August 9, 2011

Informal payments rules cause a stir


THE remaining provisions of Cambodia’s Anti-Corruption Law have come into effect four months ahead of schedule, causing a stir among internat-ional companies that do business in the Kingdom.

One of the law’s provisions made illegal the payment of so-called facilitation fees, or informal payments to government officials for various services, insiders said yesterday.

Although insiders said companies generally supported the law, which came into effect on August 1, they questioned the speed with which the provision was implemented, given Cambodia’s entrenched culture of informal payments.

“The international business community is scrambling to try and reconcile this new law with what is a common business practice in Cambodia,”  Matt-hew Rendall, managing partner at the law firm Sciaroni & Associates, said.

Businesses are still digesting the law and its effects, but Rendall defined illegal facilitation fees as any payment that is not formalised and scheduled. Offenders could face up to five to 10 years in jail, he said.

But that definition comes in sharp contrast to allowances made by some of the Kingdom’s main trading partners. Countries such as Australia and the US allow facilitation fees to be paid in countries where they are legal.

The Organisation for Economic Cooperation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions does not deem facilitation payments illegal, though it does discourage the practice.

Companies now face severe penalties for making those payments in Cambodia, according to the law.

“What business person wants to take that risk?” Rendall said.

David Carter, president of the Aust-ralia Business Association of Cambodia, said the law was the right step forward for the Kingdom.

Still, Carter is concerned that the government’s move to call the law into effect so abruptly could have negative consequences in the short term for businesses.

“People are simply unprepared. So what businesses are doing now is figuring out how to live with it,” he said.

“If anything, it’s going to have a slowing, if not stopping, effect on business.”

Carter called for the government to formalise and schedule as quickly as possible the payments that businesses have been forced to pay on an informal basis.

That would be the only way businesses could avoid prosecution by the Anti-Corruption Unit and continue operations as normal, he said.

Carter is also the chief executive of Infinity Insurance.

Others in the business community argued that although the law was now in effect, its implementation had yet to be determined.

Bretton Sciaroni, partner at Sciaroni & Associates and president of the American Cambodian Business Council, said the business community had been in discussions with the Cambodian government about the adoption of the law for some time. Those discussions were ongoing, he said.

Sciaroni said the law could have “a very dramatic impact on how business is conducted in Cambodia”, as he understood it would be strictly enforced. But he said it was too early to project about possible consequences.

“In a sense, it’s a bit premature [to discuss possible effects], because we still need to know how it’s going to be implemented,” Sciaroni said, emphasising that American businesses would comply with the law.

Further education about the law needed to take place in both the public and private sectors, Sciaroni added.

Council of Ministers spokesman Phay Siphan reacted to concern that the law was put into effect too quickly by saying those challenges would be met.

“With a commitment from the people and a commitment from the government, we can overcome any inconvenience,” he said.

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