Federal authorities have arrested eight additional people in connection with the Galleon insider trading scandal. And later today prosecutors intend to announce the filing of charges against 14 new defendants–including the eight arrested today, people familar with the case say.
Country or company — where does your loyalty lie? For Beijing, there is simply no question. If you are Chinese — or a foreign passport holder of Chinese origin — you work for China first, second and third.
The arrest of four Rio Tinto Ltd employees — three Chinese and an Australian — on charges of stealing state secrets is a stark reminder of the dilemma this poses for foreign companies in China, where it is impossible to operate without local staff. The flip side is the pressure facing Chinese nationals who work for foreign companies. In their enthusiasm to please employers, these employees often risk overstepping the mark and falling foul of the law.
China, like many countries, does not recognise dual passport holders. So woe betide anyone who was born in China or whose parents were Chinese, who are sure to feel the full force of Beijing’s powers if they are deemed to have broken the rules.
And in this case, it is not just foreign company staff who have been arrested; the head of iron ore with the foreign trade and investment unit of state-owned Chinese steel company Shougang Group has also been detained.
Foreign companies rely on their local staff for an understanding of local business mores as well as language, contacts and know-how. And there is often a blurring of the lines between what is acceptable business practice at home and in the country in which they are operating.
Corporations are no angels when it comes to digging for information. Some mining companies have set up research teams in China, with an emphasis on building market intelligence.
This is asking for trouble in China where the definition of what constitutes a state secret is particularly strict, especially when it comes to business or economic information.
But as Anglo-Australian miner Rio and its employees may have found to their cost, the implementation of such laws can be patchy and unpredictable.
For while Beijing may not stick to the letter of the law as long as the spirit is adhered to, it can be a completely different story when the government wants to make a point.
In this case, it’s impossible to ignore a long deterioration in China’s relations with Rio and BHP Billiton, Australia’s two main exporters of iron ore. It can be seen as the final phase in the downward spiral of relations as China’s expanding steel industry and booming demand for imported ore have given all the negotiating leverage to Rio and BHP and sent prices soaring.
The detentions come just after a June 30 deadline passed for iron ore price talks between China and Rio. And don’t forget, Beijing is still smarting after Rio ditched a deal with Chinalco in favour of an iron ore joint venture with BHP.
But while the move is bound to make Chinese employees of foreign firms more cautious, it won’t stop the whispered confidences which inevitably accompany business deals the world over.