DEPUTY Foreign Minister He Yafei urged Australia to treat Rio Tinto spy case "properly" during a press briefing on Wednesday.

That same day Australian Foreign Minister Stephen Smith ruled out the possibility of a quick settlement of the dispute.

The detention earlier this month of four Rio Tinto employees in Shanghai on charges of spying and stealing State secrets during iron ore price talks has drawn an inordinate amount of international attention.

Agence France-Presse said the arrest of Stern Hu, a Rio Tinto Group executive, "has sent tremors through the international business community and shows the potential risks of doing business with China."

The New York Times quoted John Frankenstein, an associate professor of economics at Brooklyn College, as saying "this could cast a chill over the business environment in China."

And the opposition party in Australia wasted no time to drum up pressure on Prime Minister Kevin Rudd, expressing similar concerns.

Some observers even suggested the arrest was in retaliation for the collapse of a bid by Chinalco, a state-owned Chinese aluminum manufacturer, to invest US$19.5 billion in Rio Tinto.

Stern Hu, head of Rio Tinto's Shanghai office and a key figure in the spying case, had allegedly built a strategic intelligence database about his customers.

There are indications that the nature of the information in this database and the means by which he has acquired such information have landed him in trouble.

Information is vital in negotiations.

For example, knowing buyers' iron ore inventory level and the bottom line acceptable price are extremely important for the seller.

There is probably nothing wrong with collecting marketing information about customers to gain negotiation edge, but Hu is suspected of having bribed key figures in 16 Chinese steel mills in exchange for the information.

Hu's laptop is said to contain such information as his customers' iron ore purchase plan, monthly iron ore inventory level, production schedule, sales reports and so on. There are also minutes of meetings at the highest level at these steel mills and the China Iron and Steel Association.

Hu probably knows more about his customer companies' operations and iron ore demand than some of those companies' CEOs.

Rule of law

Given this, how can the prosecution of a figure like Hu send tremors through the international business community or cast a chill over the business environment in China?

Do they mean that bribery and espionage can improve business environment?

During a visit to Shanghai last week, Australian Trade Minister Simon Crean said, "We can't apply Australian law in China just as China can't apply Chinese law in Australia."

Well, my comment is that at least Australian law can be applied in Australia.

And the Australian law I am talking about is the Criminal Code Amendment (Bribery of Foreign Public Officials) Act 1999, which formalizes in a statutory manner Australia's commitment to stamping out international corruption.

Prosecuting rogue companies that thrive on bribery is not just the task of the host country where these companies operate. The prosecution obligation also lies with the home country either independently or jointly in cooperation with the host country's law enforcement agencies.

There are good examples.

In December last year, Siemens pled guilty in US federal court to violating the US Foreign Corrupt Practices Act, which involved Siemens subsidiaries operating in China. As part of its settlement, Siemens agreed to pay US$450 million in criminal penalties.

On the same day, Siemens announced an agreement with German prosecutors to pay a US$569 million fine for violating Germany's anticorruption laws, in addition to the US$285 million that a Munich court ordered Siemens to pay earlier in 2007.

The fact that there is so far no news about Australian investigation into Rio Tinto and Hu's deeds makes me more concerned about Australia's business environment.

Tainted record

Rio Tinto is a hundred-year-old company that reportedly started to bribe in its overseas operations in the 19th century (Charles E. Harvey, "The Rio Tinto Company: an Economic History of an International Mining Concern 1873-1954").

Predictably, in modern times, Rio Tinto has not been a shining example in honoring human rights and the rule of law.

Roger Moody, in his book "Plunder," describes Rio Tinto's activities as ranging from abuse of indigenous peoples, brow-beating opponents, leaning on governments and price-fixing, to violating international law, union-busting and management of one of the world's biggest commodity cartels.

The company also has such a dismal environmental protection record that the Norwegian sovereign wealth fund, once Rio Tinto's largest shareholder, entirely dislodged its position of 500 million British pounds (US$824 million) of stocks in Rio Tinto last year, citing concerns about the Grasberg goldmine in Indonesia operated by one of Rio Tinto's subsidiaries.

Obligation

But Rio Tinto was quick to distance itself from Hu, insisting it knows of no evidence of bribery in China.

However, according to Australian law, the issue of Rio Tinto's corporate criminal responsibility is not whether its headquarters in Melbourne knows of Mr Hu's freewheeling dealing in China.

The issue is whether Rio Tinto as a company creates and maintains a corporate culture of foreign bribery prevention or institutes unwritten rules that tacitly authorize non-compliance with the Foreign Bribery Amendment Act.

On the basis of these considerations, I think it perfectly legitimate for Chinese judiciary to pursue its investigation into Hu and some of his colleagues, and Rio Tinto has every reason to cooperate with the probe.

(The author is associate professor of economics at the University of International Business and Economics, Beijing. His email: johngong@gmail.com. The views are his own.)