Stern Implications: Rio Tinto Staff Indicted on Bribery Charges

Stern Hu, a senior executive of Anglo-Australian mining company Rio Tinto, and three colleagues, have been reportedly indicted in China for alleged bribery and violating commercial secrets.  Under the commercial secrets charge, courts can imprison people for up to three years, or up to seven years in ‘especially serious cases’.

The four employees have been detained by the Chinese authorities since July 2009, initially for allegedly paying bribes for ‘state secrets’, a capital offence in China.  However, according to reports, in August 2009 the accusations were lowered to industrial espionage focusing on alleged bribery during high-stakes iron ore contract talks.  The indictment suggests that steel makers were bribed but does not indicate that the Rio Tinto employees will be charged with paying bribes, only that they accepted bribes as ‘nongovernmental officials’.

China’s state-controlled iron and steel industry has been in negotiations over iron ore prices with Rio Tinto in recent years, and there has been anger expressed publicly that the company was not giving Chinese producers what was considered to be a fair price.  Stern Hu was one of Rio Tinto’s leading iron ore negotiators.  The company contends that it negotiated fairly with China and offered a similar price to steel makers in other countries.

The charges, which Rio Tinto refutes, have raised fears among Western companies in China that other executives could be accused of bribery or arrested because of commercial disputes with Chinese companies.  Companies will be more cautious, particularly iron ore suppliers, Vale SA and BHP Billiton Ltd, which, like Rio Tinto, were involved in the negotiations over iron ore prices with China’s iron and steel industry.

The Rio Tinto case might also attract the attention of the US authorities.  The company has American Depository Receipts that trade on the New York Stock Exchange and therefore comes within the jurisdiction of the FCPA. 

The stakes are very high and there will be pressure on individuals and companies to cooperate with the Chinese authorities.  In China, a corruption conviction can be punishable by death sentence, but less harsh penalties have been given to individuals who have cooperated with the Chinese authorities.  In 2009, Chen Tonghai, the former chairman of oil company Sinopec, had his death sentence for conviction of corruption reprieved by the Beijing No 2 People’s Intermediate Court, having ‘confessed and repented’ in a signed confession, paid back the full amount of the bribes, cooperated fully with the investigation and provided information on other offenders. 

Similarly, individuals and companies suspected of corruption by the US authorities will be under pressure to cooperate with investigations and enforcement actions in the US and might receive less harsh penalties in return for such cooperation.  In 2007, the US DoJ entered into a non-prosecution agreement with Paradigm, a Dutch software solutions company serving the oil and gas industry, and fined it a relatively small amount of $1 million, despite allegations of wide-ranging improper conduct between 2002 and 2007.  The DoJ emphasised as ‘significant mitigating factors’ the fact that Paradigm ‘had conducted an investigation through outside counsel, voluntarily disclosed its findings to the Justice Department, cooperated fully with the Department and instituted extensive remedial compliance measures’.  The US SEC also recently launched its Enforcement Cooperation Initiative and announced plans to credit cooperation.

Sam Eastwood is a litigation partner and Head of the Business Ethics and Anti-Corruption Group and Chris Campbell-Holt is a researcher at Norton Rose LLP, http://www.nortonrose.com/. Chris was a member of the Secretariat of the Woolf Committee that was appointed by BAE Systems’ Board to report on BAE’s ethical policies and processes. Sam can be contacted on +44(0)20 7283 6000 or by email: sam.eastwood@nortonrose.com.

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