Global Investigations Review - The law and practice of international investigations

The Asia-Pacific Investigations Review 2017

Cambodia: anti-corruption

20 September 2016

Tilleke & Gibbins

Cambodia is becoming an increasingly attractive destination for foreign investment. Since 2011, Cambodia’s GDP has grown by at least 7 per cent per year, and the Asian Development Bank expects this growth to continue in the coming years. Cambodia has one of the fastest-growing economies in Asia, and the country has been dubbed ‘Asia’s New Tiger Economy’ by the Asian Development Bank.

On 1 July 2016, the World Bank issued a press release on upgrading Cambodia’s classification as a low-income country to a lower-middle-income country. The impetus behind this change is based on Cambodia’s gross national income per capita, which has shown a rise in purchasing power among the public.

Foreign direct investment increased by 8 per cent from 2014 to 2015, to approximately US$1.8 billion. The economy is diversifying, and moving away from the focus on garment and tourism sectors. According to the Asian Development Bank, the service industry is now the second-largest contributor to economic growth, with a staggering 12 per cent of growth in real estate and business services.

The indicators show that Cambodia is an attractive destination for foreign investment. The economy experiences stable and substantial growth every year, the population is gaining purchasing power, and the economy is diversifying. The Cambodian government is determined to provide an open market for investment, showing positive reform in business registration procedures, as well as in Cambodia’s tax regime. These reforms show the government’s commitment to liberalising the market and easing regulatory pressure on businesses, to attract foreign direct investment.

These economic opportunities, however, are not without risks. As is common in the region, there is the potential for corruption when doing business in Cambodia. It is not easy to avoid corruption completely, given its widespread nature and general acceptance in Cambodian society.

Regardless, it is critical for foreign investors to comply with local and international anti-corruption regulations, as non-compliance can result in very serious consequences in Cambodia, as well as abroad. Although the enforcement by local authorities at times may seem uneven and scarce, this is likely to change in the future. A good example is the establishment of the Anti-Corruption Unit, which has broad powers to investigate and prosecute corruption in the public and private sector.

In addition, a number of foreign companies have been charged and prosecuted under foreign corruption acts. They were charged in their home jurisdictions for corrupt business activities in Cambodia. These cases are not common, but they do demonstrate the high risks involved with non-compliance. Investors should be aware of the risks and their responsibility to comply with domestic and international anti-corruption regulations, and they should work with local counsel to establish control and oversight mechanisms to avoid these risks.

Corruption – an overview

Corruption is widespread in Cambodia. All sectors are affected by corruption, although some sectors are more vulnerable than others. Corruption in Cambodia takes all forms and shapes, ranging from small payments to speed up an administrative process, to allegations of corruption in multimillion-dollar investments. Enforcement seems scarce and uneven, and the lack of publicised case law strengthens this perception.

In Transparency International’s 2015 Corruption Perceptions Index, Cambodia ranked 150th out of 175 worldwide countries and territories, with a score of 21 on a scale of zero (highly corrupt) to 100 (very clean). In a publication of the World Bank on the ease of doing business, Cambodia ranked 127th out of 189, marking an improvement of six places from the previous year’s rankings. The World Bank uses various categories to form the overall score, one of which is ‘enforcing contracts.’ This category is where Cambodia scores poorly, in part due to corruption in the judiciary.

These and other indicators show corruption is a serious issue in Cambodia which influences the business climate. A primary example of the government’s efforts to combat corruption resulted in the adoption of the Anti-Corruption Law and the establishment of the Anti-Corruption Unit. The Anti-Corruption Unit has investigative powers, but also has a mandate to provide education and training to the public and government institutes on anti-corruption compliance. Although showing great promise, it cannot be expected that these efforts will completely eradicate corruption within the following years. It is important to understand the risks and implement measures reducing these risks.

Anti-corruption laws and regulations

Anti-corruption is covered by various domestic laws, including:

  • the Anti-Corruption Law, as amended;
  • the Criminal Code;
  • the Common Statute of Civil Servants; and
  • the Law on Anti-Money Laundering and Combating the Financing of Terrorism.

In addition to domestic laws, companies and individuals conducting business in Cambodia may fall under the jurisdiction of their home countries. Examples of applicable foreign laws are the US Foreign Corrupt Practices Act, the UK Bribery Act, and the OECD Convention Against the Bribery of Foreign Government Officials.

Cambodia ratified the United Nations Convention Against Corruption in 2007. Cambodia is also a member of the Anti-Corruption Initiative for Asia-Pacific, an initiative by the Asian Development Bank and the Organisation for Economic Co-operation and Development.

