Monsters and critics
Aug 17, 2011,
Phnom Penh - Chalk it up to the Law of Unintended Consequences: Last week the Cambodian government announced that all corruption offences listed in two new laws had taken effect August 1.
As far as the government was concerned, it was nothing dramatic, simply the commendable next step in implementing its anti-corruption law, which was itself 15 years in the making.
But for companies from Western nations such as the United States and Australia, the decision has opened them up to potential prosecution under domestic foreign corrupt practices laws.
Observers say the government failed to notice that an article buried deep inside one law, Article 605 of the new Criminal Code, outlaws providing a 'benefit' to a public official.
And although the term 'benefit' is not defined in the code, the anti-corruption law says it means giving someone money to do their job. And that is now illegal.
That is a problem because it has at a stroke outlawed facilitation fees: cash payments to civil servants to get them to issue licences or forms, for instance, or to accept the filing of a tax return.
The sums involved in such fees are small - perhaps five or 10 dollars - and the person paying them gets no business benefit.
That lack of benefit is why the fees are not considered bribes and are not illegal under the Bribery Convention of the 34-member Organisation for Economic Cooperation and Development (OECD), although paying them is discouraged.
Matthew Rendall, managing partner at law firm Sciaroni & Associates, said the OECD's definition recognizes the reality of life in developing nations: That civil servants are low paid and use these 'nickel and dime' payments to top up salaries as low as 50 dollars a month.
But Phnom Penh's recent decision to make payment of those fees illegal means some countries with corporate anti-graft laws, such as the US and Australia, can pursue companies that pay them.
'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,' Rendall said.
And even if a firm could convince a court back home that facilitation fees were a normal part of business life in Cambodia, he added, the reputational damage 'is just beyond thinking about.'
For years Cambodia's civil servants have charged facilitation fees that in other nations are scheduled and receipted. Stephen Higgins, the chief executive of ANZ Royal, a part-owned subsidiary of banking giant ANZ, said that is where the answer lies.
'This is a major issue for all businesses that come from OECD countries,' he said. 'So the solution here is for the government, I think, just to say: 'Alright, we're going to formalize these fees - here's what they are, and we will issue you a receipt.''
It sounds simple enough, but in practice scheduling the fees would likely require different ministries agreeing how much of that revenue to keep and how much to send to the Ministry of Economy and Finance.
But there is a precedent of sorts. Traffic police, who are also low paid, are allowed to keep a percentage of the fines they collect. The rest goes to the ministry.
It is not yet clear whether the government has started to create a solution. Half a dozen spokesmen and senior ministry staff declined to comment.
Tassilo Brinzer, the president of the German Business Group in Cambodia, said his members welcome legislation to combat corruption, provided implementation takes local realities into account.
'Doing business in Cambodia has long required facilitation payments to speed up paperwork and other governmental services,' Brinzer says. 'This will slowly change but that change won't happen overnight.'
And while observers believe Phnom Penh is not likely to enforce that aspect of the law against its much-needed investors, the risk lies in their home jurisdictions. It will remain there until the Cambodian government fixes the problem.
In the interim, Rendall said, firms from nations such as China and Vietnam, both of which are significant investors, could take advantage since they do not have to worry about paying such fees.
'Those countries that have foreign corrupt practices laws - the US, the Western countries, etcetera - are at a massive disadvantage now,' he said. 'It's a concern. I'm sure it wasn't the intention of the law writers, but it could well be an unforeseen consequence.'
Phnom Penh - Chalk it up to the Law of Unintended Consequences: Last week the Cambodian government announced that all corruption offences listed in two new laws had taken effect August 1.
As far as the government was concerned, it was nothing dramatic, simply the commendable next step in implementing its anti-corruption law, which was itself 15 years in the making.
But for companies from Western nations such as the United States and Australia, the decision has opened them up to potential prosecution under domestic foreign corrupt practices laws.
Observers say the government failed to notice that an article buried deep inside one law, Article 605 of the new Criminal Code, outlaws providing a 'benefit' to a public official.
And although the term 'benefit' is not defined in the code, the anti-corruption law says it means giving someone money to do their job. And that is now illegal.
That is a problem because it has at a stroke outlawed facilitation fees: cash payments to civil servants to get them to issue licences or forms, for instance, or to accept the filing of a tax return.
The sums involved in such fees are small - perhaps five or 10 dollars - and the person paying them gets no business benefit.
That lack of benefit is why the fees are not considered bribes and are not illegal under the Bribery Convention of the 34-member Organisation for Economic Cooperation and Development (OECD), although paying them is discouraged.
Matthew Rendall, managing partner at law firm Sciaroni & Associates, said the OECD's definition recognizes the reality of life in developing nations: That civil servants are low paid and use these 'nickel and dime' payments to top up salaries as low as 50 dollars a month.
But Phnom Penh's recent decision to make payment of those fees illegal means some countries with corporate anti-graft laws, such as the US and Australia, can pursue companies that pay them.
'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,' Rendall said.
And even if a firm could convince a court back home that facilitation fees were a normal part of business life in Cambodia, he added, the reputational damage 'is just beyond thinking about.'
For years Cambodia's civil servants have charged facilitation fees that in other nations are scheduled and receipted. Stephen Higgins, the chief executive of ANZ Royal, a part-owned subsidiary of banking giant ANZ, said that is where the answer lies.
'This is a major issue for all businesses that come from OECD countries,' he said. 'So the solution here is for the government, I think, just to say: 'Alright, we're going to formalize these fees - here's what they are, and we will issue you a receipt.''
It sounds simple enough, but in practice scheduling the fees would likely require different ministries agreeing how much of that revenue to keep and how much to send to the Ministry of Economy and Finance.
But there is a precedent of sorts. Traffic police, who are also low paid, are allowed to keep a percentage of the fines they collect. The rest goes to the ministry.
It is not yet clear whether the government has started to create a solution. Half a dozen spokesmen and senior ministry staff declined to comment.
Tassilo Brinzer, the president of the German Business Group in Cambodia, said his members welcome legislation to combat corruption, provided implementation takes local realities into account.
'Doing business in Cambodia has long required facilitation payments to speed up paperwork and other governmental services,' Brinzer says. 'This will slowly change but that change won't happen overnight.'
And while observers believe Phnom Penh is not likely to enforce that aspect of the law against its much-needed investors, the risk lies in their home jurisdictions. It will remain there until the Cambodian government fixes the problem.
In the interim, Rendall said, firms from nations such as China and Vietnam, both of which are significant investors, could take advantage since they do not have to worry about paying such fees.
'Those countries that have foreign corrupt practices laws - the US, the Western countries, etcetera - are at a massive disadvantage now,' he said. 'It's a concern. I'm sure it wasn't the intention of the law writers, but it could well be an unforeseen consequence.'
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