[Bhpbilliton] Follow up to BHP Billiton bribery - looks like Cambodia is the country in question...

[Andy Whitmore]

BHP's Cambodia colleagues watch on: John Durie

John Durie, The Australian - 
http://www.theaustralian.com.au/business/opinion/bhps-cambodia-colleagues-watch-on-john-durie/story-e6frg9io-1225856785856?source=cmailer

22 April 2010

NEWS that BHP is under US SEC investigation for alleged payments to 
government officials in Cambodia has underlined the caution needed in 
dealing in some developing countries.

Cambodia is a popular source for Australian investment, with ANZ running 
the ANZ Royal bank - one of the biggest foreign banks in the country.

Former Treasurer Peter Costello was recently in the country looking for 
investments for a $600 million private equity firm. Oz Minerals was also 
recently spruiking a promising gold prospect, the Okua project, and Toll 
Holdings last year signed a deal with the Cambodian government to run 
its national rail network.

None of which means any of the above is guilty of or have even 
considered bribing anyone, but it’s a massive risk management exercise 
for all concerned.

A Wall Street Journal report in February last year on the Global Witness 
study on Cambodia was focused more on the fact the government had not 
recorded payments from foreign companies than straight out bribery.

It said: “Concession fees paid by mining giant BHP Billiton and other 
large companies weren't recorded in Cambodian government income 
statements and remain unaccounted for after requests by Global Witness 
for information about their whereabouts.”

“An official at Global Witness said the organisation suspected portions 
of the payments were siphoned off by government officials, relatives or 
private business people. The group blasted Cambodia's government for 
failing to provide more transparent accounting of mining and oil leases 
it signed with foreign partners,” it added.

The US SEC normally sends so called Wells notices to people giving them 
the chance to explain why it shouldn’t take proposed enforcement action 
before any action is launched. At this stage it is understood BHP hasn’t 
received any such notice.

Toll, ANZ, Oz Minerals et all may not be in the same position as BHP but 
you can be sure they will all be checking records to ensure their hands 
are clean.

The amounts of money may be small, but the reputational risk is 
enormous, as AWB can testify to.

-----------------

BHP's "tea money" a long time in the making

Former Phnom Penh Post journalist Georgia Wilkins writes:

http://www.crikey.com.au/2010/04/22/bhps-tea-money-a-long-time-in-the-making/

22 April 2010

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.