March 29, 2010 / 6:44 AM / 7 years ago

China jails Rio Tinto staff for 7-14 years

<p>Australian Consulate General, Tom Connor speaks to journalists after the trial of an Australian citizen, outside of the Shanghai's No. 1 People's Intermediate Court in Shanghai March 29, 2010.Aly Song</p>

SHANGHAI (Reuters) - A Chinese court jailed four Rio Tinto staff for seven to 14 years on Monday for taking bribes and stealing commercial secrets, a sentence Australia said was harsh.

Rio Tinto said it would fire the four to distance itself from what it called "deplorable behavior" in a case that dates back to the middle of last year. It said Chinese prosecutors had unearthed "clear" proof of backhanders.

Internal investigation had shown that all wrongdoing was outside company systems, it added.

Canberra acknowledged there was convincing evidence of corruption, adding that ties with Beijing would not be hurt by the verdict in a trial which has been closely tied up with politics and diplomacy.

But Australian Foreign Minister Stephen Smith said he still had "serious unanswered questions" about the most controversial part of the trial, covering the stealing of commercial secrets, which was held behind closed doors.

Rio said it could not comment on these charges.

In China, the verdict could strengthen the hand of China's largest, state-owned steel mills and sharply curtail Chinese iron ore purchases from volatile spot markets.

The Shanghai Intermediate People's Court sentenced China-born Stern Hu, who headed Rio Tinto's iron ore operations in China, to 10 years in jail, with parts of a seven-year bribery term and a five-year secrets sentence running concurrently.

Three other executives, all Chinese nationals, were jailed for seven to 14 years on bribery and secrets charges.

Smith said China had missed a chance to clarify its secretive and often confusing rules about what constitutes a secret, but added that a relationship which has been strained in the past year was not at risk.

"On any measure this is a very tough sentence. It is a tough sentence by Australian standards. As far as Chinese sentencing practice is concerned, it is within the ambit or within the range," he told a news conference in Canberra.

"I don't believe the decision that has been made or has occurred will have any substantial or indeed any adverse implications for Australia's bilateral relationship with China."

RIO SHARES UNAFFECTED

The four men, dressed casually in sports jackets, stood for the verdicts, which came nine months after they were first detained at the height of fraught iron ore negotiations.

<p>Tao Wuping, lawyer of one of the Chinese employees of Rio Tinto leave the Shanghai's No. 1 People's Intermediate Court March 29, 2010.Aly Song</p>

The court said the defendants helped obtain information from confidential strategy meetings of the China Iron and Steel Association (CISA), which represented the Chinese steel industry in negotiations with the world's three top iron ore suppliers, Rio, BHP Billiton and Vale.

Rio shares were barely affected by the sentencing.

"There's no implication that Rio Tinto was involved directly in what transpired," said Tim Schroeders, portfolio manager at Pengana Capital.

"This will probably allow one lingering doubt to be resolved and people to focus on the fundamentals of the company."

The company's chief executive, Tom Albanese, said the miner would focus on improving ties with China now the trial was over.

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"I am determined that the unacceptable conduct of these four employees will not prevent Rio Tinto from continuing to build its important relationship with China. This is a high priority for me personally," he said.

Rio declined to comment on the commercial secrets charges that were at the heart of most foreign investor concern about the case, saying the firm had not been able to consider the evidence.

"This was an opportunity for China to bring some clarity to the notion or question of commercial secrets," Smith said, referring to a decision to close the portion of the trial dealing with commercial secrets to Australian diplomats.

"As China emerges into the global economy, the international business community needs to understand with certainty what the rules are in China," he added.

Leaked testimony of money handed over in cardboard boxes and plastic bags highlighted Chinese steel mills' desperation to secure relatively low-cost and stable iron ore supplies from Rio Tinto, the world's second-largest miner.

The court said the infringement of commercial secrets caused a great loss to the Chinese industry, putting it in a disadvantageous position in iron ore prices talks.

According to the court, last year over 20 Chinese steelmakers paid extra advances of 1.02 billion yuan for their iron ore imports because of the crimes committed by the four.

It named Tan Yixin, once tipped as future head of Shougang Steel in Beijing, and Wang Hongjiu, shipping manager for Laiwu Steel in Shandong, as the source of some of the leaks.

The court also sentenced those two men on Monday, but did not announce their sentences or when the trial had taken place. Both were detained shortly after the Rio executives, in July.

Foreign reporters were barred from the Rio Tinto executives' trial, held last week at the No. 1 Intermediate People's Court in Shanghai, but allowed in for the verdicts.

$1=6.826 yuan Additional reporting by Chen Aizhu in Beijing and Fang Yan in Shanghai; Editing by Nick Macfie

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