BHP bribe scandal could involve Cambodian project

BHP BILLITON'S blue-chip reputation has been tarnished by a foreign bribes scandal, believed to involve the group's abandoned bauxite exploration project in Cambodia where the payment of ''tea money'' to gain access to exploration ground is rife.

The scandal has been under investigation by the US Securities and Exchange Commission since August but only became ominous for BHP in a reputational sense yesterday when the Australian resources giant admitted the bribery claims could have merit.

BHP disclosed that its own internal investigation - a response to inquiries from the SEC - had uncovered evidence ''regarding possible violations of applicable anti-corruption laws involving interactions with government officials''.

It did not name the country or the now abandoned projects involved. While Cambodia was the popular tip by the non-government organisations that monitor the behaviour of the global miners in Third World countries, a nickel project in the Philippines was also mentioned by the organisations.

Either way, the revelations are a blow to BHP Billiton's need to maintain a squeaky clean corporate image while waiting on clearance from global regulators for its $US115 billion ($123 billion) iron ore production joint venture with Rio Tinto, a proposed deal that has angered the Chinese steel industry, the world's biggest. It was notable that while BHP would not name the country at the heart of the bribery scandal, it was prepared to volunteer that it was not China.

''We are limited in what we can comment on as the matter is still under investigation,'' it said.

''However, we can confirm that the SEC's requests for information primarily relate to certain terminated minerals exploration projects and not any activity in China, BHP Billiton's marketing activities or the sale of any of the company's products.''

Rio itself has suffered damage to its reputation in recent weeks. Last month China jailed four iron ore traders, including the Australian citizen Stern Hu, for accepting bribes and stealing commercial secrets. They were sentenced to between seven and 14 years' jail.

BHP is being assisted in the investigation by the New York law firm Davis Polk & Wardell. BHP would not comment on whether any of its employees had been stood down pending completion of the inquiry.

The bombshell was contained on the third page of an exploration and development report to the stock exchange for the March quarter.

BHP believes it was not obliged to make an earlier disclosure on the SEC investigation. But it now considers it relevant information - at least in the context of announcing in the exploration and development report - following its more recent discovery of possible anti-corruption violations.

''The company is co-operating with the relevant authorities including conducting an internal investigation, which is continuing. It is not possible at this time to predict the scope or duration of the investigation or its likely outcome,'' BHP said.

Under the US Foreign Corrupt Practices Act, BHP could be fined up to $US2 million while ''officers, directors, stockholders, employees, and agents are subject to a fine of up to $US100,000 and imprisonment for up to five years''.

The laws were introduced in the 1970s after more than 400 US companies admitted making questionable or illegal payments to foreign government officials to secure favourable treatment.

In a report by the British advocacy group Global Witness, published in February last year, the group cites a 2007 article in The Cambodian Daily which says that Cambodia's Minister for Water Resources, Lim Kean Hor, told the National Assembly BHP had paid $US2.5 million to the government to secure a bauxite mining concession.

''Lim Kean Hor is reported to have described this payment as 'tea money', an unofficial payment in Cambodia,'' the report says.

BHP rejected the claim in a letter in November 2008 to Global Witness saying the money was used for a social development program. ''In … terms of the minerals exploration agreement with the Cambodian government, which granted BHP Billiton and Mitsubishi the right to explore for bauxite, an amount of $US1 million was formally paid to the Cambodian government in September 2006,'' BHP wrote.

''If the money appears elsewhere … it is not clear where,'' the Global Witness report said. ''This raises questions as to where BHP Billiton's $US1 million payment made in September 2006 has gone.''