- The Washington Times - Tuesday, March 30, 2010

SHANGHAI | Unexpectedly harsh prison 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 Mr. 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 Mr. Hu or his co-workers, who have been in custody in Shanghai since July, would appeal.

Rio Tinto, based in London and Melbourne, Australia, 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 Mr. Hu’s sentence would not 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 fault lines 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.

Beijing is constantly staging anti-corruption 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 court accused Mr. Hu and the others of using commercial secrets obtained by “improper means” as a bargaining chip in the ore-price negotiations.

Mr. Hu was sentenced to seven years on the bribery charges and five years on the commercial secrets charges, but will serve 10 years.

The longest term of 14 years was given to Wang Yong, of which 13 years was for accepting bribes. The court’s charges against Mr. 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.

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

The Rio Tinto verdict mentioned several Chinese companies whose employees purportedly 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 Annapolis, Md.-based 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,” Ms. Wrage said.



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