Corruption offences

The Anti-Corruption Law explains that corruption is defined to include the corruption-related criminal offences found in the Criminal Code.  In addition, a number of specific offences are added by the Anti-Corruption Law itself, but the Criminal Code holds the main body of offences.

The Cambodian Criminal Code states that offering, accepting, or soliciting a bribe is punishable. Offering, accepting, or soliciting any gift, present, or promise to a government official or corporate recipient or providing this recipient with any other benefit to induce that person to perform or abstain from performing his or her duty, is seen as a corruption offence. This is the general definition, with aggravating circumstances depending on the positions of the intended bribe receiver or solicitor.

Other corruption-related offences found in the Criminal Code are improper biddings, money laundering, embezzlement, favouritism and extortion. Offences related to corruption found in the Anti-Corruption Law are abuse of power by public servants or citizens that hold public office through election, illicit enrichment, corruption-proceeds offences, and petty corruption offences.

All corruption-related offences require a benefit for the intended receiver or solicitor of the bribe. Benefits are defined differently per applicable law, but in general, they include monetary and non-monetary benefits, for example giving or promising jobs, contracts, payments, gifts, services, and opting not to perform services.

Cambodia’s anti-corruption regulations cover both the public and private sector, and therefore include commercial bribery between private entities. Corrupting any private employee or public official is considered an offence and is punishable. The position of the intended receiver or solicitor of the bribe determines the applicable punishment regime. For example, corrupting a judge or a company’s director leads to higher minimum punishment.

Facilitation payments

Facilitation payments are mostly small payments made to speed up certain administrative procedures. The general definition of a corruption offence encapsulates facilitation payments. In addition, the Criminal Code specifies delivering bribes to a civil servant or a citizen so that the receiver will:

  • perform any act within his or her functions or facilitate anything using his or her functions; or
  • not perform any act within his or her functions or facilitate anything using his or her functions.

Although they seem to be widely accepted in Cambodia, facilitation payments are illegal under Cambodian law. Using a benefit to speed up a process is prohibited under law and under the general definition of a corruption-related offence.

Corporate liability

Under article 42 of the Criminal Code, legal entities may be found criminally liable for the actions of their representatives and organs, as long as the acts were in the company’s interest. The Criminal Code and the Anti-Corruption Law specify which corruption-related offences are applicable to legal entities.

Article 42 of the Criminal Code states that a company can be found ‘criminally responsible for the offences committed, for their interests, by their organs, or their representatives.’ The requirements do not include knowledge of the act, substantially broadening the possibilities of corporate liability. In addition, liability for acts of representatives may go as far as third-party contractors.

Furthermore, under the Civil Code, authorised and unauthorised actions of an agent may be attributed to a principal, possibly leading to corporate liability under civil law. Given that corruption laws are applicable to both the public and private sectors, this liability may have serious consequences for companies.

The Anti-Corruption Law states that liability will exist for a legal entity that conceals, keeps, or transports proceeds that come from corruption. Knowledge that the proceeds have come from corrupt acts must be proven for this particular offence. Conviction is punishable by a fine, and also subject to accessory penalties such as dissolution, placement under the court’s watch, expulsion from public procurement, and other punishments.

Whistleblowing

The Anti-Corruption Law provides very limited protection for whistleblowers. The Anti-Corruption Unit, established by the Anti-Corruption Law, can implement measures in regard to whistleblowers. Until now, measures have not been published. The Anti-Corruption Unit is bound to maintain absolute confidentiality of corruption-related information sources under the Anti-Corruption Law which includes punishments for the leakage of confidential information on corruption.

In contrast to most whistleblowing provisions in other countries, the Anti-Corruption Law criminalises whistleblowing in certain situations. When allegations of corruption contain disinformation or ‘defamatory’ statements, a whistleblower may be subject to punishment.

The Cambodian government is drafting a law on whistleblowers, but not much has been revealed to the public. The Anti-Corruption Unit stated a first draft will be made public in mid-2016.

The Law on Anti-Money Laundering and Combating the Financing of Terrorism includes obligations to whistleblow. The law obligates banks, financial institutions, casinos, law firms, and a string of other finance- and non-finance related institutions to report certain transactions to the Financial Intelligence Unit.

Reporting obligations are triggered by the size of the transaction and the suspicious nature of a transaction. A suspicious transaction is defined as a ‘transaction that involves funds suspected to be the proceeds of offence, or funds related to the financing of terrorism.’ In case of a suspicious transaction, the entity is obligated to inform the Finance Intelligence Unit within 24 hours from learning of the suspicion. Communication with the Finance Intelligence Unit is confidential, and the Unit itself is bound by confidentiality as well.

