. "I'm extremely repentant for this, and want to apologise to the Chinese government."

Humphrey and Yu go on trial on Friday accused of illegally purchasing personal information about Chinese nationals, an unprecedented charge for foreigners in China. Last week, their son, Harvey, was allowed to visit them at Pudong detention centre in Shanghai for the first time since their arrest. Both had lost a lot of weight, he said. Yu was emotional – "shocked" to see her son. They discussed books she had read in prison, mainly tomes on philosophy and US politics that she was given by consular officials. "I guess she uses them as a psychological barrier," Harvey said. Humphrey was was more stoic, advising him on practical matters: arranging his tuition fee status for university, managing family assets. "We did touch on GSK very briefly," Harvey said. "I did mention Reilly to my dad, and he expressed a very low opinion of him."

Throughout the fiasco, one figure has lurked in the background: Vivian Shi, GSK's former government relations manager. Reilly suspected she was the whistleblower, although she has denied it. Shi spent four years at the company, but left in December 2012, shortly before GSK executives began receiving the emails. She is supposedly well-connected in public security, and her father was a senior communist in Shanghai. Humphrey was jailed soon after she learned of the investigation.

"[Humphrey] hit a nerve in this investigation, a really deep nerve," said Kerry Brown, a Chinese politics expert at the University of Sydney and a former diplomat in Beijing. "And when this happens to somebody with his experience in China – a real professional – it makes you take a breath and go, no one can really say that they are invulnerable in this market."

Reilly, who remains a GSK employee, was in the UK when GSK's China headquarters were raided, but returned to aid the investigation. He was barred from leaving and remains in China; his movements are restricted. In May, prosecutors accused him of overseeing a "massive bribery network". If found guilty, he could spend years in jail.

"For the foreign business community in China, for a long time, there was a feeling that the worst that could happen is you'd get kicked out," said Duncan Clark, the head of BDA China, a consultancy in Beijing, and former chairman of the British Chamber of Commerce in China. "That's over, clearly."

For GSK, there is a lot on the line. It has spent hundreds of millions trying to crack China's pharmaceuticals market, now the second largest in the world, after the US. Witty has trumpeted a zero tolerance attitude towards corruption at the company. He reiterated on 23 July that he was "very concerned" by the allegations, saying they were contrary to his values. Referring to China, he said: "We have new management there on the ground, and are focused on building a robust business."

The drugmaker has kept ChinaWhys at arm's length. GSK says the charges against Yu and Humphrey may not be related to GSK, and Chinese state media have never explicitly made the link. One company insider said GSK managers had not identified the whistleblower, and insisted it was not important. The priority, they said, was determining whether the fraud allegations were true.

Chinese prosecutors had been keeping GSK in the dark, the insider said, refusing to disclose the investigation's findings, even its timeline.

Harvey Humphrey said: "[GSK] didn't extend any supporting hand at the beginning – they went into survival mode, denying all connection with my parents, which I found quite disingenuous, to put it lightly. I'm not particularly critical of the Chinese – I'm more critical of GSK. The Chinese are what they are, and we're used to it."

In May, Britain's Serious Fraud Office began a criminal investigation into GSK's sales practices across a number of countries. GSK also faces corruption allegations in Poland, Iraq, Jordan and Lebanon. Although its internal investigations have not found evidence of widespread corruption in China, the company has hired an American law firm, Ropes & Gray, to conduct an independent inquiry.

GSK reiterated last month that it "takes these allegations seriously and is continuing to co-operate fully with the Chinese authorities in this investigation. The group has informed the US department of justice, the US Securities and Exchange Commission and the UK Serious Fraud Office regarding the investigation and is co-operating fully with these agencies."

If convicted, Humphrey and Yu could be sentenced to one to three years in jail. Consular officials say they have both had medical problems in detention: Humphrey has a hernia, arthritis, prostate problems, and compression fractures in his upper spine. Fumes from a rubbish incinerator near the prison have given him asthma. Yu has joint problems and a blocked kidney. Both are in cramped rooms with six or seven other inmates; chronic bunk shortages mean they occasionally must sleep on the floor.

In a letter to his son in mid-June, reproduced by the South China Morning Post, Humphrey wrote: "When I became a business consultant 16 years ago, I concentrated on helping distressed companies and individuals who were victims of crime. This I also considered a public service … And I still do."

Powered by Guardian.co.ukThis article was written by Jonathan Kaiman in Beijing and Julia Kollewe in London, for The Guardian on Thursday 7th August 2014 17.10 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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