VZCZCXRO5497
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #0284/01 1241137
ZNR UUUUU ZZH
R 041137Z MAY 09
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC 0664
RUCNASE/ASEAN MEMBER COLLECTIVE

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 
------------------------------ 
 
¶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