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East Asia & The Pacific

Cambodia risk report

Updated:

Corruption is rampant in Cambodia. Companies should expect to deal with extensive red tape to obtain the proper licenses and business permits. The judiciary is understaffed, lacks qualified resources and receives insufficient financing, leading to widespread corruption and deterring foreign investment. Cambodia's Anti-Corruption Law is in line with international standards but is poorly enforced and public officials continue to engage in corrupt practices with impunity. Corrupt acts are covered in the Criminal Code, which criminalizes corruption in the form of active and passive bribery, abuse of office for private gain and extortion. It also criminalizes accepting bribes in the form of donations or promises. There is no set limit on the value of gifts, but they are forbidden if given with a corrupt intent. Facilitation payments are prohibited in Cambodia. Nonetheless, businesses report that both gifts and facilitation payments are extremely prevalent.

Judicial system Very high risk

There is a high risk of corruption in Cambodia's judiciary (HRR 2016). Corruption among judges, prosecutors, and court officials is widespread (HRR 2016). In fact, the majority of Cambodians consider judges and magistrates to be corrupt, thus ranking the judiciary as the most corrupt institution in the country (GCB 2015, BTI 2016). Companies indicate that irregular payments and bribes in return for favorable judicial decisions are commonplace (GCR 2015-2016). While the constitution provides for an independent judiciary, the government does not respect its independence in practice (HRR 2016). Judicial officials often hold positions in the ruling party alongside their roles in the judiciary (HRR 2016). Accordingly, companies have very low confidence in the judiciary's ability to operate independently and, similarly, report low confidence in its efficiency in settling disputes and challenging regulations (GCR 2016-2017). Due to these high levels of corruption investors are reluctant to use the Cambodian court system; as a result, commercial disputes are resolved through negotiations facilitated by the Ministry of Commerce, the Council for the Development of Cambodia, the Chamber of Commerce, or other involved institutions (ICS 2017). Enforcing a contract in Cambodia takes slightly less time than elsewhere in the region, but the costs exceed twice as much the regional average (DB 2017).

Cambodia is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and it is also a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

Police Very high risk

There is a high risk of corruption when dealing with the Cambodian police. More than half of Cambodians perceive the police as corrupt (GCB 2015). Companies do not have faith in the police's ability to uphold law and order (GCR 2016-2017). Over half of firms pay for private security and a quarter of firms indicate that crime, theft, and disorder form a major constraint on their ability to do business (ES 2016). Cambodian police officials abuse their power with impunity: There are cases in which public officials, including police officers, have received kickbacks from owners of illegal businesses to keep their businesses operating (HRR 2016).

Traffic police are allowed to keep 70% of all cash collected from handing out fines; this is done in an effort to discourage rent-seeking behavior among police (TIME, Jul. 2015). Kampong Thom, a provincial police chief was stripped of his rank and removed from office after allegations surfaced that he demanded bribes from officers under his command in return for promotions (Khmer Times, Mar. 2017).

Public services Very high risk

The public services sector suffers from high corruption levels. Companies should expect to deal with extensive red tape to obtain licenses and business permits in Cambodia. More than three out of five businesses indicate they expect to give gifts to get an electrical connection or to 'get things done' (ES 2016). Investors frequently complain that decisions issued by regulatory agencies are inconsistent, arbitrary, or corrupt (ICS 2017). Likewise, around a quarter of Cambodians perceive local government councilors to be corrupt (GCB 2015). Civil servants are chosen on the basis of their loyalty to the ruling party, their ability to buy themselves into office, or their close connections to influential individuals (BTI 2016). In an effort to reduce rent-seeking, the government increased the minimum wages of civil-servants – the wages of low-level government officials are far below standard levels of living in Cambodia – with an additional raise expected in 2018. The government also substituted all-cash payment of salaries with bank automated transfers to crack down on payroll fraud.

The total amounts of time and cost required to register a firm in Cambodia or to get an electric connection are significantly longer and higher, respectively, than in the rest of the region (DB 2017).

Land administration Very high risk

There is a very high risk of corruption in Cambodia's land administration. Cambodia suffers from extensive land grabbing, exacerbating the issues of corruption and impunity among public officials (TI Cambodia, May 2014). Nearly nine out of ten firms expect to give gifts when obtaining a construction permit (ES 2016). As a result of official policies and political upheaval since the Khmer Rouge era, many people do not have official documentation of the property they own, leading to land rights being a contentious issue in Cambodia (ICS 2017). Land titles issued before the end of the Khmer Rouge's regime are not recognized anymore (ICS 2017). Foreigners are prohibited from buying land outright; only Cambodian individuals or legal entities (defined as entities with at least 51% Cambodian ownership) can own land (ICS 2017). Companies are able to obtain long and short-term leases for land (ICS 2017). Reports exist of individuals with political connection grabbing land and then misusing the state's security services to enforce their private interests (ICS 2016; BTI 2016). Leading politicians and their families are frequently involved in land-grabbing cases (BTI 2016). The government reserves the right to expropriate property, but legal procedures surrounding expropriation were unclear as of the time of review (ICS 2017). Registering a property takes seven steps and is slightly less time-consuming than the regional average (DB 2017).

In one illustrative case, the head of the Preah Vihear Provincial Department of Mines and Energy admitted to illegally selling a government plot of land for USD 62,400 in profit (Phnom Penh Post, Jun. 2017). The plot of land belonged to the state, but had not been properly registered yet, allowing the official to sell it (Phnom Penh Post, Jun. 2017). The official has alleged that a number of other officials were involved in the scam, including local commune chief and governor, who have all denied involvement (Phnom Penh Post, Jun. 2017).

