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Intellectual Property Law

: Womble Trade Secrets Blog

Details of Rio Tinto Bribery Prosecution Released - Commercial Secrets Verdict Unreleased

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We've been interested in the Chinese government's prosecution of Rio Tinto employees primarily because it involved an allegation the employees stole Chinese commercial secrets, presumably secrets regarding how much it had committed to pay for iron ore. Well, the bribery part of this prosecution is all that was open to the public and it was a wing-dinger of a week. The Monday guilty pleas from all four defendants for accepting bribes blew a hole right through what many commentators assumed were trumped-up charges. But the details of the bribery are only now being released.

The New York Times is reporting that Stern Hu's attorney (Mr. Jin) acknowledged Stern Hu said in court that he accepted two large bribes in late 2008 and early 2009 totaling about $1 million from Chinese steel mills in exchange for agreeing to sell them long-term supplies of iron ore. Mr. Jin declined to name the two steel mills involved and said he did not know why those who had paid the bribes had not been charged.

?Those two small companies bribed Stern Hu in order to get a long-term contract with Rio Tinto, which normally is not available for medium- and small-sized companies,? Mr. Jin said. ?It was during the economic crisis in late 2008 that those large-scale steel companies were struggling with continuing their deals with Rio Tinto. That?s when the small companies decided to intervene, causing a corruption of the system.?

Analysts also said a chaotic pricing system had created a two-tiered market, fueling corrupt deal-making. Many large state-run steel companies in China agree to long-term supply contracts at a set price with foreign suppliers, while smaller steel mills compete to buy supplies on the open market, often for higher prices.

?Desperate steel mills would do anything to get ahold of supplies,? said one steel industry executive in a telephone interview on Friday, speaking on the condition of anonymity for fear of government retribution. ?There was a huge potential for mischief and a huge incentive to bribe.?
Getting a discount on the open market price could mean saving tens of millions of dollars, experts say, giving tremendous power to iron ore salesmen working for companies like Rio Tinto.

Paul Bartholomew, who writes about iron ore for Steel Business Briefing, an industry newsletter, said he was surprised by the size of the bribes, including the $10 million in bribes that prosecutors here say went to Wang Yong, another Rio employee. A lawyer for Mr. Wang said he had pleaded guilty to accepting only part of that money.

?How could that have gone unnoticed?? Mr. Batholomew said.

Mr. Jin, the lawyer for Mr. Hu, said Mr. Hu had agreed to repay the bribes and pleaded for leniency from the court. A three-judge panel is expected to rule on the case on Monday.

Full post as published by Womble Trade Secrets Blog on March 26, 2010 (boomark / email).