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Wednesday, February 10, 2010

Notes on the Stern Hu/Rio Tinto case

Some quick notes on the Stern Hu case, now that the indictment is official. According to a Xinhua News Agency report [English | Chinese]:

The No. 1 branch of the Shanghai People's Procuratorate has decided to prosecute Australian citizen Stern Hu, former head of Rio Tinto's Shanghai office, and three local employees, Wang Yong, Ge Minqiang and Liu Caikui. 

The Shanghai No. 1 Intermediate People's Court has accepted the case. 

The statement by the court said prosecutors accused the four of "taking advantage of their position to seek profit for others, and asking for, or illegally accepting, huge amounts of money from Chinese steel enterprises." 

They are also charged with trade secret infringement, but I want to comment here mainly on the bribery charges. As can be seen, they are charged not with giving bribes, which seems to have been the original charge, but with soliciting and taking bribes. The Xinhua report then puzzlingly goes on to say that “they lured the Chinese enterprises' heads with promises, or through other illegal means, to obtain the steel companies' commercial secrets on multiple occasions, causing ‘extremely serious consequence’ for the companies.” If obtaining the commercial secrets is linked with the bribery, this doesn’t make sense. You offer bribes to people to get their secrets; people don’t give you secrets and money. The money and the secrets are supposed to go in opposite directions.

It’s possible, of course, that the charges of illicitly obtaining commercial secrets are quite distinct from the charges of taking bribes. In that case, one wonders how the commercial secrets were obtained, if not through bribery (or if through bribery, why there was no charge of giving bribes). We will have to see what specific facts are alleged in the course of the trial.

Back to the charge of receiving bribes. Commercial bribery has not, at least until recently, been widely criminalized in various countries. (There may be some recent movement in that direction, but I don’t have the details. For a recent book-length study, see Gunter Heine et al. (ed.), Private Commercial Bribery (2003); for a recent academic paper on the subject, see Antonio Argandoña, Private-to-Private Corruption.) Traditionally, it’s been viewed as a private problem for private companies to handle. It’s a breach of trust and an act of disloyalty when an employee takes a bribe to do something he shouldn’t do – for example, when a purchasing manager takes a bribe and causes the company to pay more to a supplier than it could have – but many jurisdictions leave it up to the injured employer to decide how to act. The employer might be able to dismiss the employee, or to bring a civil suit to recover damages. Criminal prosecutions seem to be quite rare. (In the United States, it would be a matter of state law; my brief research didn’t turn up any studies of how the states handle this.) And my guess is that they would be rarer still when, as in the Rio Tinto case, the employer, who is supposed to be the injured party, is not complaining and on the contrary actively supports the accused employee.

In China, commercial bribery is covered under Articles 163 and 164 of the Criminal Law. Article 163 criminalizes the receipt of bribes, whereas Article 164 criminalizes giving them.

第一百六十三条  公司、企业的工作人员利用职务上的便利,索取他人财物或者非法收受他人财物,为他人谋取利益,数额较大的,处五年以下有期徒刑或者拘役;数额巨大的,处五年以上有期徒刑,可以并处没收财产。

    公司、企业的工作人员在经济往来中,违反国家规定,收受各种名义的回扣、手续费,归个人所有的,依照前款的规定处罚。

    国有公司、企业中从事公务的人员和国有公司、企业委派到非国有公司、企业从事公务的人员有前两款行为的,依照本法第三百八十五条、第三百八十六条的规定定罪处罚。

Article 163. Company and enterprise work personnel who make use of their job opportunity to demand property from others, or illegally receive others property in exchange for benefits, shall, in cases involving relatively large amounts, be punished with imprisonment or criminal detention for less than five years; for cases involving a huge amount, with imprisonment of over five years, and may be subject to forfeiture of property. 

Company and enterprise work personnel, who, in the course of economic contacts, receive personal kick backs and commissions in various forms in violation of state rules, shall be punished according to provisions under the preceding paragraph. 

Personnel performing public duties in state owned companies and enterprises, and personnel assigned by state owned companies and enterprises to non state owned companies and enterprises for performance of public duties found to be committing the acts mentioned in the two preceding paragraphs, shall be convicted and punished according to provisions under Articles 385 and 386 of this law.

    第一百六十四条  为谋取不正当利益,给予公司、企业的工作人员以财物,数额较大的,处三年以下有期徒刑或者拘役;数额巨大的,处三年以上十年以下有期徒刑,并处罚金。

    单位犯前款罪的,对单位判处罚金,并对其直接负责的主管人员和其他直接责任人员,依照前款的规定处罚。

    行贿人在被追诉前主动交待行贿行为的,可以减轻处罚或者免除处罚。

Article 164. Offering property to company and enterprise work personnel for improper benefits shall in cases involving relatively large amounts be punished with imprisonment or criminal detention for less than three years, for cases involving a huge amount, with imprisonment of over three years but less than 10 years, and with a fine. 

Units committing offenses under the preceding paragraph shall be punished with a fine, with personnel directly in charge and other directly responsible personnel being punished according to provisions of the preceding paragraph.

A briber who confesses his bribery act before prosecution may receive a lighter sentence or a waiver for punishment. 

Therefore, this case presents several questions.

First, should receiving bribes in a commercial context be a crime at all? That is of course a broad policy question and different jurisdictions will have different rules. I will just repeat my educated guess (given the apparent rarity of such prosecutions in any circumstances) that it would be very unusual in other countries for a criminal charge of receiving bribes to stick where the employer, the supposedly injured party, denied any injury and supported the employee.

Second, what is the standard for “relatively large amount” and “huge amount” in Article 163 that makes the receipt of the bribe criminal? These terms are explained in the Provisions on Standards for Prosecution in Cases of Economic Crime (关于经济犯罪案件追诉标准的规定) passed jointly by the Supreme People's Procuratorate and the Ministry of Public Security in 2001. Article 8 puts the floor for prosecution for receipt of bribes at 5,000 yuan, while Article 9 puts the floor for prosecution for giving bribes at 10,000 yuan for individuals and 20,000 for units (e.g., companies). Thus, it seems that the threshold for “relatively large” will probably be easily met. I am not aware of another public document defining “huge”, but there may be one out there (I haven’t searched carefully).

Third, and finally, if the defendants received criminally large bribes in violation of Article 163, then somebody must have offered them criminally large bribes in violation of Article 164. Where is the prosecution against the bribers?

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Comments

Am I missing something? Just as this weak indictment comes out with respect to four of Rio Tinto's employees, all of whom have now been jailed by China for something like half a year, and who Rio Tinto says are not guilty of any wrongdoing...Rio Tinto announces it looks forward to increasing its mutually profitable relations with China.

Posted by: Anthony Zaloom | Feb 14, 2010 2:11:13 PM

China might make half the products we use in the west but it is still a backward country. Australia is fighting to give Stern Hu a fair trial, but China will not allow Australian officials to even be present. They sensor the internet incase their people see something the Government deems inappropriate, and of course everyone is guilty and rarely proven innocent. This was an interesting angle though…
http://ketiva.com/News_and_Events/stern_hu_pleads_guilty_in_chinas_trial_against_him_and_3_other_rio_tinto_employees.html

Posted by: markmarks | Mar 22, 2010 3:49:11 PM

Loved your article, especially your comment : "Third, and finally, if the defendants received criminally large bribes in violation of Article 163, then somebody must have offered them criminally large bribes in violation of Article 164. Where is the prosecution against the bribers?" Of course you are absolutely right although unfortunately Logic does appear to run most legal systems!

Posted by: Karen vT | Mar 22, 2010 5:33:31 PM

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