February 1, 2016 / 10:40 AM / 2 years ago

China court fines OSI, jails employees over food safety scandal

A security personnel stands guard in front of an OSI's food processing plants in Langfang, Hebei province, July 23, 2014. REUTERS/Paul Carsten

SHANGHAI (Reuters) - A Chinese court has fined two domestic units of U.S. food supplier OSI Group [OSIGP.UL] up to 2.4 million yuan ($364,875) and handed prison sentences to 10 of its employees over allegations it reused returned food products to avoid losses.

The verdict marks the end of a long-running probe into OSI after a safety scandal in 2014 that hit fast-food giants it supplied - McDonald’s Corp (MCD.N) and Yum Brands Inc (YUM.N), owner of KFC, Pizza Hut and Taco Bell in China.

The Shanghai Jiading People’s Court said in a statement on Monday that Yang Liqun, a general manager at OSI China, would be sentenced to three years in prison and deported.

It wasn’t clear whether Yang, an Australian citizen, would serve jail time in China or be immediately deported.

Australian authorities said they were assisting a citizen arrested in Shanghai, but did not mention Yang by name.

“The Department of Foreign Affairs and Trade is providing consular assistance, in accordance with the Consular Services Charter, to an Australian arrested in Shanghai,” a spokeswoman said in an emailed statement to Reuters when asked about the case.

OSI has criticized the handling of its case by the local food regulator - a rare act in China, where foreign firms steer clear of any public criticism of the authorities.

The firm said on Monday that the verdict, which follows a December trial behind closed doors, was unjust.

“The verdict is inconsistent with the facts and evidence that were presented in the court proceedings,” it said in a statement. “As such, OSI is forced to consider an appeal through all legal channels in order to eventually be granted a just, evidence‐based verdict as merited by the facts of the case.”

The court statement said Yang and other workers at OSI’s China units had reused products from returned or canceled orders, meaning some unapproved products had entered the market.

Nine other people in the case would be given shorter jail terms and would have to pay fines. Four of the nine would have their jail sentences suspended, it said.

The court added the punishments were relatively lenient because the defendants had cooperated.

China is trying to clean up its reputation for food safety scandals, which range from recycled “gutter oil” and “zombie meat” - smuggled frozen meat years beyond its expiry date - to crops tainted with heavy metals. Senior Chinese leaders have said food safety in the country remained “grim”.

The scandal dragged down sales at McDonald’s and rival Yum in China after a Chinese TV report in July 2014 alleged to show workers at a Shanghai unit of OSI using out-of-date meat and doctoring production dates.

A senior executive for OSI in China told the official Xinhua news agency last July the scandal had cost the firm close to a billion dollars in lost revenue.

($1 = 6.5776 Chinese yuan renminbi)

Reporting by Adam Jourdan; Editing by Muralikumar Anantharaman and Adrian Croft

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