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Monday, March 29, 2010

Rio Tinto Update - Wow! 10 Year Sentence

Very harsh...

Basically the Rio Tinto executives are accused of taking bribes to channel high quality steel ore that was in short demand to suppliers. Prison sentences varied from 7 to 14 years.

What does this mean for Western owned companies:
  1. Don't upset the Chinese government, or they will make you pay. The timing of this case is extremely suspicious.
  2. Chinese born employees, even if they are citizens of a Western country, are still treated as Chinese citizens.
  3. Chinese law is murky. Parts of the trial were closed to outside observer. A politer way of putting it is a weak rule of law. The original charge was theft of state secrets, but that later changed to the bribery charge. The state secret was a nasty charge, since the sentence could be life in prison. The bribery charge is politically smart for China, since now Rio Tinto fired the employees.
  4. Bribes are a fact of life in China, unfortunately, but enforcement is often politically motivated.
  5. Openness with materials in high demand and short supply prevents bribery by your employee, or even allegations of bribery.
  6. Your country, such as the US, Britain, or Australia, is probably not going to have any meaningful support for your company in legal disputes with China if it's a business dispute. Australia has an agreement with China to people from the embassy to attend the entire trial, unfortunately it was ignored by China. The US has a similar agreement.
  7. Courts are often used in China as a way to put pressure on a business. A business with a lot of connections/political power can put a business person from overseas, especially if they are ethnic Chinese, in jail.

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