High-ranking billionaire linked to Rio bribe case


March 24, 2010

NOT all of Rio Tinto's iron ore sales in China were managed through Stern Hu. The ore from one Pilbara operation, Robe River, was channelled through a separate sales team that included Wang Yong, who has been accused of accepting US$9 million ($9.8 million) in bribes - 10 times what Mr Hu allegedly received.

It seems Mr Hu and two staff who reported directly to him, Ge Minqiang and Liu Caikui, have broadly admitted the bribery charges against them. But not Mr Wang, who reported to a different manager.

Mr Wang's alleged money trail may ultimately show that Rio Tinto's internal governance systems were not as effective as the company's executives had hoped. And the source of these millions - one of China's well-connected billionaires -may hint at why Chinese authorities have gone to such lengths to shroud Mr Hu's case in secrecy.

It is widely known within the Chinese steel industry that Mr Wang's brother controls a trading company. It is less widely known that one of Mr Wang's key client relationships was with a smart and fearless private entrepreneur called Du Shuanghua.

About four years ago Rio Tinto's strategic planners in Australia resolved to allocate a huge new contract of Robe River ore to Mr Du's Rizhao Steel. It seemed a good call, as Mr Du went on to massively expand his enterprise.

Mr Wang managed the relationship in China, according to well-placed sources.

Last year a Shandong provincial government steel company pushed forward with an opaque and controversial takeover bid, Chinese-style, where the bidder got to name the price for control of Mr Du's Rizhao Steel. Last year Mr Du toppled from No.2 to No.29 on the Forbes rich list.

According to a Shanghai media report yesterday, the only lively portion of this week's Shanghai court proceedings took place when prosecutors read out testimony from Mr Du detailing how he paid a $US9 million "good deed" fee to a company controlled by Mr Wang in Hong Kong.

Mr Wang repeatedly interjected and asked to go "face-to-face" with Mr Du in court, said the National Business News - a small publication partly controlled by the Shanghai government.

Mr Wang explained that he wanted to invest in the Hong Kong stock exchange but could not find a way of getting the money across the border, via his brother's trading company. Mr Wang said he asked Mr Du to lend $US9 million to his company in Hong Kong, and Mr Du obliged. Mr Wang's brother's company repaid the loan.

All four of the Rio Tinto defendants have been technically suspended from work, but with the company's full support and full pay until proven guilty.

Assuming credible convictions, the question then turns to how employees in China ran so loose - and whether they cut deals for themselves rather than maximising profit for the company.

Reports from the Platts industry publication imply Rio's iron ore has been sold at a premium to other similar cargoes. That is probably due to an acute market shortage of reliable quality iron ore this year, but shareholders will still ask questions.

More broadly, the emerging details of Mr Wang's relationship with Mr Du raise new questions about the motivations and targets of this State Security investigation. It is true that corruption is everywhere in China, but only a select few are ever targeted.

When targets are selected, Chinese authorities tend to channel cases through the Communist Party's internal and secretive discipline inspection system. Experts say that this ensures the party can tightly control witness statements and prevent defendants from naming in court the dozens of other officials who may also be involved in their illegal conduct.

Rio Tinto staff do not qualify for the Communist Party's internal discipline system, not being party members. So authorities have had to resort to the relatively open judicial system.

Journalists from a number of Chinese newspapers who were gathered outside the court gates were ordered not to publish their stories, according to local media sources. By last night the National Business News story had also been pulled from the internet.

Perhaps the most sensitive detail about Du Shuanghua is that he has a close relationship with a family member of the President, Hu Jintao, according to local political observers and industry executives in China and Australia.

Hong Kong and international media have previously reported that Mr Du last year tried to shield his steel company from the Shandong government's predatory takeover by handing a portion of his shares to Kai Yuan Holdings, a Hong Kong-listed company closely associated with relatives of President Hu.

Maybe Mr Du's shield is wearing off. And maybe, in China's cut-throat and interest-driven internal politics, Australia's largest iron ore supplier was not the only target.

Malcolm Maiden - BusinessDay