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NEWS RELEASE · 29th March 2010
Elaine Kurtenbach (AP)
Unexpectedly harsh jail sentences of seven to 14 years for four Rio Tinto employees charged with taking bribes and stealing commercial secrets could augur tougher times for foreign companies and errant executives in China's unruly business world.

Seeking to protect its business ties from what it termed the men's "deplorable behavior," the mining giant promptly fired all four.

The court's rulings against Australian citizen Stern Hu, former manager of Rio Tinto's iron ore business in China, and three Chinese co-workers suggest authorities are taking a sterner stance toward foreign companies caught violating the country's often selectively enforced corruption code.

The 10-year sentence for Hu was "very harsh," Australia's Foreign Minister Stephen Smith said after the verdict was read out Monday by the lead judge at the Shanghai People's Intermediate Court. It was unclear whether Hu or his co-workers, who have been in custody in Shanghai since July, would appeal.

Rio Tinto, based in London and Melbourne, is a key industry negotiator in price talks with China's state-owned steel mills, and the arrests of its employees last August were initially thought linked to Beijing's anger over high prices it paid for iron ore - a key commodity for China's booming economy. That belief was shaken last week after the four pleaded guilty to taking bribes from steel mills trying to get preferential access to ore supplies.

Australia said Hu's sentence wouldn't affect ties with China, but some experts said the secrecy of parts of the trial underlined worries companies already have about doing business in a country where legal proceedings are often opaque.

The verdict also comes as other faultlines appear between Beijing and the global corporations eager to tap a fast-growing market of more than 1 billion. A recent survey showed a growing number of foreign businesses in China feel shut out under new government policies promoting homegrown technology. Internet search giant Google's high profile decision, meanwhile, to move its Chinese site to Hong Kong after a spat over censorship and hacking added to the unease.

China has chronic problems with corruption so the Rio case "is not as simple as China sending a warning message to a particular country or company" said Jin Linbo, a senior research fellow with the China Institute of International Studies. "It's time China should deal with this problem or more serious cases will emerge," Jin said.

Beijing is constantly staging anticorruption crackdowns as the ruling Communists strive to clean up an image tainted by graft scandal after graft scandal. But big foreign companies are rarely if ever targeted, making it difficult to know how widespread graft is among international business operating in China.

The stiff sentences were meant "to protect market order and the normal management of business," said the judge, Liu Xin, accusing the Rio employees of causing major losses to the Chinese steel industry.

The four defendants stood impassively as their sentences were read aloud in a hearing that foreign media were allowed to watch by closed-circuit television.

Rio Tinto, which is increasingly dependent on its business with China, issued a statement saying a probe it ordered found no wrongdoing by the company itself.

"I am determined that the unacceptable conduct of these four employees will not prevent Rio Tinto from continuing to build its important relationship with China," Chief Executive Tom Albanese said.

The court accused Hu and the others of using commercial secrets obtained by "improper means" as a bargaining chip in the ore price negotiations. As a result, more than 20 steel mills paid an extra 1.02 billion yuan ($150 million) for iron ore in 2009, the court said.

Hu was sentenced to seven years on the bribery charges and five years on the commercial secrets charges but will serve 10 years. He was fined 1 million yuan ($146,000).

The longest term of 14 years was given to Wang Yong, of which 13 years was for accepting bribes. The court's charges against Wang said he received $9 million from Du Shuanghua, a steel tycoon whose company, Rizhao, has chafed at the state-dominated pricing arrangements, setting his own agreements with overseas suppliers. Wang was fined 5.2 million yuan ($761,000).

The other two defendants, Ge Minqiang and Liu Caikui, were sentenced to jail terms of eight and seven years, respectively.

Australian officials who attended the bribery hearings believed there was substantial evidence bribery had occurred, said Smith.

Industry analysts say Chinese steel mills often seek to line up shipments from suppliers at preferential prices. The Rio Tinto case could herald a crackdown on that and other practices as the government seeks to reinforce a united front in price negotiations.

But Smith reiterated Australia's objections to the court's decision to hold closed hearings on the commercial secrets charges during the three-day trial last week, a move he said "leaves serious unanswered questions."

"Clearly the international business community has been watching and transparency and clarity on this point would have been of assistance," Smith said.

Professor Donald Rothwell of the Australian National University's College of Law said the secrecy of the trial would likely make international companies wary.

"It just reconfirms the fact that the Chinese legal system is very different to those which exist in other parts of the world," Rothwell said.

The Rio Tinto verdict mentioned several Chinese companies whose employees allegedly gave bribes to the defendants. But the choice to hold a high profile trial of the Rio Tinto employees without equally focusing on the Chinese businesses said to be involved in giving bribes undermines the authorities' message, said Alexandra Wrage, president of the nonprofit association TRACE International, which helps companies combat bribery.

"Add to this the suspicious timing of Hu's arrest, the secrecy around the trial and the limited access to the defendants and the whole thing is best characterized as a step backward for transparency, not a step forward," Wrage said.