In China's murky system, Crown may never know all the answers

Last Updated:2016-10-24

By Geoff Raby

Seven years ago, Rio Tinto's chief China representative was arrested in Shanghai on charges of leaking state secrets and bribery.

Stern Hu was a Chinese-born Australian citizen and had been running Rio's China operations for many years.

He was a reserved and private individual, but was well liked and respected among his peers and in the mining expatriate community. He was married with two children. Seven years later he is still in prison in Shanghai, with another three years left to serve.

When the call came from a close Chinese friend of Stern Hu, on another otherwise unexceptional Sunday evening in 2009, to say that Rio's chief representative had been arrested by Chinese police, it was as if the world had been turned upside down.

Key embassy personnel were alerted immediately. The Foreign Ministry's consular department was contacted. Representations were made to ensure the Australia-China bilateral consular agreement was respected.

An immediate demand was made for consular access. Stern's wife was contacted to offer what comfort and support we could. In those early moments, Canberra was alerted and draft media talking points were prepared for the portfolio ministers and the prime minister.

The embassy and the consulate in Shanghai then had to set about trying to work out what had happened, what was he charged with and, more importantly, why he had been charged.

The same events would have occurred over the past few days, since Australia was advised that 18 employees of Crown Casinos had been arrested in China, including three Australian citizens. In China's opaque system where administrative edict governs rather than the rule of law, one of the biggest challenges is trying to understand exactly why someone has been arrested and what charges are being made.

Bilateral consular agreement

In the case of Stern Hu, when after several days the charges were made known, they involved very serious allegations of espionage. Hu was said to have passed on to foreign governments highly sensitive information about internal Chinese positions in their annual price negotiations with foreign iron ore suppliers.

Later, the Chinese government kept stepping back from these and made corruption, instead, the principal charge.

Nevertheless, Hu was found guilty of corruption at a public hearing along with four other employees at Rio's Shanghai office but still faced an in-camera trial over leaking state secrets. The severity of his punishment was attributable to both elements.

The bilateral consular agreement sets out the procedures for looking after citizens' welfare in such cases. China is usually correct in managing the procedures, adhering to the letter of the agreement.

Consular access has already been granted to two of the three Australians arrested. Presumably access to the third will occur within the times specified in the agreement.

The challenge for the embassy and Crown's legal team will be to understand the charges. Chinese media are reporting that they have been arrested for organising "gathering[s] for gambling" where the organisers expect to profit from such activity.

This is known as "aggregation" and has been a common practice used by foreign casinos aimed at attracting gamblers to offshore venues (gambling within the territories of the People's Republic of China is illegal).

In February 2015, the Ministry for Public Security announced it was cracking down on the practice. In June of that year, 13 South Korean managers and 34 Chinese agents were arrested for the crime of "organising gatherings for gambling".

The arrests show a carefully planned and executed strategy that would have involved decisions at the highest levels of the Chinese government. The number of those arrested is big. It also involves three Australian citizens.

One of whom, if media reports are correct, is Jason O'Connor, an executive vice- president of Crown. It would appear that the Chinese had waited for him to re-enter China for a short-term visit before proceeding with the arrests.

It is most unlikely for this to have happened if the Chinese were not completely confident about the evidence they have. They know the sort of foreign public scrutiny and bilateral political pressure such a high-profile case could elicit.

Guesses floated

The two big questions in this, to which we may never learn the answers, are "Why Crown?" and "Why now?" A number of guesses have been floated.

Some have speculated that it is because of issues in the bilateral relationship, such as Foreign Investment Review Board rejection of some high-profile investments from China or unhappiness at Foreign Affairs Minister Julie Bishop's strident comments on the South China Sea.

Neither is convincing, not least because it doesn't answer the question of why Crown and not another Australian casino.

A rumour gaining currency in Hong Kong is that disgraced and now imprisoned former Standing Committee leader, Zhou Yongkang's son Zhou Bin, had been involved with Crown in 2013 and accepted gifts and other benefits.

Again, whatever the truth of the purported relationship, the timing doesn't really work. Zhou Yongkang's network was taken down by President Xi two years ago. It is unlikely any mopping up is still going on.

Most likely it is a case of having broken Chinese law. But then the question is, "Why Crown?" Aggregation was common among foreign casinos.

It may have been the case that when the new regulations were issued forbidding the practice of aggregation, Crown missed it due to inadequate local presence to monitor the changing regulatory environment.

In the case of Stern Hu, it was clear that China wanted to punish Rio over a number of actions it had taken which China interpreted – rightly or wrongly – as being hostile. At least on the surface, nothing similar seems to be in play in this case.

It would be nice to think – though of no solace to the victims and their families – that Crown had been simply caught in President Xi' four-year long anti-corruption campaign.

But in China things are never that simple.

Geoff Raby is Chairman and CEO of Geoff Raby & Associates and a former Australian Ambassador to China.

This article first appeared in the Australian Financial Review: