David Prosser: Another case for Rio Tinto to answer
Outlook: The company, having failed to spot what its staff had been up to, was quite happy to see the Chinese accused of trumping up charges against them
Tuesday 30 March 2010
It looks as if Rio Tinto knew six months ago that there was evidence its staff in Beijing were guilty of at least some of the offences for which they were eventually jailed for yesterday. That's when it stopped publicly protesting the innocence of the four, though it continued to offer them its support.
The question the world's second-biggest miner must answer now, however, is how it took so long to find out what these men were up to. Rio's own audit of its Beijing office – done by Ernst & Young after the Rio four were first arrested last summer – produced a clean bill of health. Now it turns out millions of pounds in bribes were sloshing around.
No wonder Rio is grovelling to China, where the steel industry is the the world's most important customer for the miner's iron ore. It's not just that Rio staff have been found guilty of paying bribes and stealing commercial secrets, but also that the miner allowed the rest of the world to reach its own conclusions on the basis of popular prejudice.
China arrested these men shortly after a crucial deal with Rio broke down. It was therefore easy to paint a picture in which Rio's executives were the innocent victims of a vengeful country with little respect for international standards of justice. That picture survived right up to the moment that the executives began pleading guilty earlier this month.
There are some issues arising from the case that businesses operating in China will want to consider. In particular, confusion reigns over exactly what constitutes a commercial secret – some close to the case claim the "secrets" in question were freely available on the internet.
Still, this outcome is a major embarrassment to Rio. Its internal controls were so poor that senior staff in one of its most important outposts were able to accept these whacking great bribes and use illegally obtained information in key negotiations without anyone back at head office noticing.
The mining sector has a questionable reputation on ethical standards. Some of that stems from the nature of what it does – the extractive industries leave environmental scars on the planet and the huge sums at stake leave them open to accusations of exploitation. Such accusations are not always fair.
However, in the case of Rio its executives got caught with their fingers in the till and the company, having failed to spot what its staff had been up to, was quite happy to see the Chinese accused of trumping up charges against them.
This has been a sorry saga from beginning to end. Far from being a case that shines a light on the challenges of doing business in China, as some analysts have suggested, it is an affair that reveals some pitiful failings on the part of a Western mining giant that should have done better.
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