$Stock*Shop*Charts*News*Option$

[Stock Lobster]

BL: Multinationals taken aback by Rio Tinto prosecutions

Jane Macartney in Beijing, David Robertson and Alex Spence
February 11, 2010

Chinese authorities have charged four Rio Tinto executives with bribery and violating commercial secrets in a case that is being regarded as a warning to other multinational companies operating in the country.

The so-called Rio Four, as the Australian miner’s executives have become known, are almost certain to stand trial and could face up to seven years in jail. Stern Hu, an Australian citizen and the head of Rio’s iron ore negotiating team in China, and his three Chinese colleagues were arrested last year on espionage and bribery charges.

The Shanghai prosecutor’s office asserted yesterday that the police had gathered sufficient evidence to proceed with charges of bribery and possession of commercial secrets.

Xinhua, the state news agency, said: “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 move against the Rio executives has sparked fear among foreign businessmen working in China because, they say, the rules on bribery, corruption and espionage are opaque and poorly defined. Companies engaging in what elsewhere might be regarded as normal market intelligence activities could step over an invisible line into corporate espionage.

A leading City lawyer said: “It is extremely worrying. There’s quite a lot of politics and game-playing here.”

Other lawyers and risk consultants operating in China have said that they have been inundated with inquiries from clients about the Rio incident and how it might affect them.

The charges against the Rio Four also show that China is taking anticorruption measures seriously. Jeremy Cole, a partner at Lovells, said: “Just a few years ago only the American regulators were interested in prosecuting corporate executives for bribery. Then the European regulators got in on the act and now the Chinese regulators. These days corporate executives need to watch out wherever they go.”

According to the Shanghai prosecutor’s office, Chinese companies had been the victims of the Rio executives’ activities. Xinhua said: “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.”

Wang Hong, lawyer for Zhang Peihong, a Chinese employee of Rio Tinto, said that he was able to see his client frequently and that he was being treated well. The four men were arrested in July on the more serious charges of stealing state secrets, a capital offence in China. However, as the investigation proceeded, the accusations were lowered to industrial espionage, focusing on alleged bribery during high-stakes iron ore contract talks.

Rio Tinto’s China team was responsible for negotiating and managing details of term contracts for iron ore, for which there is a huge demand in the vast Chinese steel industry. They also tracked market information. Rio Tinto maintains that the four have done nothing wrong.

The formal charges come just as China begins annual price talks with Rio Tinto, BHP Billiton and Vale, the big participants in the market.

Last year the China Iron and Steel Association, which took over representing iron ore buyers in the negotiations, failed to reach agreement on iron-ore prices, and top suppliers and mills were left to pay spot prices.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article7022665.ece