CHALLENGES TO CLEAN BUSINESS IN CAMBODIA'S CORRUPT

UNCLAS SECTION 01 OF 02 PHNOM PENH 000284

SENSITIVE
SIPDIS

STATE FOR EAP/MLS

E.O. 12958: N/A
TAGS: PGOV KDEM EINV ETRD EIND CB
SUBJECT: CHALLENGES TO CLEAN BUSINESS IN CAMBODIA'S CORRUPT
ENVIRONMENT

SENSITIVE BUT UNCLASSIFIED


1. (SBU) Summary. The large turnout at a seminar discussing the
application of the Foreign Corrupt Practices Act (FCPA) illustrates
just how daunting the challenges are for international businesses to
conduct clean business in Cambodia's highly corrupt business
environment. Questions from the mainly business audience centered
on defining the threshold to address when facilitation fees rise to
the level of bribery. Participants gained a better understanding of
the significant risks they face by engaging in corrupt practices.
End Summary.

The Long Arm of the Law
--------------


2. (SBU) PACT and AmCham (supported by USAID) recently organized a
seminar for the foreign and local business community to enhance
their understanding of the U.S. Foreign Corrupt Practices Act
(FCPA). The level of interest, more than double the expected
turnout, illustrates the challenges of doing clean business in
Cambodia's highly corrupt environment and the serious concerns of
business people about falling afoul of the law. A U.S. prosecutor
from New Jersey hammered home the scope, breadth, and depth of the
FCPA, including who it applies to, what actions are covered, and
potential penalties for wrongdoing.

Corruption: Business as Usual
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3. (SBU) Participants highlighted the challenges they face to avoid
corruption, claiming that ninety percent of Cambodians they
encounter in business dealings (both government officials and
business people) do not understand the concept of clean business.
They stressed that acceptance of corrupt practices as business as
usual is firmly entrenched in Cambodian culture, making it very
difficult for the participants to refuse to play along. There was
universal concern about the legality of payments to government
officials necessary in the normal course of doing business in
Cambodia, from fees to obtain a commercial license to payments to
the fire department to extinguish a fire.


4. (SBU) Representatives questioned the point at which acceptable
"grease money", which is permitted under the FCPA and nominally
illegal under Cambodian law, rises to the level of a bribe under the
FCPA. While some complained that failure to meet the demands from
officials for bribes would result in the discontinuation of their
business operations, arguing that this amounts to extortion, the
prosecutor explained that the FCPA makes no distinction between
extortion and bribery, and that an extortion victim's cry of "they
made me do it" is no defense for illegal actions.


5. (SBU) Several business representatives noted the particularly
thorny issue of assuming liabilities in merger and acquisitions as
well as joint venture activity with local Cambodian partners. They
explained that they generally assume that most successful Cambodian
business operations at one point or another will have engaged in
activity which would be prohibited under the FCPA if carried out by
the prospective international partner. As such, they worried that
merging or forming partnerships with Cambodian firms would de facto
expose them to risks under the FCPA. The prosecutor explained that
companies can be held civilly liable for the actions of their
partners or consortium members if reasonable due diligence would
have exposed the illegal activity. Additionally, he dispelled the
notion that companies can skirt the law by appointing an agent to
make payments on their behalf (believed to be a common practice
here) and stressed that a company is liable if their personnel give
money to another knowing that the money will be used to make an
illegal payment.

Political Will Needed to Tackle Corruption
--------------


6. (SBU) AmCham Chairman and local attorney Bretton Sciaroni warned
that the eagerly anticipated Anti-Corruption Law will not be a
panacea to eradicate the country's corruption problems, as amply
illustrated by the lack of political will to employ existing legal
tools to tackle corruption. For example, Cambodia currently has
laws which criminalize corruption-related offenses, including
extortion and bribery. He noted that the political will to enforce
these provisions is lacking, as evidenced by a dearth of
corruption-related prosecutions. He warned against allowing the
lack of prosecutions to lull business people into a false sense of
immunity and an acceptance that corrupt practices are business as
usual. Cambodia has a well-earned reputation for corruption, it
ranks 166 out of 180 on Transparency International's Corruption
Perception Index in 2008. The recent increase in USG FCPA
enforcement activities, coupled with Cambodia's reputation, should
cause businesses to be more circumspect about the legality of their
activities.

PHNOM PENH 00000284 002 OF 002




7. (SBU) The Ambassador also attended the seminar and acknowledged
that corruption is a problem the world over, but stressed that what
is important is to develop the proper tools and motivation to use
them to combat the practice. She emphasized the need to change the
environment which allows corruption to flourish, particularly by
attacking petty corruption which permeates the everyday lives of
Cambodia's citizens. The most significant challenge, she stressed,
is to find a way to have conversations with the government about
corruption which are productive.

Comment
--------------


8. (SBU) Corruption permeates all levels of Cambodian society,
placing international businesses in a difficult situation to ensure
that they adhere to clean business practices and do not run afoul of
the FCPA. Raising awareness among the business community of the
reach of the FCPA is one method to discourage corrupt practices.
However, the real challenge is to change the accepting mindset and
the permissive environment in Cambodia which allows corruption to
flourish. Increasing understanding by Cambodian government
officials of the FCPA and the limitations it places on the
activities of international firms could help to spread understanding
that clean business is an alternative to the corrupt business as
usual in Cambodia. This effort can only be useful, however, if
combined with other USG anticorruption strategies, such as passage
and implementation of an anti-corruption law and support for the
Clean Business Initiative which seeks to promote clean business
practices and to improve the business environment by supporting fair
competition.

ALLEGRA