Rio Tinto Employees Charged With Accepting Bribes, Infringing Trade Secrets

March 10, 2010

The Shanghai People's Procuratorate formally charged four employees of the Anglo-Australian mining firm Rio Tinto on February 10 with "bribery and infringing trade secrets." The four men, three Chinese citizens and one naturalized Australian who is a former Chinese national, were first detained in Shanghai in July 2009 on suspicion of "stealing state secrets," a crime which in China entails closed-door trials and often severe punishment. In August, charges against the four employees were downgraded to "commercial bribery and trade secrets infringement," with the Shanghai Procuratorate last month accusing the men of "taking advantage of their position to seek profit for others, and asking for, or illegally accepting, huge amounts of money from Chinese steel enterprises." Some reports note the timing of the detentions of the four employees, which took place shortly after Rio Tinto pulled out of a proposed $19.5 billion deal with a major state-owned Chinese firm in June 2009.

According to a February 10, 2010, report by Xinhua, China's state-run news outlet, the Shanghai People's Procuratorate has decided to prosecute four employees of the Anglo-Australian mining firm Rio Tinto—an Australian citizen of Chinese descent, Stern Hu, and three Chinese nationals, Wang Yong, Ge Minqiang and Liu Caikui—for "bribery and infringing trade secrets." According to an August 13, 2009, Caijing report, Chinese security agents detained the four men, the general manager of Rio Tinto's iron ore division in Shanghai and three division colleagues, on July 5, 2009, on what Caijing described as "preliminary charges" of stealing state secrets. This crime is not clearly defined in Chinese law, providing authorities with latitude to construe it broadly when applied to information that is not public. In August 2009, Chinese authorities imposed formal charges against the four for suspicion of commercial crimes of bribery and stealing trade secrets, according to an August 14, 2009, article in the Wall Street Journal.

The nature of the bribery allegations has varied. A July 15, 2009, article in the state-run China Daily cited an "industry insider" as claiming that "executives from all 16 Chinese steel mills participating in iron ore price talks this year have been bribed by Rio Tinto employees." However, according to the Xinhua report of February 10, 2010, the Shanghai court statement issued on February 10 said prosecutors instead have accused the four Rio Tinto employees of "taking advantage of their position to seek profit for others, and asking for, or illegally accepting, huge amounts of money from Chinese steel enterprises." The receipt of bribes or kickbacks by an employee of a company or enterprise operating in China is illegal under Article 163 of the Criminal Law of the PRC, while payment of commercial bribes is criminalized under Article 164. The Commission to date has found no details on evidence of payment or receipt of bribes by the employees. As to details of the alleged bribery, University of Wisconsin Professor Liu Sida, an expert on the Chinese legal profession, asked in his February 10, 2010, post on the Chinese Law Prof Blog, "if the defendants received criminally large bribes in violation of Article 163, then somebody must have offered them criminally large bribes in violation of Article 164. Where is the prosecution against the bribers?"

Various foreign media reports, including CNN and Reuters in articles on July 8, 2009, noted the timing of the arrests, which took place shortly after Rio Tinto pulled out of a proposed $19.5 billion deal with China's state-owned Aluminum Corp. of China (Chinalco) in June 2009. The deal would have secured for Chinalco an 18-percent stake in Rio Tinto. According to a BBC report, "State-owned Chinalco said it was 'very disappointed' by Rio's rejection of the deal, which would have been China's largest investment in a foreign firm." Around the same time last summer, annual negotiations between the China Iron and Steel Association and top foreign suppliers over reductions in benchmark prices for iron ore imports were also breaking down, forcing Chinese steel mills to pay spot market prices that in some cases were more than 20 percent higher than the negotiated benchmark prices in South Korea, Japan and Europe, according to a July 22, 2009 report in the Wall Street Journal.

Rio Tinto has defended its four employees and denied all allegations of wrongdoing on their behalf, and at the same time has remained commercially engaged in China. Sam Walsh, chief executive of Rio Tinto's iron ore group, said "Rio Tinto believes that the allegations in recent media reports that employees were involved in bribery of officials at Chinese steel mills are wholly without foundation," according to a July 17, 2009, BBC report. Walsh went on to say, "We remain fully supportive of our detained employees, and believe that they acted at all times with integrity and in accordance with Rio Tinto's strict and publicly stated code of ethical behavior." According to the BBC report, senior government officials in Australia have expressed concern to the Chinese government, and the United States has urged fair treatment and transparency for the staff of foreign companies in China. Despite the arrests and acrimony, however, China and Rio Tinto remain intimately linked, with China accounting for about 24 percent of Rio Tinto's total revenue in 2009, according to a February 12, 2010, Wall Street Journal report.

The Rio Tinto case highlights the risks for Chinese employees of foreign companies operating in China, especially in politically sensitive areas (including, but not limited to, primary industries), and the potential interrelationship between commercial crimes and the interests of different government departments and state-owned enterprises, be they domestic industry players or departments such as the state security bureaus or Ministry of Commerce. (For more information on the background of the case, see Rio Tinto box in the CECC 2009 Annual Report, page 221.) This issue arose recently in regard to Google, with some commentators discussing risks to employees arising from Google's announcement on January 12, 2010, that it would review its operations in China in light of Chinese government censorship of the Google search engine and a large cyber attack originating in China. For example, a February 4 Reuters report, noted, "[E]xperts on Chinese law warn that Google employees in China could also face prosecution for breaking the law.... 'If they have a lot of personnel in China and they suddenly decide to change what they're doing in a way that was not permitted by the Chinese government, then that could lead to problems,' said Donald Clarke, a professor of Chinese law at George Washington University Law School, noting Google staff could be at risk of everything from arrest to harassment." According to a report in the March 4, 2010, Washington Post, some companies are reviewing their business models in China, and even getting out of sensitive sectors, or "shifting responsibilities abroad to protect China-based employees."