Doing business in Cambodia, BHP-style

Today’s broadsheets reported that mining giant BHP Billiton could be guilty of paying $US2.5 million in bribes to the Cambodian government to secure a bauxite mining concession in the country’s north-west.

Further investigations have revealed that BHP discretely shelved its mining plans at the same time as a probe into the deal by the US Securities and Exchange Commission began. It seems Japan’s Mitsubishi were also part of the deal.

Is this a repeat of the Rio Tinto saga, or are we seeing a pattern emerge?

It seems that even the world’s largest mining company and one of the world’s largest diversified trading and investment companies believe that they can get away with corrupt behaviour; at least in vulnerable corners of the world in which few in London or New York pay attention too.

The Sydney Morning Herald claims that the latest graft scandal to hit a mining company has been under investigation by SEC since August. This coincides exactly with the company’s sudden pull-out from the bauxite mine in Mondulkiri province, Cambodia.

BHP at the time attributed the pull-out to their failure to find bauxite in sufficient quantities, with a spokesman for BHP in Australia quoted in the Phnom Penh Post as saying: “We completed our exploration field work in the Mondulkiri province and are in the process of sharing our evaluation with the Royal Government of Cambodia. As such, we have reduced our presence in Phnom Penh.”

The spokesman, who was not named, refused to give further details, saying that “…we do not comment publicly about the results of our exploration activities”.

Another source confirmed this alibi, telling the Post a feasibility study, which reportedly cost $US10 million and covered 400 hectares of the company’s 996-hectare concession, failed to find bauxite in sufficient quantities to make extraction profitable and justify the construction of the aluminium refinery.

But it seems that the news of poor profits was so devastating to BHP that it not only exited the deal, but exited the country, quickly vacating their large French-colonial building on the city’s main boulevard and no longer returning the Post’s calls.

The question needs to be asked: Why is this coming to light now?

The Global Witness report has been on the record for over a year, claiming BHP is involved with gross wrongdoing. But only now is it reaching papers in the developed world — surely in part because of the blow-up of the Stern Hu case.

Tireless watchdogs like Global Witness have long been a thorn in the side of Cambodia’s political and military elite. But officials know that without a large international audience, the group’s naming and blaming usually falls on deaf ears. It is this isolation from the world community that, as Global Witness itself points out, makes Cambodia such a natural fit with extreme corruption and kleptocracy.

So why were these commercial titans with huge reputations on the line dipping into the forbidden fruit on offer in small, backwater countries?

Global Witness says the fact that Cambodia has been resting on the cusp of a “petroleum and minerals windfall” is at least partly to blame.

“High demand worldwide for these commodities has, until recently, led to high prices. As a result companies are beginning to search for economically viable reserves in previously untapped countries once thought to be too politically unstable to operate in,” it says in its report, Country for Sale.

So, was it only a matter of time?

Cambodia and Vietnam, with fractured economies and greedy politicians, both have a reputation in south-east Asia for being the lowest hanging fruit on the dirty-money tree. Cambodia also has the seductive advantage of a huge bureaucracy in which standard accounting practices can disappear without a trace; not to mention a system of bullying predicated on fear which guards corrupt deals against squealers.

Indeed, the Cambodian government has been labeled the biggest in size in the world per capita; and they may likely be the richest. A nomenklatura of inter-wed and blood-related elites manage the country’s wealth through a sophisticated pyramid-shaped network of handshaking and intimidation. It is almost impossible to defy this natural hierarchy of power and its coercive logic of bribery: Global Witness claim every mine they investigated for their report was indeed run by a member of the government or military, or their relative.

So protected is the government from opposition that it can be genuinely humoured by attempts to threaten its power – especially when they come from outside the country. Following the release of Global Witness’s report, the Cambodian ambassador to the UK and son of the Minister for Commerce, Hor Nambora, responded by whipping up his own “report” with a poorly drawn image of the initial report going into a waste-paper basket.

But as the government squanders so much of the country’s wealth on big cars and expensive watches, teachers and low-level government workers are starved and forced to perpetuate the cycle of bribery.

‘Tea money’ may sound like a sinister misnomer, but to most Cambodians, a kickback is simply the cost of an every-day service. A legitimate monetary system can be easily reversed once one person’s salary is not paid. Because teachers receive barely any income, children learn from an early age that if they want to pass subjects, they must take a few hundred riel along with their lunches to school every day.

With this culture in place, it is difficult to believe that any company, large or small, international or local, can avoid paying this ‘tea’ tax on top of bloated concession fees. With SEC’s investigation underway, we are no doubt likely to see that the Stern Hu case is the rule, rather than the exception, when it comes to second and third-world business deals.