The Iron Ore War

The Chinese government this week alleged that employees of Rio Tinto bribed executives from 16 Chinese steel mills that buy its iron ore for themselves and China’s 120 steel producers. Anglo-Australian Rio Tinto is among the world’s largest iron ore miners and has been a major supplier to China’s steel industry, which is mostly state-owned.

Last Sunday the Shanghai State Security Bureau arrested Stern Hu, the China-born Australian who heads Rio Tinto’s Shanghai office, and three other Chinese employees, charging them with stealing state secrets consisting of “sensitive industry data critical to China’s iron ore price talks.”

The China Daily, an English-language publication that generally reports the Chinese government’s views, said executives from five domestic steel makers and officials from the steel-makers association are under investigation as part of the case against the Rio Tinto employees.

Rio Tinto plc has American Depositary Shares that trade on the New York Stock Exchange under the symbol RTP. Foreign companies with shares traded on U.S. exchanges have to comply with the Foreign Corrupt Practices Act. If the allegations against Rio Tinto’s employees in China are true, the employees and the company could be subject to criminal and civil FCPA enforcement actions by the U.S. Securities and Exchange Commission and the Department of Justice.

Last month Rio Tinto pulled out of a deal with Chinalco — the Aluminum Corporation of China — which is the country’s largest diversified mining firm. Chinalco planned to invest nearly $20 billion in Rio, in which it already holds a nine percent interest. The Washington Post said Qin Gang, a spokesman for China’s foreign ministry, denied that the bribery and spying allegations are retaliatory. Rio Tinto has been leading price negotiations with the Chinese iron ore buyers. Those talks deadlocked last month.

The Washington Post said: “China’s vague spying and national security laws give authorities wide latitude in deciding what to prosecute. The government treats a sweeping array of economic and other data as state secrets. The maximum penalty for an espionage conviction is life in prison.”

The China Daily has published an unusual amount of alleged details about the case. Quoting an anonymous senior manager at a large state-owned steel company, it said Rio Tinto got to know the key executives of the 16 steel mills who have sensitive industry information. “And then Rio Tinto bribed them (to get access to industry data), which has become an unwritten industry practice,” the executive reportedly said.
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