Friday, April 02, 2010, 4/02/2010 11:12:00 AM

Australians Complain: Chinese Law of Trade Secrets Undefined

By Todd

The Australian has published an interesting piece focusing on the claim of "theft of commercial secrets" in the Rio Tinto criminal prosecutions and convictions. We thought you'd like to see it - you can click on the title to this post or read the most interesting portions copied below:

"In an extraordinary twist, it now appears the men were originally picked up solely on charges of stealing state secrets -- and this was why the State Security Bureau, or secret police, was involved. There is a murky line in China between state and commercial secrets in industries where government monopolies mean the big players are all state-owned.

The bribery charges were laid during questioning but that has not surprised anyone familiar with a sector in China that is rife with graft. "It's not clear where the line is between legitimate information-gathering and criminal commercial-secret stealing," said two international experts on Chinese law, Jerome Cohn and Yu-Jie Chen of New York University.

The Chinese government had a chance to clarify that line in this trial, but chose to shroud it in secrecy.

Only one of the four men, Liu Caikui, admitted the allegations of stealing trade secrets. Rio, which sacked the men after the sentences were handed down, describing the bribery allegations as "deplorable", privately insists that nothing it received from Hu and others could be classified as a trade secrets.

But the verdict, obtained and translated by The Weekend Australian, lists eight separate instances where Rio employees obtained commercial information that the court determined were "secrets".

Some of the claims go back as far as 2005 to a CISA conference in the city of Wuxi, where Wang Yong, another of the jailed Rio workers, obtained information from Fang Zeshan, the international trade department director of Shandong Shiheng Special Steel company.

The meeting with Tan is the only instance where Hu is accused of physically obtaining information himself. In other cases, he is accused of "instructing" others. He argued in court that he had a "passive" role in dealing with the so-called secrets.

His lawyer says the current evidence also can't prove the theft of secret information cost the Chinese steel industry 1 billion yuan -- as claimed, but not explained, by the Shanghai No 1 People's Intermediate Court.

So far Tan is the only person on the other side of the bribery and secrets charges in the Chinese steel sector who is known to have been charged. He was sentenced the same day as Hu and his colleagues by the same judge, Liu Xin, but the result was not published and remains unknown.

But the court made it clear that everyone from the steel mills and trading houses involved in the case will be subject to legal action.

Chen says the verdict claims that, on one occasion, Rio's "Singapore headquarters asked the employees in China to gather more about the production situation of the Chinese clients".

"But it is not clear whether Rio asked their employees to collect the information beyond legal means," she adds, "so one cannot claim Rio instructed the employees to conduct illegal activities by only these testimonies."

But she also posed questions still being asked by many. Did Hu's Rio superiors instruct the Shanghai office to collect the information? Who received it? How high did it go? And what did they do with it?

What is remarkable is that Rio's widely touted audit of its processes did not pick up the bribery. Still, Rio did tacitly admit its processes in China were flawed.

The arrest of the Rio Four came on the back of Rio's rejection of a $US19.5 billion alliance with Chinalco, which already held a 9 per cent stake in the Anglo-Australian miner.

The rejection was slammed by the state-owned Chinalco and the state-owned Chinese media. Shortly afterwards the annual iron ore price talks collapsed -- or, according to this week's court verdict, Rio pulled out.

Beyond the top-level diplomatic spat, Chinalco and Rio themselves did not talk for several months. Gradually, though, contact began again and former US secretary of state Henry Kissinger was engaged on the basis of his longstanding and extremely high-level connections in China to act as a go-between.

Rio has upgraded the China country division to its own office -- it was formerly run out of Singapore -- and placed Chinese speaker Ian Bauert in charge. It has also employed Stephen Bradley, a former British Foreign Office employee, as a special China adviser to chief executive Tom Albanese. These men now make up "team China" at Rio.

Rio is still working through the verdict but believes all the information it received was obtained legally. It is still unsure what else it will say. After all, having mended its bridges and having certainty about its four employees being corrupt, why would it risk being put in the commercial doghouse by China once more -- even it was the right thing to do?


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