Financial Regulatory Forum

China indicts Rio staff for bribery, commercial secrets

By Reuters Staff
February 10, 2010

By Ben Blanchard and Chris Buckley

BEIJING, Feb 10 (Reuters) – China has indicted four employees of Anglo-Australian mining giant Rio Tinto on charges of bribery and stealing business secrets, setting the stage for a trial in the case that has jangled investor nerves.

The four who are set to stand trial in Shanghai include Australian citizen Stern Hu, state news agency Xinhua said on Wednesday.

If found guilty, they could face up to seven years in jail on the commercial secrets charge, and up to 20 years on the bribery charge, said Zhang Peihong, a lawyer for one of the accused Chinese nationals.

The indictments will open another chapter in the case that has tested ties with Australia and unnerved mining companies and foreign investors in China, worried about pitfalls in the world’s third biggest economy, where state power is never far from the negotiating table.

Last month, the world’s top Internet search engine Google  became embroiled in a dispute with China, criticising Beijing for censorship and saying it had been the victim of serious hacking from within the country. It has threatened to pull back from China.

In the Rio case, the Shanghai prosecutor said the four badly hurt Chinese steelmakers and were seeking to benefit “others”, who it did not name.

“The accused four, including Stern Hu, exploited their positions to seek gain for others, and numerous times either sought or illegally accepted massive bribes from a number of Chinese steel firms,” the Xinhua report said, citing the prosecutors’ indictment.

“Many times they used personal inducements and other improper means to obtain commercial secrets from Chinese steel firms, causing serious consequences for the steel firms concerned.

“It is understood that the Shanghai Municipal First Intermediate People’s Court has accepted this case according to the law,” Xinhua said.

Hu, Rio Tinto’s lead iron ore negotiator in China, and three other staff from China were arrested last July and remain in detention. The three accused Chinese nationals are Liu Caikui, Ge Minqiang and Wang Yong.

Chinese courts are controlled by the ruling Communist Party and rarely find in favour of defendants.

The Australian government had no immediate comment on the announcement.

Initially, the men were accused of the more serious charge of state espionage, and Australia said China’s handling of the case was being closely watched.

The Xinhua report did not specify what “secrets” the men are accused of obtaining. Chinese law allows for a broad interpretation of what counts as secret.

In past statements, Rio has said its four employees did no wrong. Rio’s spokesman in London, Nick Cobban, said of the indictments, “We are not making any comment at the moment.”

BUSINESS GOES ON

The case has cast a cloud over already contentious iron ore price negotiations between China and Rio, fellow Australian miner BHP Billiton and Brazil’s Vale as well as government-to-government ties.

But the indictments are unlikely to derail ore price negotiations already mired in distrust, said Paul Bartholomew, Australia manager at Steel Business Briefing.

“I think it’s not unexpected. China having gone this far down the path, it was unlikely they were going to suddenly turn around and let these guys go,” said Bartholomew, who is based in Melbourne.

“Of course it’s certainly not conducive for official benchmark (iron ore pricing) talks with CISA, but at the end of the day it’s still business. China needs the iron ore and Australia needs the Chinese steel mills.”

CISA is the China Iron and Steel Association.

China is Australia’s biggest trade partner at $53 billion in 2008. Australia exported $15 billion worth of iron ore to China in 2008, or 41 percent of China’s iron ore imports.

The big iron ore miners are asking Chinese mills for a 40 percent increase in prices this year after a fraught 2009 as demand surges beyond last year’s record imports of 628 million tonnes, according to press reports.

The China Iron and Steel Association however said at the end of last year that foreign miners were expected to seek a 20-30 percent increase in benchmark prices for 2010, and made it clear that such an increase was unacceptable.

Last year Rio Tinto refused Chinese demands for lower iron ore prices than those agreed by Japanese mills.

“The impact (of the Rio case) on iron ore negotiations was already played out at the time of the detentions and arrests,” the Chinese News Service said, citing a local industry analyst.

“There will not be much effect on the 2010 negotiations.”

Lawyer Zhang said the trial would most likely be after the week-long Lunar New Year holiday, which starts this weekend, though he did not know exactly when.

(Additional reporting by Lucy Hornby and Tom Miles in Beijing; Eric Onstad in London; and Michael Perry in Sydney; Editing by Jeremy Laurence) ((chris.buckley@thomsonreuters.com; 86-13501014479))

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