Rio Tinto espionage case
Encyclopedia
The Rio Tinto espionage case began with the arrest on 5 July 2009, of four staff in the Shanghai
office of the Rio Tinto Group
, in the People's Republic of China
, who were subsequently accused of bribery and espionage. Two days later, an import executive of the Shougang Group
and Laigang Group was also arrested. The Rio Tinto employees, Australian Stern Hu
and three Chinese colleagues, Wang Yong, Ge Minqiang and Liu Caikui, went on trial in Shanghai on Monday, 22 March 2010.
The government dropped the charges relating to the alleged theft of trade secrets before the trial, and the defendants admitted to having received bribes during the trial.
Following the trial, Stern Hu was sentenced to 10 years jail. Hu and other convicted executives have also had their employment terminated by Rio Tinto Ltd. It is reported that the motive behind the terminations is in regards to a breach of conduct, with Rio Tinto accepting the evidence provided showing instances of bribery. Rio Tinto also states that the trial will not affect business ties, according to its chief executive.
.
The Rio Tinto employees are accused of having industry data crucial to the negotiations too detailed to have been obtained legally.
On Thursday, July 16 Reuters
reported that Rio Tinto had evacuated its iron ore and steel industry research staff from Shanghai the day before, as had "other foreign groups... until conditions there become more certain."
The arrests also came shortly after Rio Tinto declined to sell part of the company to the Chinese state-owned company Chinalco. Chinalco currently owns 9.3% of Rio Tinto; the additional investment would have raised Chinalco's ownership stake in Rio Tinto to 18.5%. The proposed deal met strong political opposition in Australia, and Rio Tinto decided instead to raise the money through existing shareholders and by forming a joint venture with BHP Billiton
.
Rio Tinto negotiated on behalf of Vale, BHP Billiton and itself as a consortium
with the Chinese side being represented by CISA. Traditionally the role of the Chinese side was filled by Baosteel
.
Rio Tinto was accused of causing 100 billion USD worth of damages to the Chinese economy over a 6 year period, by Jiang Ruqin, a Chinese employee with the Jiangsu Province Administration for the Protection of State Secrets. However, Bloomberg
data showed that Rio Tinto's global iron ore revenue in the 5 years from 2004 to 2008 were 41 billion USD. Jiang consequently admitted to using fabricated data from China Central Television
and the China Youth Daily
newspaper for his accusation.
(ASX). Share market data shows that Rio Tinto stock (Public, ASX:RIO) actually started to decline on June 12, 23 days before the espionage case scandal was reported on, reaching the bottom on July 13 at 46.63 AUD before steadily rising to a price of 59.99 AUD as of August 15.
On Sunday, August 16, BHP
called for iron ore to be traded on the open market as any other commodity. BHP's CFO, Alex Vanselow, stated that selling iron ore on the open market like copper would mean that deals would be handled in a more transparent manner and that cases like the Stern Hu case would not be possible. Another benefit would be that investors would have a better idea of price trends.
Shanghai
Shanghai is the largest city by population in China and the largest city proper in the world. It is one of the four province-level municipalities in the People's Republic of China, with a total population of over 23 million as of 2010...
office of the Rio Tinto Group
Rio Tinto Group
The Rio Tinto Group is a diversified, British-Australian, multinational mining and resources group with headquarters in London and Melbourne. The company was founded in 1873, when a multinational consortium of investors purchased a mine complex on the Rio Tinto river, in Huelva, Spain from the...
, in the People's Republic of China
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
, who were subsequently accused of bribery and espionage. Two days later, an import executive of the Shougang Group
Shougang
Shougang is one of the Chinese largest steel company. Based in Beijing municipality, its operations are being moved out of the city prior to the Olympics due to major pollution concerns....
and Laigang Group was also arrested. The Rio Tinto employees, Australian Stern Hu
Stern Hu
Stern Hu is an Australian businessman of Chinese origin. He was formerly an executive of Rio Tinto mining group in Shanghai, China prior to his trial. He graduated from Peking University before obtaining Australian citizenship in 1994.- Arrest in China :...
and three Chinese colleagues, Wang Yong, Ge Minqiang and Liu Caikui, went on trial in Shanghai on Monday, 22 March 2010.
The government dropped the charges relating to the alleged theft of trade secrets before the trial, and the defendants admitted to having received bribes during the trial.
Following the trial, Stern Hu was sentenced to 10 years jail. Hu and other convicted executives have also had their employment terminated by Rio Tinto Ltd. It is reported that the motive behind the terminations is in regards to a breach of conduct, with Rio Tinto accepting the evidence provided showing instances of bribery. Rio Tinto also states that the trial will not affect business ties, according to its chief executive.
