Investors in Cambodia fear repercussions of bribery law | Connect Asia

Investors in Cambodia fear repercussions of bribery law

Investors in Cambodia fear repercussions of bribery law

Posted 17 August 2011, 13:27 AEST

Earlier this month, the Cambodian government announced it has outlawed so-called "facilitation fees" - paying small sums of cash to civil servants for services such as issuing forms or filing tax returns.

It might not sound like much, but it has sent a bolt through Western businesses in Cambodia.

Presenter: Robert Carmichael

Speaker: Stephen Higgins, CEO ANZ Royal Bank; Matthew Rendall, partner at law firm Sciaroni & Associates.

CARMICHAEL: For 15 years Cambodia's donors pushed Phnom Penh to do something about corruption, and finally - last year -the government passed an anti-corruption law.

It followed on the heels of another law - the new Criminal Code. The laws contain a list of corruption offences that were meant to come into force later this year. Last week the government announced it had moved that date forward to August 1st.

You might think - so what? That doesn't sound like much. The government didn't think so either, but buried deep inside the new Criminal Code - Article 605 to be precise - was a line that has got Western businesses spooked.

It all revolves around facilitation fees, which are small sums of money you pay civil servants to get things done here - two dollars to buy a copy of a form, for example, another five or ten dollars to file it.

Cambodian civil servants earn paltry salaries - typically between 50 and 80 dollars a month - and they survive by taking cash from the people who need their services, part of the petty corruption that cloaks the country.

Paying those fees is now illegal under Cambodian law. Anyone offering such a payment can be jailed for up to 10 years; anyone accepting one can get 15 years.

Stephen Higgins is the CEO of ANZ Royal Bank, a part-owned subsidiary of ANZ. He explains the concerns.

HIGGINS:

It's a major issue for business because theoretically if any business pays them, they are liable to face criminal charges and the person paying them is liable to 5 years jail or more. And for a business such as ours, if we were to pay them theoretically I would be liable to go to jail here in Cambodia, in Australia, in the UK or in the US. And I certainly don't wish that upon myself.

CARMICHAEL: And that's the bigger point: Nobody expects Phnom Penh will pursue investors for paying such small sums. After all, the government doesn't pay its civil servants enough, and this is how they have topped up their salaries for years.

The problem is that since such fees are now illegal here, some Western companies could face prosecution back home.

Matthew Rendall is a partner at law firm Sciaroni & Associates.

RENDALL:

Whereas the assumption is you wouldn't be prosecuted locally for paying 20 dollars to do your monthly tax filing, for example, the fear now is that you could be prosecuted in your home countries under the Foreign Corrupt Practices Act, and the penalties are severe, the repercussions are severe.

CARMICHAEL: The toll has started. Last month the courier FedEx said it would not deliver any items worth more than $300 dollars until the government put scheduled fees in place.

Western firms simply cannot afford the risk of paying facilitation fees. Even if they convinced a judge back home that they had done nothing untoward, says Rendall, they would still suffer reputational damage.

RENDALL: So the fear for investors in Cambodia at the moment is the impact it has on them in their home countries.

CARMICHAEL: So, back to Article 605: That article makes it a criminal offence to provide any benefit to a public official - but the Criminal Code doesn't define the term "benefit".

However the anti-corruption law does: It says a benefit is giving someone money to do their job, which is why facilitation fees are now illegal.

And because paying civil servants to do what they have always done is now an offence under Cambodian law, that makes it an offence under US and Australian law too, something the government didn't consider.

RENDALL:

What they didn't see, and it turns out it was this one-line article from some other law that was written another time - coming into play and having this impact. So I suppose now that they are probably aware of this they will be now meeting among themselves of how to resolve it.

CARMICHAEL: It is not yet clear what the government will do. Two spokesmen passed the parcel on the issue, another senior official refused an interview, and two others at the finance ministry stopped answering their phones. It seems the government is still working out its approach.

But whatever action it takes, this won't be a quick fix.

Business associations say the government should publish a schedule detailing what each service costs, and then ensure receipts are issued. That will make the fees official, which removes the risk of prosecution back home.

It sounds simple enough, but setting that up will likely require agreement between ministries and the treasury on how to divide the takings. And that could take time.

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