Chinese firm linked to corruption was ‘not fully investigated’ before £10bn deal

Chinese firm linked to corruption was ‘not fully investigated’ before £10bn deal
The Herald
06.04.16

A Chinese company linked to "gross corruption" was not fully investigated before an agreement that opens the door to £10 billion of investment in Scotland was agreed.

Nicola Sturgeon came under fire after the Scottish Government claimed it was "not necessary" to carry out full due diligence of China Railway No. 3 Engineering Group Co., Ltd, (CR3), before it became one of two firms that signed a Memorandum of Understanding with the First Minister to explore developing and funding major infrastructure projects north of the border.

Concerns have been raised after it emerged that the parent company of the CR3, China Railway Group Limited (CRG), has been blacklisted by Norway’s oil investment fund after its ethics council uncovered strong evidence of the firm paying huge bribes to officials to secure lucrative public contracts in China.

In a 2014 report, which led to the fund ditching its £26 million stake in the construction giant, the ethics council concluded that there is an "unacceptable risk that the company is involved in gross corruption" and an "unacceptable future risk of corruption" at CRG.

Asked whether the Scottish Government knew about the bribery links before signing the deal, a spokesman said: "Prior to the signing of the MoU, Scottish Government officials assessed the credibility of the potential investors in terms of their existing UK activity, such as Sinofortone’s MoU with London Group PLC on tourism projects; planned investment of £2bn to develop two biomass projects in Wales and planned investment of £100m in the London Paramount Entertainment Resort.

"As the MoU does not involve any legal, contractual or funding obligation or commitment, full due diligence was not necessary. If the MoU was to result in a specific investment agreement, due diligence would be taken forward in the normal way."

Sinofortone was the second Chinese company to sign the agreement with the Scottish Government alongside CR3.

On the election campaign trail yesterday, Ms Sturgeon repeated the Government position, saying: "There is no agreement to invest, there is no actual investments agreed. This is about exploring opportunities and if there are any specific proposals for investment full due diligence will be done."

Scottish Liberal Democrat leader Willie Rennie has written to Ms Sturgeon calling for the First Minister to spell out whether she was aware of corruption allegations before agreeing the deal with the subsidiary.

He said: "This agreement offers Scottish Government support to a business tied to allegations of gross corruption but it seems no-one thought to mention this to Nicola Sturgeon before she put pen to paper.

"The Infrastructure Secretary [Keith Brown] said he was happy with the track record of the companies signed up to the MoU. Today it is clear that not only was zero due diligence done before the deal appeared in Chinese media, but the Scottish Government did not think it was necessary at all. This is extraordinary."

Among the allegations contained in the Norwegian ethics council report are that bribes were paid to secure railway and housing contracts for CRG – two areas that the agreement with the Scottish Government pinpoints as possible areas of cooperation.

Details of the controversial agreement were not revealed publicly by the Scottish Government with the existence of the agreement, signed on March 21, first revealed in China.

The SNP said that the party would work to secure "jobs, investment and economic growth in Scotland" and cited recent success in securing a future for the country’s steel industry.

A spokesman for the party said: "This Memorandum of Understanding will enable discussions to take place about opportunities for investment and job creation in Scotland. This process is at a very early stage, there is no confirmed investment and no specific set of projects being discussed. Full due diligence will be carried out on any projects and investors that come forward.

"When the UK Tory Government is courting investment from China in nuclear power plants, Welsh Labour are welcoming Chinese investment in Anglesey and the Lib Dems former Treasury minister is Vice President of a Chinese backed investment bank this is pure hypocrisy from the opposition."

Source: The Herald