The broad contours of the dispute between mining conglomerate Rio Tinto and the Chinese government—hardball business tactics, espionage charges, four Rio employees under arrest—are enough to leave any compliance officer unsettled. The spat itself is likely to be settled via quiet diplomacy between China, Australia (Rio Tinto’s home country), and Rio’s boardroom.

But compliance officers everywhere else can take away another lesson: the perils of snooping around for useful business information in China.

As far as outsiders can piece together—and a fair bit of guessing is involved—Rio Tinto was probably seeking information about the negotiating position of its Chinese counterparts when Chinese officials arrested four Rio employees on July 5 and accused them of espionage. One, Stern Hu, is an Australian citizen who heads up Rio’s sales efforts in China. No formal charges have been filed yet, but Beijing insists that it has “ample evidence” the four were trying to steal state secrets.

The arrests came in the middle of talks for $57 billion Rio Tinto, one of the largest mining businesses in the world, to supply China with iron ore. They also came one month after Rio Tinto abandoned a deal to accept a $19.5 billion investment from Chinalco, China’s state-run aluminum mining concern. That decision left political and business leaders in China irate.

All those factors led to a murky soup of compliance risk particular to China, where business information and state secrets can often be one in the same.

Despite China’s economic rebirth in the last 30 years, much of the commercial sector remains property of the state. Banks, major manufacturers, utilities, and mobile phone companies usually have the government or government entities as their primary shareholders. As a result, information about the internal operations of a Chinese competitor may be a state secret rather than simply a commercial secret, and the acquisition of that data may be considered a high crime.

“The lines start to blur a bit when you get into state-owned enterprises,” says Richard Gould, manager of the Guangzhou office of CBI Consulting, an investigation and due diligence company.

Beijing has a liberal interpretation of what constitutes a state secret. Many say the government is not just worried about weapon plans, nuclear reactor designs, and the like getting out; it also wants to protect information, even routine information such as production figures and expansion plans, if doing so gives a domestic company or the country an advantage in the commercial world.

“A state secret is not always about national security,” says Erik Glitman, managing director at Fletcher CSI, a U.S.-based competitive intelligence firm. “it is also about economic power.”

Glitman

According to Glitman, a company engaged in competitive intelligence in China will sometimes find a piece of information reclassified at the very moment the information is acquired in the course of research. Or a foreign company may inadvertently uncover state secrets while researching rivals, putting it in a precarious position.

“In China, state secrets and intelligence are broadly defined,” says Tiecheng Yang, a lawyer in the Beijing office of law firm Clifford Chance.

Avoiding Trouble

All that said, people active in the gathering of business information argue that if global corporations stick to international best practices and follow their own corporate charters, their executives aren’t likely to be hit with espionage charges.

Most trouble, they say, can be avoided simply by refusing to bribe a Chinese official for information. “Inducements” and “enticements” are central to almost any espionage case in China, so if workers are careful not to trade money with a state employee for information, they should be on the right side of the law.

“A state secret is not always about national security, it is also about economic power.”

—Erik Glitman,

Managing Director,

Fletcher CSI

This is not always easy in practice. Local employees and intermediaries of a U.S. corporation may not be so well versed in the ethical guidelines of the parent company or in U.S. laws such as the Foreign Corrupt Practices Act. They may be tempted to play by local rules. In countries like China where bribery is very much a part of the culture, payments often change hands as a matter of course.

Companies must also ensure that consulting fees are not actually illegal payments. In China, a market research company might be charging for legitimate services or it might be billing for a bribe; it’s not always easy to tell. In some cases the research firm itself might be a state-owned company, and payments to it could be misconstrued by the overly suspicious.

But most global corporations are already acutely aware of the FCPA or similar anti-bribery statutes in their own countries, and have compliance programs in place to stop bribery in the first place. Assuming those compliance programs work, the chance that a company will ever be accused of spying in China is low.

Yang

“You need legal advice and a list of dos and don’ts,” Yang says. “If you want information from sources, you need to establish internal compliance procedures and then comply with them.”

Professionals also note that a company can get almost everything it needs through legal means. Corporations (or their hired guns) can extrapolate what’s going on inside a Chinese state company by reading public documents, going to conferences, or even just observing factories and other facilities from the outside.

“Companies should approach the collection of competitive information in China in much the same way as they do in the United States: Anything in the public domain is, of course, free to use,” Gould says. “In addition, companies are free to obtain information on competitors if they do not misrepresent themselves and if they do not try to convince or otherwise entice competitors to provide information that they would not normally provide.”

According to Glitman, the same basic ratios apply in China that apply elsewhere. Eighty percent of information about a company can be acquired easily; another 15 percent can be acquired with a bit of work. “The last 5 percent you only find by breaking in,” he says. “And you don’t need that information.”

Nevertheless, care must still be exercised even if a company doesn’t pay any money to anyone. Glitman says that to protect themselves fully, executives must recognize that China has a notion of privacy different from that in the West. A foreign manager must operate as if everything said and written is heard or read by others; never suggest a law might be broken—even to a colleague, even in jest.

“Assume that everything you say is going on the front page of the People’s Daily,” he recommends.

Company executives should also remember China classifies sensitive information into several broad categories: absolute, important, and normal. In theory, every restricted government document should be marked accordingly. In reality—as often happens in China—the rules are on the books but not always followed.

“In practice the category mechanism is not fully implemented, so sometimes you cannot be sure if it is actually classified or not,” Yang says.

Above all, an international company must understand the sensitivities of China and be prepared to back off, even when it is following the letter of the law. Tread especially carefully when dealing in industries such as steel and energy, which, Gould notes, have been vital images of Chinese modernization at least since the Communist Revolution in 1949.

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