On November 10, the U.S. Departments of State, Treasury, and Commerce issued an unusual joint advisory (the “advisory”) on the risk of investing and interacting with certain Cambodian individuals and entities. The advisory is evidence of the United States’ active campaign against corruption; the advisory also continues the recent U.S. practice of employing sanctions and other trade restrictions to fight corruption.
Specific Cambodian Sectors Designated as High Risk
In the advisory, the government identified the following Cambodian sectors as high risk:
- The financial, real estate, casino, and infrastructure sectors – deemed high risk because of illicit finance activities and related risks.
- The manufacturing and timber sectors of Cambodia – deemed high risk because of trafficking of persons, wildlife, narcotics, and related risks.
The advisory emphasizes that involvement, or potential involvement, of U.S. companies in any of those sectors could result in reputational, economic, and/or legal risk.
Recent Sanctions Target Cambodian Government Officials
In a related action, also on November 10, the U.S. Department of Treasury, Office of Foreign Assets Control (“OFAC”) announced sanctions on two Cambodian government officials, Chau Phirun and Tea Vinh, for significant involvement in corrupt activities. OFAC is the primary U.S. government agency that administers U.S. economic sanctions.
According to OFAC, Chau Phirun and Tea Vinh are officials of the Cambodian Ministry of National Defense. OFAC asserted that each conspired to profit from construction activities at a Naval Base facility, including through inflating costs.
The two officials were sanctioned under Executive Order (“E.O.”) 13818, which was issued in 2017. Under the terms of the EO, the U.S. government is authorized to sanction “foreign persons who are current or former government officials, or persons acting for or on behalf of such an official, who are responsible for or complicit in, or have directly or indirectly engaged in, corruption, including the misappropriation of state assets, the expropriation of private assets for personal gain, corruption related to government contracts or the extraction of natural resources, or bribery.”
OFAC Director Andrea M. Gacki said, “This Administration will continue to prioritize anti-corruption efforts and work tirelessly to promote accountability.” U.S. persons are prohibited from conducting virtually any business with either of the officials or with entities in which the officials own 50% or more.
Cambodia Is Viewed as Risk in Connection with North Korea, Burma
Beyond its concern about corruption, the U.S. government is concerned that business in Cambodia could be a front for sanctioned parties in North Korea and/or Myanmar (Burma). The U.S. government has previously designated Cambodian business people because of their perceived relationship with North Korea.
The U.S. government has also suggested that Cambodia plays a prominent role in the drug trade out of parts of Myanmar. And the State Department has indicated that corrupt Cambodian officials may be involved in illegal wildlife trafficking for the benefit of Chinese purchasers.
Importance of Due Diligence When Doing Business Internationally
To be clear, the U.S. restrictions on Cambodia are not nearly as extensive as U.S. restrictions on Russia, let alone Iran or North Korea. Only a small number of Cambodian actors and industries have, to date, been identified as prohibited or problematic business partners.
Nonetheless, the restrictions the U.S. government has imposed with respect to Cambodia are emblematic of how U.S. sanctions and other trade measures can be used to address U.S. foreign policy concerns. Even a county that most U.S. persons and companies do not worry about too much can make for compliance challenges. The recent actions related to Cambodia serve as a useful reminder of the importance of conducting careful due diligence of business partners, including customers, distributors, financial institutions, and suppliers, to avoid falling afoul of U.S. law.
Thanks to legal clerk Ustina Ibrahim for her work on this article.
