In an unusual joint notice regarding a country that is generally not subject to US sanctions, on November 10, 2021, the US State Department, the Treasury Department and the Commerce Department issued a “Advising Cambodia companies on high risk investments and interactions” (the board “).
The advisory points to the potential reputational, economic and legal risks associated with doing business in Cambodia and calls for “appropriate” due diligence to mitigate those risks. The advisory itself does not impose any sanctions or other trade restrictions on Cambodia, although it was published alongside the Imposition of sanctions on two senior Cambodian military officials as part of the Global Magnitsky program for their “involvement in significant corruption”. Nonetheless, the advisory calls on U.S. companies to be more careful when doing business with individuals and entities in Cambodia and outlines a range of potential sanctions, including sanctions that companies should consider in regarding their activities in Cambodia. The advisory specifically identifies the finance, real estate, casino, infrastructure, manufacturing and lumber sectors as areas of risk exposure for U.S. businesses.
This alert notes the advisory’s broad coverage, highlights the risk categories it identifies and discusses important implications for affected businesses and activities involving Cambodia.
The Notice is directed to “US businesses” and “US businesses”, although it does not define either term and is not legally binding. In context, however, it seems clear that the risks highlighted by the advisory and the potential sanctions it cites could apply to a wide range of US companies and investors across all industries, including in particular those involved in financial institutions and funds, real estate, manufacturing, infrastructure and timber. The risks and sanctions could also apply to non-U.S. Businesses, including, for example, some of the trade-related controls that apply to exports and re-exports of items of U.S. origin by non-U.S. Businesses. Further, as noted below, the notice constitutes notice of the increased risks associated with cases involving Cambodia, and this indicates that regulators will have higher expectations as a result regarding the scope and nature of due diligence.
Corruption and illicit financing
The Opinion notes that “[c]orruption in Cambodia is endemic and widespread, ”citing studies from the World Economic Forum and Transparency International. It details how limited regulatory and judicial oversight, a dollarized, cash-based economy, and lack of transparency associated with the rapid growth of the finance, real estate, casino, and infrastructure development sectors have created a landscape that allows corrupt actors to operate with de facto impunity.
Human trafficking, conservation crimes, illicit narcotics
The opinion also highlights the risks associated with human trafficking, crimes against conservation and illicit narcotics. Specifically, the advisory notes that traffickers (individuals or companies) often force children to work in brick kilns, rubber plantations and other industries. Sex trafficking in tourist areas and around casinos is also of great concern. Notably, the opinion focuses on the rapid expansion of debt through microloans which has made people more vulnerable to illicit schemes from traffickers. Concerns over illegal logging and wildlife trafficking remain high, particularly around rosewood and ivory. Cambodia is also a production and transit point for synthetic methamphetamine.
Although they are less present than the other risk categories identified in the Notice, companies operating in Cambodia should not overlook the trade compliance risks noted therein. Specifically, the opinion notes the “North Korean-related proliferation finance risks” associated with Cambodia, and cites a specific example of previous sanctions action linking illicit activities in Cambodia to arms proliferation efforts. of the DPRK. Further, the notice notes that the United States Department of Commerce’s Bureau of Industry and Security (“BIS”) maintains export licensing requirements relating to human rights violations. and end-uses and end-users of military or military intelligence.
Two key implications of the opinion
Raised expectations for due diligence
United States regulatory and enforcement agencies – including those responsible for enforcing or overseeing compliance with the United States export controls, punishments, anti Corruption, and fight against money laundering laws and regulations – all stress the importance of risk-based compliance programs. The advisory warns US companies and other organizations of the risks in these and other areas.
Companies engaged in business activities in Cambodia or involving Cambodia should review their compliance processes to ensure that they are adequately addressing these risks. Such compliance processes will necessarily involve due diligence, and the opinion specifically notes that companies operating in Cambodia, sourcing or related to Cambodia, “should apply appropriate due diligence policies and procedures”.
Affected companies should review current compliance policies and due diligence processes and efforts to determine if they are adequate. This could include, for example, mapping the supply chain and other trade links with Cambodia, performing a strategic risk assessment and developing a plan to mitigate, correct or eliminate the risks. .
Foreshadowing future actions in the United States and around the world
Businesses would be advised to view the notice as a prelude to application. A similar trade advisory regarding human rights violations in Xinjiang, China was followed by a variety of sanctions and suspension-of-release orders that blocked the importation into the United States of goods from specific businesses and entire economic sectors (cotton and tomatoes). This notice could also be a signal of future government enforcement actions, increased trade controls involving Cambodia and more critical treatment of Cambodia in U.S. government reports and the associated increased reputational risks.
In addition, the opinion could also foreshadow similar or equivalent measures on the part of Allied governments. For example, following the notice to Xinjiang companies, Canada, the United Kingdom, Australia and the European Union have all either blocked the importation of certain goods from Xinjiang or publicly declared that ‘they would. Accordingly, it would be wise for companies in these countries to consider the impact of similar business advice and follow-up on execution options regarding their business relationship with Cambodia.
At the end of the line
Over the past few years, we have seen both increased attention to environmental, social and corporate governance (ESG) considerations and bipartisan and consistent support for greater transparency and diligence on corruption, environmental degradation and human rights violations. We have also seen an increasing vision and use of US laws and trade-related authorities to advance these efforts.
With little evidence to suggest that this trend will abate, companies should take action now to identify and address these types of risks. Accordingly, any company operating or investing in Cambodia, or having a supply chain or customer base involving Cambodia, should consider whether it would be prudent to exercise due diligence or additional oversight of their operations and whether it should be prudent. take additional compliance action to provide assurances about the integrity of their operations, business partners and financial arrangements.