Meanwhile, a number of academics overseas continued their criticisms of China’s decision to close the trial on the basis that it both breached the Australia-China Consular Agreement and Chinese law.
Were the sentences harsh?
The individual sentences were within the range of sentences specified in the Criminal Law for the offences, although the effect for each defendant was worsened by the decision of the court that the sentences be aggregated. The minimum sentence for commercial bribery where the amount involved is ‘huge’ is 5 years and, after a deduction of 2 years for admitting guilt, that was Stern Hu’s sentence for bribery. For theft of business secrets the range is 3 to 7 years only if the ‘consequences are particularly serious’. The imposition of a 5 year sentence for Stern Hu was reportedly based on the conclusion of the court that the actions of the 4 Rio employees ‘damaged the interests of the Chinese steel enterprises and put those enterprises in an unfavourable place (during) the iron-ore negotiations, which led to the suspension of the negotiations in 2009’, thus causing an overpayment of 1.108 billion yuan by the Chinese buyers.
These comments by the court appear to serve as the justification for the substantial sentences which were handed out. They also provide fodder for the view that the trials constituted a form of retribution for the collapse of the iron ore negotiations in mid-2009. There are many possible reasons for the collapse of the iron ore talks between China and the suppliers, including the widely reported agreement by the Japanese buyers to accept a higher price than the China Iron and Steel Association was seeking, the incoherent nature of the Chinese market and many other factors. In order to make a determination that the negotiations collapsed because of the acquisition of secret commercial information by the four Rio employees, and Chinese buyers suffered a substantial loss, the court would have had to review the entire history of the negotiations and call upon evidence from all parties involved in order to be able to allocate blame.
Has there been an adequate response to the question of the closed trial?
No further explanation has been provided to support the court’s decision to close that part of the trial which related to business secrets. There is still no guidance to foreign companies on what constitutes a business secret. Chinese authorities have not responded to the question whether China complied with its international obligations or its domestic law when it refused to allow Australian consular officials to attend the closed part of the trial. Instead, the Chinese spokesman for the Chinese Foreign Ministry, Qin Gang, was quoted as saying that Australia should respect the outcome of the case and stop making ‘irresponsible’ comments. In fact, the comments of both Prime Minister and Foreign Minister were measured and focused on the length of the sentences and the issue of the closed trial – both matters on which they were entitled to express an opinion and on which the Australian public would expect to hear their views.
Internationally, the case has been closely watched and the conclusions that have been drawn are not favourable. One article refers to ‘China’s often murky marketplace where legal boundaries can be vague and courts closely tied to the state’. The Economist comments that ‘[L]ocal employees of multinationals are likely to draw the chilling conclusion that unpleasant consequences will follow if ever they fall afoul of China’s interests’.
China is far too important economically for the trial to have an impact on trade and investment. The trial has, however, delivered a major blow to the reputation of its legal and judicial system.
Mainstream Australian media coverage of the judgment recently passed on Stern Hu et al, including some from the Sydney Morning Herald, has lacked much depth of analysis, but this is partly redeemed by yesterday’s article by Ian Verrender: http://www.smh.com.au/business/miners-typify-the-moral-dilemma-of-21stcentury-trading-20100423-tj2o.html
After putting in context last week’s news about US SEC investigations into alleged bribe-giving by BHP in Cambodia and the Philippines, he ends by noting
“an interesting parallel with Rio Tinto’s recent experience in China.
The initial charges against the four team members were that they paid bribes to Chinese officials and stole state secrets, potentially throwing a far wider net over Rio Tinto’s executives.
After furious back-pedalling by the Rio hierarchy, those charges were reversed. The bribes were received by Stern Hu and his team, thereby severing the initial link with the company and other executives.
Rio Tinto was quick to denounce its four hapless employees last month – including the Australian citizen Hu – as corrupt and to endorse the findings of the Shanghai court, even though crucial stages of the proceedings were held in secret. The secrecy laws themselves are secret.
Despite the hard-nosed public position from Rio Tinto, there were several occasions during the past year when senior figures within the company vigorously debated how to extract their executives and avoid the potentially disastrous revelations from the legal proceedings. At one stage, a deal was put to Rio Tinto’s upper echelon by senior figures within the Chinese administration.
But there was a risk that the proposal was a trap that could have backfired spectacularly and the company instead opted to comply with due process and within the Chinese legal system – a decision that clearly must have weighed heavily on its chief executive, Tom Albanese, when the sentences were handed down.
From Rio Tinto’s perspective, however, business comes first. And that denunciation, as cruel and unjust as it was given the flawed legal system under which the four were arrested and tried, was made for purely commercial reasons. It is the same with bribes or gifts to grease the wheels of commerce.
Most senior executives would prefer to operate in jurisdictions where there are clear and strong legal systems, to avoid such situations.
But they are being driven – by shareholders demanding ever greater returns and the forces of globalisation – into regions that culturally have vastly differing values to our own. It is the moral dilemma of the new millennium.”