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Rio Tinto arrest exposes multinationals' lack of legal responsibility (08/14/09)

BEIJING, Aug. 13 (Xinhua) -- The arrest of four employees of the Anglo-Australian mining giant Rio Tinto Ltd. on charges of allegedly illegally obtaining commercial secrets and bribery has exposed some multinationals' lack of legal responsibility.

Photo taken on July 9, 2009 shows the Rio Tinto Ltd. Office in Shanghai, east China. Four employees of the Anglo-Australian miner Rio Tinto Ltd. have been arrested over alleged stealing of China's state secrets, including Stern Hu, general manager of the company's Shanghai offic. The four people, including Hu, had been detained by China's security authorities Sunday evening.

Photo taken on July 9, 2009 shows the Rio Tinto Ltd. Office in Shanghai, east China. Four employees of the Anglo-Australian miner Rio Tinto Ltd. have been arrested over alleged stealing of China's state secrets, including Stern Hu, general manager of the company's Shanghai offic. The four people, including Hu, had been detained by China's security authorities Sunday evening.(Xinhua Photo)
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Liu Renwen, research fellow of the Law Institute of the Chinese Academy of Social Sciences, said the case showed that everyone, regardless of nationalities, should abide by the law in China -- even though in the past, some local governments preferentially treated foreign companies in order to attract investment.

Shanghai prosecutors approved the arrest of the four Rio Tinto employees, a statement of China's Supreme People's Procuratorate (SPP) said late Tuesday.

Preliminary investigations showed that the four employees, Stern Hu, an Australian citizen of Chinese origin and general manager of the company's Shanghai office in charge of the iron ore business in China, Liu Caikui, Ge Minqiang and Wang Yong, had obtained commercial secrets from China's steel and iron industry through undisclosed improper means, which had violated Article 219 of the country's Criminal Law pertaining to the crime of violating commercial secrets.

Prosecution authorities also found evidence to prove that they were involved in commercial bribery in breach of Article 163 of the Criminal Law about receipt of bribes by personnel other than governmental employees, including staff of companies. Prosecutors did not provide details.

The four were detained in Shanghai in early July on charges of stealing China's state secrets, the Shanghai state security authorities said.

Liu said investigation of the case did not end as prosecution authorities did not bring it to court. Currently, these four people face two charges.

Investigators are still looking for evidence for possible charges of offering bribes and theft of state secrets which is much more serious in terms of penalties, legal experts say.

The law says suspects charged with obtaining commercial secrets would face criminal punishment of 15 days to seven years. Those charged with "receipt of bribes by non-State personnel" would face sentence terms of up to 15 years. They also might only face detention if the crime is petty. These two charges could be combined for multiple offences.

But for the crime of state secret theft, the severest punishment could be execution.

PROCEDURES IN LINE WITH LAW

Liu said the detention and arrest of the four Rio Tinto employees was strictly in accordance with the law.

According to China's Criminal Procedural Law, detention should not exceed 37 days. Hu and the other three employees was arrested on Aug. 11, 37 days after they were detained on July 5.

The law says if prosecutors do not approve arrest, suspects would be released on bail or live at home under surveillance.

Lawyer Qian Lieyang of Beijing's Dacheng Law Office told China Youth Daily that if a case was complicated and suspects faced several accusations, they were unlikely to be released on bail and prosecutors would approve arrests on certain charges for which they obtained enough evidence.

Investigation would end within two months after the four were arrested, according to the law, and the investigative period can extend to five months.

Preliminary investigations have also revealed that there were suspects in China's steel and iron enterprises who were providing commercial secrets to them. The arrest of those suspects has also been approved by prosecutors, the SPP said.

These suspects in Chinese enterprises would face the same charges of illegally obtaining commercial secrets with the four employees. But for state-owned enterprise staff, they would face a bribery charge, a category that only targeted officials and state enterprises. The highest penalty for them could be execution.