Tax administration Very high risk

Corruption is a high risk in Cambodia's tax administration and is cited as a major deterrent for foreign investment (ICS 2017). More than half of all companies expect to give gifts or make irregular payments when interacting with tax officials (ES 2016). A third of Cambodians believe that most tax officials are corrupt (GCB 2015). Foreign companies sometimes find themselves at a disadvantage compared to Cambodian or other foreign business rivals due to corrupt practices and/or tax evasion (ICS 2017). Most citizens refuse to pay taxes because of the high degree of corruption in the country (BTI 2016).

The total number of tax payments companies have to make in Cambodia per year is almost twice as high as the regional average but the total time this requires is still less than the regional average (DB 2017).

Customs administration Very high risk

The customs administration counts among the most corrupt institutions in Cambodia (ICS 2017). Businesses report that bribes and irregular payments are highly common (GETR 2016). More than three out of five businesses report expecting to give gifts when trying to obtain an import license (ES 2016). Companies indicate that customs procedures are insufficiently transparent and the time-predictability of import procedures is poor (GETR 2016). Notwithstanding, customs procedures in Cambodia are generally less time-consuming and less costly than elsewhere in the region (DB 2017).

It has been reported that Cambodian officials only recorded export of 1% of the sand Singapore says it imported from Cambodia; activists have pointed to corruption in Cambodian customs as an explanation (The Cambodian Daily, Jun. 2017).

Public procurement Very high risk

Corruption is rampant in Cambodia's public procurement sector. Kickbacks and gifts to procurement officers are highly common (TI Cambodia 2017). Nearly nine out of ten businesses indicate that they expect to give gifts in order to secure government contracts (ES 2016). Favoritism in the decisions of government officials is perceived as commonplace and diversion of public funds is a significant problem (GCR 2016-2017). Government contract-awarding processes are non-transparent and subject to corruption (ICS 2017). A lack of oversight capabilities enables large-scale corruption in the procurement sector (BTI 2016). Private companies are generally able to compete with state-owned enterprises under the same conditions (ICS 2017). Procurement corruption in road construction projects is especially common; they are negatively influenced by irregularities, bribery, and kickbacks to corrupt officials (Phnom Penh Post, Dec. 2014).

Natural resources Very high risk

There is a high risk of corruption in Cambodia's environmental sector. The Cambodian government has largely taken a hands-off approach to the plundering of its natural resources (BTI 2016). Cambodia has long had a problem with illegal logging; bribing of policemen is commonplace and much of the ruling elite is complicit in the practice (Mongabay, June 2017). This is illustrated by the rise of the 'rubber barons' who profit from privileged access in the hunt for land concessions in the logging trade (GW 2013). Land grabbing, illegal logging, and mining, which strip the country of valuable assets, remain central practices connected to abuse of office (BTI 2016). Cambodia performs poorly when it comes to proper licensing of mining activities; there is also an insufficient degree of accountability and poor control of corruption (NRGI 2017). While Cambodia has a number of laws and rules regulating its mining sector, enforcement remains weak (NRGI 2017).

Legislation

Enforcement of Cambodia's anti-corruption legislation is weak, and public officials act with impunity (HRR 2016). Corrupt acts are criminalized under the Criminal Code, which forbids actual and attempted corruption conducted by any political official, civil servant, military personnel or official agent for the Cambodian parties. Active and passive bribery, abuse of office for private gains, extortion, and accepting bribes in the form of donations or promises are also criminalized. Foreign bribery is not covered by the Criminal Code (NortonRoseFulbright, Sept. 2014). Gifts are not limited in value but are prohibited if given with the intention of bribery, and facilitation payments are forbidden; there is an exception for officials employed by the Anti-Corruption Unit (ACU), who may only accept gifts not exceeding USD 25 in value. Anti-corruption laws in Cambodia cover both public sector and private sector bribery (Global Investigations Review, Sept. 2016). Cambodia's Anti-Corruption Law (in Khmer) aligns with international standards. Under the Law, a corrupt official faces up to 15 years in prison if convicted of a corruption offense (NortonRoseFulbright, Sept. 2014). The Law also requires all civil servants to declare their assets to the government every second year (ICS 2017). The financial disclosures of public officials are not publicly available (HRR 2016). **The Law on Anti-Money Laundering and Combating the Financing of Terrorism (in Khmer) criminalizes money laundering. The Law on Public Procurement governs procurement procedures. Companies convicted of procurement fraud are blacklisted.

Cambodia has ratified the United Nations Convention against Corruption (UNCAC).

Civil society

Cambodia's Constitution grants freedom of expression and freedom of the press; however, Article 12 of the Press Law states that the media should not publish anything that may harm political stability and national security (HRR 2016). The Law does not explicitly specify what these terms mean, allowing the government to subjectively enforce the law (HRR 2016). In practice, the government exerts strong control over the media. Journalists covering sensitive topics are reportedly harassed, threatened, suspended and detained at random and without warrants; media self-censorship is common (FotP 2015). Cambodia's press environment is regarded as 'not free' (FotP 2015).

NGOs and associations rely on support by foundations and international donors, yet some civil society organizations are actively involved in various social and economic contexts (BTI 2016). NGOs working in the fields of justice and human rights face harassment by the state (FitW 2016). NGOs offer many social services where the state has fallen short, leading to them generally being respected and trusted by Cambodian citizens (BTI 2016). The government’s tolerance for freedoms of association and assembly remains low, permits for demonstrations are frequently denied and the government has at times used force to disperse protesters (FitW 2016).

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