The lengthy prison sentences imposed on four Rio Tinto executives in Shanghai, including Stern Hu, an Australian citizen, raise fundamental questions about China’s legal and political systems.
After being imprisoned without charge in mid-2009, the four men were eventually charged with accepting bribes – apparently to assist certain steel manufacturers to get preferential access to iron ore – and stealing commercial secrets, including information from the China Iron and Steel Association and the production plans of a Chinese steel-mill.
The bribery charges against the four men – to which they pleaded guilty – were heard publicly, but the charges of stealing commercial secrets were heard in secret.
While the Chinese Government insisted that the trials were conducted according to law, the process shows that Chinese law is capable of anything.
It is clear that there was, in effect, a “plea bargain” in which the defendants pleaded guilty in exchange for reduced sentences. In a country where the Chinese Communist Party appoints the judges and the Chinese Premier Wen Jiabao had already declared the men guilty, there was no possibility that they would be exonerated.
At the time of the arrests, Rio Tinto was involved in acrimonious negotiations with China over iron ore price contracts for the following year. Further, as CNN correspondent John Vause, wrote on July 20 last year, “Many within China’s iron and steel industry will say privately it is fraught with corruption.”
The lack of transparency surrounding the detention of the four men, their trials and convictions will cause deep concern to Western corporations doing business in China.
Rio Tinto issued a statement, following the convictions, which indicated that the company accepted that its employees had accepted bribes, but said it was “unable to comment on the charge regarding obtaining commercial secrets as it had not had the opportunity to consider the evidence. That part of the trial was held in closed court and no details of the case were made public until the verdicts and sentences were announced.”
Sam Walsh, chief executive of Rio Tinto Iron Ore, said, “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 behaviour that is totally at odds with our strong ethical culture. In accordance with our policies we will terminate their employment.”
He added, “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. 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.”
An aspect of the Stern Hu affair is that Rio and/or its staff are guilty of breaches of Australian law if its employees bribed public officials, and Rio Tinto was obviously very concerned that this might have been the case. The fact that the allegations referred to payments received from Chinese steel-manufacturers, not public officials, indicates that this law does not apply.
More troubling for Rio Tinto is that it might be investigated by the British Serious Frauds Office (SFO) and the US Justice Department. The London Telegraph has reported that the SFO has already started an informal investigation into the allegations (The Telegraph, March 29), and the US Justice Department was instrumental in the prosecution of AWB on bribery charges relating to the Iraqi oil-for-food program.
Australia’s foreign minister, Stephen Smith, who has consistently been critical of the Chinese Government’s detention of the Rio employees, indicated he accepted that what he called “acts of bribery” had occurred.
He told ABC Radio’s Fran Kelly on March 30, “The advice I have from my officials who attended that part of the trial is that on its face there was more than sufficient evidence for people to come to a conclusion that acts of bribery had occurred. And that was not just admissions by Stern Hu and the other three Rio Tinto employees, but also other evidence. …
“So my own conclusion is that there was more than sufficient evidence so far as bribery and acts of bribery (were) concerned.”
Lack of transparency
Mr Smith went on to say that he believed that the sentences were harsh, but that the lack of transparency on the charges relating to commercial secrets had not damaged ties.
Asked why he had not protested publicly about the secret trials which breached the consular agreement between Australia and China, Smith said that both the Chinese courts and the Chinese Government had said that secret trials were permitted by Chinese law.
On that interpretation, the consular agreement is not worth the paper it is written on.