MULTINATIONALS' ETHICAL RESPONSIBILITIES

Despite the charges, Sam Walsh, chief executive iron ore of Rio Tinto said the company "continue to believe that our employees have acted properly and ethically in their business dealings in China," according to Rio Tinto's Web site on Aug. 12.

Walsh said a day earlier that "Rio Tinto is committed to high standards in business integrity and takes its ethical responsibilities very seriously."

On July 17, a week after the four employees were detained, Walsh said the employees "acted at all times with integrity and in accordance with Rio Tinto's strict and publicly stated code of ethical behavior."

However, Australia-based National Business Daily reported on Aug. 8 that a U.S. class action against Rio Tinto seeking damages for human rights abuses stemming from operations at the Panguna copper mine, Bougainville of the Papua New Guinea, had cleared a crucial hurdle -- and could reach trial within two years.

It said a U.S. court had ruled that three of the claims -- for alleged crimes against humanity, war crimes and racial discrimination committed by Rio Tinto in the 1980s and 1990s -- should proceed under an American law that permits foreigners to bring action on major international crimes.

The U.S. court was justified to do that as Rio Tinto was listed on the New York Stock Exchange (NYSE:RTP) as a foreign company.

But a spokesman for Rio Tinto, Tony Shaffer, said, "Rio Tinto completely rejects the allegations of wrongdoing made in the Bougainville complaint and will continue to vigorously defend the matter."

In response to Rio Tinto's bribery case in China, the U.S. Securities and Exchange Commission (SEC) was preparing to probe NYSE-listed Rio Tinto.

The Australian newspaper said on July 24 that the investigation would be based on the Foreign Corrupt Practice Act (FCPA) enacted in 1977.

An earlier FCPA case saw the 162-year-old German conglomerate Siemens, which employs about 475,000 people worldwide, forced to pay 1.6 billion U.S. dollars to settle bribery charges.

The SEC released last year a legal filing on the bribery cases of Siemens, not only in the U.S., but also in foreign countries including China.

According to the SEC's litigation release, the Munich-headquartered company was involved in bribing government officials worldwide in return for business contracts. It was also accused of paying bribes on its transactions in China of metro trains, signaling devices, high voltage transmission lines, and medical devices.

Label maker Avery Dennison Corp, based in Los Angeles, was the latest foreign company involving in bribery in China. Avery agreed to pay a 200,000 U.S. dollars fine over charges that employees bribed Chinese government officials with kickbacks, sightseeing trips and gifts, the SEC said on its Web site.

The SEC also filed a settled complaint against Lucent Technologies Inc. in a U.S. court in December 2007, alleging violations of the FCPA. Lucent is a wholly-owned subsidiary of Alcatel-Lucent, a French company with business operations in China.

The SEC's complaint alleges that, from at least 2000 to 2003, Lucent spent over 10 million U.S. dollars for about 1,000 Chinese foreign officials, who were employees of Chinese state-owned or state-controlled telecommunication enterprises, to travel to tourist destinations of the U.S., such as Hawaii, Las Vegas, the Grand Canyon, Niagara Falls, Disney World, Universal Studios and New York City.

But it alleges that the majority of the trips were ostensibly designed to allow the Chinese foreign officials to inspect Lucent factories but officials spent little or no time visiting Lucent facilities.

Professor Shen Kui of the Beijing University Law School attributed bribery by multinationals in China to the incompatible development of business culture though the market economy developed quickly.

Shen said some large companies boasting high levels of ethnic standards would likely choose to downgrade their codes of conduct, following "hidden rules" and involved in commercial bribery in China.

"The cost of breaking law is rather low so that foreign companies prefer taking risks to bribe in order to gain profit," he said, adding law enforcement should be strengthened to curb bribery and maintain a sound market order.

Shen said the law had "no discrimination in treating people" and it was common to see Chinese businessmen being charged with economic crimes.

The latest remarkable case was China's electrical appliance tycoon Huang Guangyu who was detained on Nov. 24 and was investigated by the police, on charges of manipulating trading in shares of two listed companies, Sanlian Commercial Co. and Beijing Centergate Technologies Co..

 

 


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