Background
The arrests came during difficult negotiations over the price of iron ore for the 2009-2010 period. After steep increases in 2008, Chinese steelmakers hoped to see iron prices come down again because of the global recessionLate 2000s recession
The late-2000s recession, sometimes referred to as the Great Recession or Lesser Depression or Long Recession, is a severe ongoing global economic problem that began in December 2007 and took a particularly sharp downward turn in September 2008. The Great Recession has affected the entire world...
.
The Rio Tinto employees are accused of having industry data crucial to the negotiations too detailed to have been obtained legally.
On Thursday, July 16 Reuters
Reuters
Reuters is a news agency headquartered in New York City. Until 2008 the Reuters news agency formed part of a British independent company, Reuters Group plc, which was also a provider of financial market data...
reported that Rio Tinto had evacuated its iron ore and steel industry research staff from Shanghai the day before, as had "other foreign groups... until conditions there become more certain."
The arrests also came shortly after Rio Tinto declined to sell part of the company to the Chinese state-owned company Chinalco. Chinalco currently owns 9.3% of Rio Tinto; the additional investment would have raised Chinalco's ownership stake in Rio Tinto to 18.5%. The proposed deal met strong political opposition in Australia, and Rio Tinto decided instead to raise the money through existing shareholders and by forming a joint venture with BHP Billiton
BHP Billiton
BHP Billiton is a global mining, oil and gas company headquartered in Melbourne, Australia and with a major management office in London, United Kingdom...
.
Rio Tinto negotiated on behalf of Vale, BHP Billiton and itself as a consortium
Consortium
A consortium is an association of two or more individuals, companies, organizations or governments with the objective of participating in a common activity or pooling their resources for achieving a common goal....
with the Chinese side being represented by CISA. Traditionally the role of the Chinese side was filled by Baosteel
Baosteel
Shanghai Baosteel Group Corporation , commonly referred to as Baosteel is a state-owned iron and steel company headquartered in Shanghai, China....
.
Chinese State Secrets Bureau accusations
Accusations posted on a website controlled by the Chinese State Secrets Bureau, alleging that large amounts of "intelligence and data" have been found on computers of the arrested Rio Tinto employees. A report on publishing website affiliate of China’s national secrets watchdog accused Rio Tinto of "winning over and buying off, prying out intelligence... and gaining things by deceit", during critical annual iron ore pricing negotiations.Rio Tinto was accused of causing 100 billion USD worth of damages to the Chinese economy over a 6 year period, by Jiang Ruqin, a Chinese employee with the Jiangsu Province Administration for the Protection of State Secrets. However, Bloomberg
Bloomberg L.P.
Bloomberg L.P. is an American privately held financial software, media, and data company. Bloomberg makes up one third of the $16 billion global financial data market with estimated revenue of $6.9 billion. Bloomberg L.P...
data showed that Rio Tinto's global iron ore revenue in the 5 years from 2004 to 2008 were 41 billion USD. Jiang consequently admitted to using fabricated data from China Central Television
China Central Television
China Central Television or Chinese Central Television, commonly abbreviated as CCTV, is the major state television broadcaster in mainland China. CCTV has a network of 19 channels broadcasting different programmes and is accessible to more than one billion viewers...
and the China Youth Daily
China Youth Daily
The China Youth Daily is the official newspaper of Communist Youth League of China , and is a popular official daily newspaper and the first independently operated central government news media portal in the People's Republic of China.In 1980s it was regarded as the best newspaper in mainland...
newspaper for his accusation.
Aftermath
Chongqing Evening News (重庆晚报) claims that fallout from the espionage scandal, on July 5, has caused Rio Tinto damages to its reputation worth up to 100 billion yuan in share price (14.6 billion USD, 17.4 billion AUD) after dropping from highs of 77 AUD on the Australian Stock ExchangeAustralian Stock Exchange
The Australian Securities Exchange was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It is the primary stock exchange group in Australia....
(ASX). Share market data shows that Rio Tinto stock (Public, ASX:RIO) actually started to decline on June 12, 23 days before the espionage case scandal was reported on, reaching the bottom on July 13 at 46.63 AUD before steadily rising to a price of 59.99 AUD as of August 15.
On Sunday, August 16, BHP
Bhp
BHP, or bhp may refer to:*BHP Billiton, Australian based mining company renowned as being the largest mining company in the world**The Broken Hill Proprietary Company Limited, company name 1885-2000**BHP Limited, company name 2000-2001...
called for iron ore to be traded on the open market as any other commodity. BHP's CFO, Alex Vanselow, stated that selling iron ore on the open market like copper would mean that deals would be handled in a more transparent manner and that cases like the Stern Hu case would not be possible. Another benefit would be that investors would have a better idea of price trends.
External links
- Detailed coverage of the affair (in Chinese)
- Coverage of the iron-ore pricing issue (Chinese media, in English)
- Analysis of the espionage case by Stratfor
- "The Rio Tinto case in the Chinese media" (Danwei.org)