On March 29,  a Shanghai court found four Rio Tinto employees guilty of accepting bribes and obtaining commercial secrets and sentenced them to jail terms ranging from seven to 14 years. The four were Stern Hu, a naturalized Australian citizen, who headed Rio Tinto’s Shanghai office, and three co-workers, Liu Caikui, Wang Yong and Ge Minqiang.

The sentencing followed a trial held March 22–24. The first day of the trial focused on charges that the four had accepted bribes, amounting in total to more than $12 million. Each of the defendants pleaded guilty in part to those charges, while disputing the amounts cited by the prosecution. The second and third days of the trial focused on the stealing of commercial secrets. These proceedings were closed and specific details were lacking. Hu, Wang and Ge were reported to have denied stealing commercial secrets, while Liu did not dispute the charge.

In handing down the verdicts, the judge said by obtaining commercial secrets about Chinese steelmakers, the Rio Tinto staff contributed to the failure of 2009 iron ore price negotiations between major international iron ore suppliers and Chinese steel mills.

The iron ore market in China is two-tiered, with China’s largest steel mills sourcing iron ore based on long-term contracts, while small- and mid-sized mills are left to scramble for spot-market supplies. The bribes taken were made by small- to mid-sized steel mills seeking supplies of iron ore at prices below those of the spot market. Bribery to obtain supplies is reported to be a common practice.

In a statement released shortly after announcement of the verdicts, Rio Tinto said it was unable to comment on charges regarding obtaining commercial secrets, because it had not had the opportunity to consider the evidence. Regarding the accepting of bribes, Sam Walsh, chief executive Rio Tinto Iron Ore, said, “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. By doing this they engaged in deplorable behavior that is totally at odds with our strong ethical culture. In accordance with our policies we will terminate their employment.

“Shortly after the four employees were detained, we appointed independent forensic accountants and lawyers to assist us in carrying out an internal investigation into the claims,” Walsh said. “This was done to the fullest extent possible. It did not uncover any evidence to substantiate the allegations of wrongdoing. Rio Tinto has concluded that the illegal activities were conducted wholly outside our systems.

“We have already implemented a number of improvements to our procedures, and we have now ordered a further far-reaching independent review of our processes and controls. We will introduce any necessary additional measures and safeguards the review recommends and will spare no effort in doing everything we can to prevent any similar activity.”

The trial took place against a complex commercial and political backdrop. The four Rio Tinto employees were detained on July 8, 2009, and formally arrested on August 12. In prior events, on June 5, Rio Tinto had rejected a proposed $19.5-billion dollar investment from leading China metals company Chinalco, and on June 30, iron ore price negotiations between major international suppliers, including Rio Tinto, and the large Chinese steel producers ended without an agreement.

Based on those circumstances, Rio Tinto was held in low regard in the higher reaches of China’s government and steel industry.

However, also in the background of the trial were ongoing efforts on the part of Rio Tinto and the Australian government to assure that the proceedings did not jeopardize commercial relations between the company and Australia on the one hand and China on the other.

On March 22, the first day of the trial in Shanghai, Rio Tinto CEO Tom Albanese was in Beijing to offer remarks at the China Development Forum, a meeting of China’s top decision makers, economic planners, and academics, as well as leaders from the international business community.

Albanese noted Rio Tinto’s commercial ties to China go back some 50 years. “Most of this time we have enjoyed a strong relationship with China,” he said. “Only in the last year have we come upon some difficulties, which we are working hard to resolve.” He cited recently announced intentions of Rio Tinto and Chinalco to form a joint venture to develop the Simandou iron ore project in Guinea as evidence that its relations with China were on the mend. (Details of the joint venture and the Simandou project are reported in the Africa regional news section of this issue of E&MJ.)

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