Foreign corruption statutes

Companies conducting business in Cambodia must be aware of the applicability of foreign corruption statutes, in addition to Cambodian anti-corruption legislation. Conduct allowed under Cambodian anti-corruption regulations may be prohibited by these foreign corruption acts.

Foreign corruption acts have extraterritorial applicability, and companies may be prosecuted for acts conducted outside of their home jurisdiction. Among several countries, Australia, the United States, and the United Kingdom have foreign corruption acts or have included provisions on foreign bribery in their criminal codes. Corrupt activities in Cambodia by companies connected to these countries may lead to prosecution in these countries. The acts provide for corporate liability and require companies to implement systems to prevent corruption or mechanisms to flag non-compliance.

The UK Bribery Act covers corruption in both the private and public sector. It requires a close connection to the United Kingdom for the person offering or accepting the bribe. This includes companies incorporated in the United Kingdom, but also non-UK companies conducting business activities in the United Kingdom. Even if the bribery takes place in Cambodia, the extraterritorial application of the act makes it possible for the company or person with a close UK connection to face prosecution in the United Kingdom.

The US Foreign Corrupt Practices Act is applicable to all US companies and persons, but also includes foreign companies and persons if they issue securities on a US exchange. Furthermore, the Department of Justice has adopted a broad reading of the Act’s applicability, including companies using US bank accounts or committing any act furthering an act of corruption on US territory. Even non-US persons and companies can be found liable under this Act, as a minimal nexus to the United States must be established in the Department of Justice’s reading. The Act is applicable to offering a bribe to foreign officials, and does not cover corruption of the private sector or accepting a bribe.

The Australian foreign bribery laws are part of the Australian Criminal Code Act and are applicable to Australian citizens, residents, and companies operating anywhere in the world, including Cambodia. It addresses bribery of a foreign public official with the intent to influence the official and gain an advantage.

Anti-corruption compliance

A vital tool for avoiding corruption and fulfilling a company’s duties under local and foreign anti-corruption regulations is an anti-corruption compliance programme. A comprehensive anti-corruption program should include work rules, guidelines, laws and regulations, the company’s commitment to conducting business without corruption, training and education on compliance, and preferably practical examples of situations that are likely to happen in the course of business. Another vital tool is an internal system for whistleblowing and whistleblower protection, as corruption within the company itself should be reported as soon as possible.

Cambodian labour law requires companies that employ more than seven employees to establish internal regulations. Including strong anti-corruption rules in these internal regulations is strongly advisable when conducting business in Cambodia, and this must be seen as a bare minimum requirement for companies operating in Cambodia.

In 2015, the Anti-Corruption Unit in cooperation with several companies and private sector working groups published the Guidebook on Anti-Corruption Program for Business in Cambodia. This guidebook contains valuable tips for developing and implementing an anti-corruption programme. Publishing the comprehensive guidebook shows the government’s commitment to education on anti-corruption compliance in the business sector.

Memorandum of understanding with the anti-corruption unit

Several major local companies, and local subsidiaries of major foreign companies, have signed a memorandum of understanding with the Anti-Corruption Unit. This agreement has no specific basis in law, but serves as an agreement between the company and the Anti-Corruption Unit to conduct business without any form of corruption.

Companies establish focal points to exchange information on where corruption offences take place, and where the company encounters corruption. The Memorandum usually includes confidentiality agreements and could function as a different form of whistleblower protection. The companies that have signed these memorandums have responded positively to the cooperation with the ACU.

Summary

Cambodia is an attractive south-east Asian destination for foreign direct investment. The expected economic growth and stabilisation of the government keeps Cambodia moving forward. Revising old laws and implementing new laws will contribute to creating a better business climate. Practice and interpretation of the laws will lead to a better understanding and a more clear and transparent approach to corruption.

In the meantime, investors and their counsel should be aware of the risks posed by corruption. Investors should do everything possible to address corruption head on, in order to protect their investments. Being associated with corruption presents a major risk for foreign investors’ image, and it can be disastrous for a company’s activities in Cambodia and abroad. Educating and encouraging lawful behavior will contribute to a healthier business environment and enhance understanding of anti-corruption regulations.

Establishing a comprehensive anti-corruption programme that includes internal policy rules will limit the risks and contribute to a better understanding among employees at all levels of a company. Although enforcement by authorities may be limited, companies should not walk away from their responsibility in terms of compliance.

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