News, cover, Issue 463, April 5, 2010
Translated by Liu Peng
Original article: [Chinese]



Tan Yixin (above) was sentenced on the same day as the Rio Tinto Four

Update: The ABC reported yesterday that Stern Hu's lawyer has announced that his client will not contest the severity of his sentence.

Attorneys representing two of the four Rio Tinto employees recently convicted by a Shanghai court, revealed to the EO that Stern Hu, the former head of Rio Tinto's China office, and his three colleagues would all appeal their sentences.

The four former Rio Tinto employees, were found guilty of taking bribes and obtaining business secrets in in late March and were sentenced to prison terms ranging from 7 to 14 years.

Who Offered the Bribes?

One attorney revealed a list of employees at China's steel mills who had been implicated in the trial of the Rio Tinto four to the EO, explaining that most are senior managers at privately-run steel mills.
 
The list includes employees of the Beijing-based Shougang Group, Shandong's Laigang Group, Shandong Rizhao Group, Tianjin-based Rockcheck Steel Group, Hebei-based Guofeng Iron and Steel Company as well as a Sinopec trading company.

The private steel mills referred to in the court proceedings will be handled separately through the judicial system, the above attorney added.

He revealed that many private mills were involved in the bribery scandal because "large domestic steel mills can get access to iron ore term contracts, while small private mills can only obtain iron ore on the spot-price market. In order to acquire more iron ore, (private mills) had no choice but to bribe (the four Rio Tinto employees).

"The bribes offered to the four Rio Tinto employees were euphemistically referred to as a "consulting fees","broker fees" or "social connection fees", the EO learned.

The EO also learned that Tan Yixin, head of Shougang Group's iron ore trading office, was the first person to be exposed for his dealings with Stern Hu. Tan was arrested on July 7 last year.

It's alleged that over the past two years, Stern Hu helped dozens of private mills acquire long-term ore contracts.

To award Stern Hu for his help in helping them sign a long-term contract, a Hebei-based private mill paid him 1 million yuan in cash and another steel mill in Tangshan sent him 798,000 US dollars through an affiliate company in Hong Kong.

The other three accused also helped Chinese private still mills to win multiple long-term contracts and they in turn were likewise rewarded with their "consulting fee."

Du Shuanghua, one of China's richest individuals and the founder of Rizhao Steel, testified he paid bribes of 9 million US dollars to Wang Yong, the Rio Tinto sale executives that managed the north-east China market, in order to ensure his company was awarded the term contracts.

Du said "If not for Wang Yong's help, my company would never have reached the size it is today."

In 2004, Rizhao Steel's revenue stood at a mere 2.5 billion yuan, but four years later, the company's revenue had soared to 47.18 billion yuan, registering 6 billion yuan in annual profit.

During the trial, Wang Yong was accused of forcing four steel mills, who had already obtained term contracts, to sell some of these contracts to his brother's company for between 645 yuan and 915 yuan per ton.

His brother than transferred these contracts to Rizhao Steel for higher returns of between 1,080 yuan and 1,450 yuan per ton.

According to the same attorney quoted above, as the court ruled that Wang Yong "demanded" 9 million US dollars off Du Shuanhua, it's unlikely that the mining magnate will be prosecuted by the Chinese courts.

However, the EO has learned that Du has been ordered not to leave his home province of Shandong.

Back to the Source

Although people familiar with the matter reveled that investigations into the activities of the China-based employees of the three big mining companies had begun in 2008, it was a probe into the dealings of Tan Yixin, head of Shougang Group's iron ore trading office, led investigators to launch the Rio Tinto case.

People close to the China Iron and Steel Association (CISA) revealed that the association had repeatedly invited five people, including Tan Yixin, for secret meetings to discuss strategy related to the ongoing iron ore price negotiations with the three big miners.

According to our source, during one of these meeting, Tan received a phone call and as he left the meeting room and quickly headed downstairs, he was overhead saying "I can't really talk on the phone, we can meet up sometime, my phone is probably being monitored."

The source went on to say, given that the negotiations were reaching a head at this time and participants started to note "surprising developments," the cell phones of all five participants in CISA's secret strategy sessions were monitored by "related departments".

After Tan was arrested by police on July 7 last year, it was discovered that the call made during the meeting was found to have come from Stern Hu.

It's alleged that Hu had obtained a lot of important information from Tan, this included the progress of Shougang Group's negotiation with British-Australian miner BHP Billiton and Brazil's Vale along with the details of CISA's secret meetings.

Chinese prosecutors recovered a lot of important information about Chinese steel mills from Stern Hu's computer, such as the turnover of material inventory, average cost of importing iron ore, gross profits per ton of steel and consumption of pig iron as well as production arrangement and detailed purchase plans from certain steel mills.

The other three employees were also found guilty of acquiring business secrets relating to China's steel mills and emailing them on to Stern Hu.

During the closed section of the trial, Stern Hu explained that the competitive environment of the industry demanded that he obtain this information.

He said Rio Tinto had been facing the risk of being merged with its rival BHP Billiton and the two companies were competing fiercely to sell iron ore to China, their largest client.

Links and Sources
Umetal.com: Image of Tan Yixin (from 2006)
The Australian: Hu trial verdict leaves Chinese law on secrets undefined 
ABC: Hu Won\'t Appeal Against Conviction 
Reuters: Rio Tinto China trial verdict due Monday