China Indicts Four Rio Iron Ore Workers for Bribery

China indicted four employees of Rio Tinto Group, including the Australian head of its iron ore unit in the country, on trade secrets and bribery charges, signaling it won’t back down from confrontation with global business.

Prosecutors filed the case with the Shanghai No. 1 Intermediate People’s Court, Tao Wuping, a lawyer for one of the detainees Liu Caikui, said today by phone. The proceedings won’t be made public because they concern commercial secrets, he said.

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The indictments came a day before the full-year earnings result at Rio, which rebuffed what would have been the biggest investment in a foreign company by a Chinese state-owned group a month before the four were arrested last July. Relations between the West and China have soured in recent weeks over censorship of Google Inc., climate change and U.S. arms sales to Taiwan.

“The outlook for the plaintiffs is not good,” said Paul Monk, founder and director of Austhink Consulting in Melbourne, and former China analysis head at Australia’s Defence Intelligence Agency. China’s communist party wants to use the case to gain “leverage of a coercive nature over the mining companies and expatriates,” he said.

The four, Australian Stern Hu, Liu, Wang Yong and Ge Minqiang, have been detained for seven months. They “acted properly and ethically” the company said after they were formally arrested in August. David Luff, a spokesman for Rio in Melbourne, declined to comment today when contacted by phone.

Australia has received confirmation of the charges, the Department of Foreign Affairs and Trade said in an e-mailed statement today. A trial date has not been set yet, it said.

‘Several Years’

“Sentences for infringing trade secrets and commercial bribery can vary from a few months to several years,” Richard Cassin, partner of Singapore-based law firm Cassin Law LLC and author of “Bribery Everywhere, Chronicles From the Foreign Corrupt Practices Act,” said in an e-mail.

China was the lone standout in last year’s iron ore price talks with Rio, Vale SA and BHP Billiton Ltd., the three biggest suppliers, refusing to accept the price agreed with Japanese and Korean mills. It was the first time in the more than 40-year history of the talks that a benchmark hadn’t been agreed.

Rio was the lead negotiator for producers in last year’s stalemated talks, the longest-running ever. Hu is a classically- trained violinist who chose his English first name after virtuoso Isaac Stern, according to a person familiar with the Rio executive.

“The formal charging of some of its Chinese operatives with alleged corrupt activity reminds me that China-Rio relations are still very strained post-Rio fleeing from Chinalco’s arms,” Charlie Aitken, director of Southern Cross Equities Ltd., said today in a report.

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Nationalist Indignation

China is using the case to “deflect that embarrassment” from the failure of Aluminum Corp. of China’s $19.5 billion investment in Rio to individual citizens, Austhink’s Monk said. Aluminum Corp. is known as Chinalco.

“The communist party likes to stir up Chinese nationalist indignation against foreigners and the Chinalco case was a high profile case that suddenly all fell apart and that is very embarrassing,” he said.

The case comes as Google, owner of the world’s most-popular search engine, said last month that cyber attacks from the Asian nation may prompt the closure of its local operations.

“If people are trying to do business in China, it may well be perceived that there’s a bigger risk in doing that today than there was 12 months ago,” said Charles Kernot, a mining analyst at Evolution Securities Ltd. in London. “All mining companies will be more cautious.”

Brazil, China

China, the largest buyer of metals, overtook Germany as the world’s biggest exporter last year. China uses the iron ore it buys from Australia, Brazil and India to make the steel needed for much of those exports.

China originally detained the four on suspicion of stealing state secrets, before downgrading the allegations in August, the same month that the Australian government acknowledged that the arrests and a visit to the country by Uighur leader Rebiya Kadeer, had frayed ties between the two nations.

Australian Prime Minister Kevin Rudd said a month later that relations were in “good working order” and in October Chinese Vice Premier Li Keqiang said his government is committed to a free-trade agreement with Australia.

“We would hope that this matter gets resolved as quickly as possible,” Financial Services Minister Chris Bowen today told Australian Broadcasting Corp. radio. The government will ensure Hu gets assistance, he said.

Two Way

Two-way trade between China and Australia was worth A$83 billion ($73 billion) in fiscal 2009. Rio has about 30 percent of its assets in Australia and got about 19 percent of its sales from China in 2008.

“In cases with a political element, clemency often plays a role after the trial is concluded,” lawyer Cassin said. “Clemency allows the political authorities to intervene and create goodwill, often in exchange for a political concession. That could happen in this case.”

China’s anti-corruption agency last month pledged to target graft among top officials of state-owned enterprises after ministerial-level executives were brought down last year for bribery, the official China Daily reported last month.

The country fell to 79th in Transparency International’s 2009 corruption perception index from 72 the previous year. Its population also considers corruption the biggest blot on its international image, the China Daily said Jan. 6, citing a survey by Horizon Research Consultancy Group.

Hu, who studied history at Peking university, became an Australian citizen in the early 1990s after joining technology firm AWA Ltd. to run its Beijing office, The Australian newspaper reported July 15. Hu and his family moved to the beachside Sydney suburb of Manly in 1993 and he lived in the country for about eight months, the report said.

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