Editorial: Puzzling Rio Tinto convictions in China

The swift convictions of four Rio Tinto employees in Shanghai on Monday brought more questions than answers.

Chinese authorities arrested the four employees of Rio Tinto’s Chinese iron ore business last July and originally charged them with bribery and obtaining “state secrets.” The latter charge was soon reduced to industrial espionage.

Three are Chinese nationals and the fourth, 46-year-old Stern Hu, was born, raised and educated in China before becoming an Australian citizen in 1997.

At the time of the arrests, Hu headed up Rio Tinto’s iron ore business in China and was known as a hard bargainer, and the company was engaged in tense, overtime iron ore price negotiations with Chinese steelmakers.

The arrests were initially viewed cynically in the West as perhaps being a crude ploy by the Chinese to put pressure on Rio Tinto, or payback against the Australian government and Aussie big business for blocking Chinalco’s attempted major investment in Rio Tinto a month earlier.

Hu’s Australian citizenship made the arrests an international story reaching all the way up to Australian Prime Minister Kevin Rudd’s office.

However, the Chinese essentially treated Hu as one of their own and for the most part shut out the Aussie Foreign Ministry, which admitted early on that it had been relying on Chinese government websites and press reports to keep abreast of the arrests.

Even today, details of the arrests, charges, evidence, court cases and convictions are sketchy at best, as the trial was mostly held in secret over two and a half days in the Shanghai Number One Intermediate People’s Court.

The trial’s secrecy goes directly against pledges the Chinese government made to its international trading partners when it joined the World Trade Organization. It also appears to violate a 1999 consular agreement between the Chinese and Australian governments — a charge the Chinese deny.

After the convictions, Rudd said that the Chinese government had “missed an opportunity to demonstrate to the world at large transparency that would be consistent with its emerging global role.”

However, we do know that the four employees confessed to accepting significant bribes.
Still, the confessions strike us as a little odd, in that Rio Tinto had been getting away with charging very high rates in its iron ore sales to China, so clearly Rio Tinto hadn’t been taking a significant hit, and one would expect a person involved in “industrial espionage” to be the one doing the bribing in order to obtain information, and not accepting bribes.

Hu was sentenced to 10 years in prison for accepting $935,000 in bribes from steelmakers and for involvement with commercial secrets, and fined RMB1 million (about $150,000). Wang Yong was sentenced to 14 years for accepting bribes and fined RMB5.2 million. The other two were sentenced to 7-8 years in prison.

In his statement, the judge reportedly commented that the four men had caused major losses to the Chinese steel industry.

The industrial espionage part of the trial was held in secret, so there is still no way for outsiders to know if the four were merely engaged in ordinary corporate research on clients and competitors.

Rio Tinto isn’t sticking around to find out: it quickly fired the four employees after the verdicts were announced.

Sam Walsh, chief executive of Rio Tinto Iron Ore, said in a statement that “receiving bribes is a clear violation of Chinese law and Rio Tinto’s code of conduct. . . We have been informed of the clear evidence presented in court that showed beyond doubt that the four convicted employees had accepted bribes.”

Rio Tinto added that it had independent forensic accountants look through its Chinese books and they determined that “the illegal activities were conducted wholly outside” Rio Tinto’s systems.

Rio Tinto goes on at length in its statement about its commitment to ethical behaviour, but it’s a bit much considering it has a pivotal and growing relationship with an authoritarian government in Beijing that regularly stomps on human rights, despite its great economic achievements.