BHP's 'tea money' missing in CambodiaPublished by MAC on 2010-05-20
Source: Sydney Morning Herald
BHP Billiton is being investigated by the US Securities and Exchange Commission (SEC) over violations of anti-graft laws. There was some speculation on the unnamed jurisdiction. See: http://www.minesandcommunities.org/article.php?a=10072
It now appears more likely to be Cambodia after these Sydney Morning Herald articles discover evidence that money paid for community development never reached those communities.
BHP's 'tea money' missing in Cambodia
Sydney Morning Herald
15 May 2010
PHNOM PENH: BHP-Billiton knowingly bribed the Cambodian government in 2006, anti-corruption campaigners say, paying $US2.5 million ($2.8 million) in ''tea money'' which never appeared on government books, and which never built a single school or irrigation channel as promised.
In September 2006, BHP-Billiton paid $US1 million to the Cambodian government for a mining concession to conduct exploratory drilling for bauxite on 100,000 hectares in Mondolkiri province, in Cambodia's far east. The world's biggest mining company also gave the government an additional $US2.5 million to go towards a ''social fund'' for development projects for local communities.
Despite promises from the government the social fund would be administered by the finance ministry, budget documents obtained by the Herald show none of BHP's money ever appeared on the government's books.
And while the money was variously promised, by both BHP and the Cambodian government, to start irrigation projects, and to build dams, schools and hospitals in the province, none was ever seen in Mondolkiri.
Anti-corruption campaigners and members of the Cambodian parliament say BHP knew the money it paid in September 2006 was a bribe and would never reach the communities displaced by its mining activities.
"No doubt BHP knew from the beginning this money is [sic] bribe, is bribery, they know from the beginning. They cannot ignore this reality by saying that the company believe that the money was just paid properly, legally, to the government," said Son Chhay, a 15-year member of the Cambodian National Assembly and outspoken anti-corruption campaigner. ''There is no excuse for BHP.''
BHP left Cambodia in 2009, after finding insufficient bauxite reserves to mine commercially, but the US Security and Exchange Commission is understood to be investigating the irregular payment.
And the company, while refusing to confirm its Cambodian payment is under suspicion, conceded in its latest quarterly statement that an internal investigation had uncovered evidence "regarding possible violations of applicable anti-corruption laws involving interactions with government officials".
The original deal between BHP and the Cambodian government was signed in 2006, during a visit by the Cambodian Prime Minister, Hun Sen, to Australia.
BHP's $US3.5 million, which government officials said would be received by the finance ministry, was paid into a Cambodian bank account in September 2006. It has not been seen, or accounted for, since. It appears nowhere on the government's books.
The Herald has obtained the Cambodian government's budget statement for 2006, which is not released publicly.
It shows revenue from mining concessions for that year of just $US443,000. The $US1 million for the mining licence, and the $US2.5 million for the social fund, do not appear anywhere else in the budget papers.
Quizzed on the deal in 2007, the Cambodian Water Resources Minister, Lim Kean Hor, told the national parliament the money was "tea money", a colloquial term for an undeclared bribe.
"The royal government got tea money, $US2.5 million, from the bauxite investment with Australia," he told parliament.
Mr Hor was backed up by another senior member of the ruling Cambodian People's Party, Cheam Yeap, who said "the money is just for friendship".
Both ministers refused interviews with the Herald.
There is continuing confusion over what the money was promised.
Defending the payment's legitimacy this month, Mr Hun Sen said: "I ordered to use this money to build the Charoek Dam in Pursat province, but later this company requested a part of the fund to build schools and hospitals in Mondolkiri province."
For its part, BHP-Billiton says it retained control of the money, which was to be administered by a committee over which it had veto. However, the company concedes it lost control of the money, with some allocated to a "social infrastructure project not approved by BHP-Billiton".
Former BHP employees say the money has never been seen in Mondolkiri province.
The miner's community official in Mondolkiri, Nok Ven, said no community projects were ever funded by BHP-Billiton's money.
"There's no such thing happen in Mondolkiri province. There's no school, there's no irrigation. There's nothing at all happened," he said.
Separately from the $US2.5 million social fund payment, BHP-Billiton did donate nearly $US470,000 to six non-government organisations working in Mondolkiri province.
Mr Chhay said it was common practice for tea money payments to be made over and above mining licence fees, and for the money to disappear.
"The tea money paid by BHP to the government ... is just the same thing. We could not find where this money [went] ... there is no doubt that this money was somehow paid to someone, but there's no evidence that they will be part of the government budget."
He said Cambodia was institutionally corrupt, with government officials bleeding the country's natural resources for their own profit, while international donors contribute fully half the country's budget to keep the state afloat.
UN figures show 68 per cent of Cambodians survive on less than $US2 a day.
"But there are so many rich people in Cambodia. You can look on the streets, there are a lot of LandCruisers, Lexuses and Mercedes ... Cambodia receives more than half [its] budget from donor countries, but the officials are so rich and live in castles.''
Tea-time free for all
Mining has the potential to drag the people of Cambodia out of poverty, but corruption means millions of dollars are going into the pockets of a powerful few
Sydney Morning Herald - Exclusive
15 May 2010
PHNOM PENH: IT'S JUST after midday when the group arrives at Titanic, a restaurant on the banks of the Tonle Sap River. The restaurant is the nicest on the Phnom Penh waterfront, despite its pessimistic name.
Tailor-made suit jackets are discarded and ties are loosened as the party of 20, entirely male save one, takes its seats at a long table.
Immediately, bottles of whisky appear, and generous glasses are poured.
The group stands, noisily charges its glasses to a short speech, and downs the lot.
Five minutes later, it's another speech, noisier and longer, before another, and another, each a little more raucous than its predecessor.
"It's a business deal. Celebrating a business deal. A Chinese company," a waiter informs other diners. There are three government ministers in the group, he whispers conspiratorially.
This is the public face of doing business in Cambodia. The benign bonhomie of a successful negotiation sealed over a long lunch.
But there is also a hidden side that is never so indiscreetly displayed and is threatening to stop the benighted country ever pulling itself out of the mire of poverty: corruption.
Cambodia is widely regarded as one of the most corrupt countries. Of the 182 countries tracked for public sector corruption by the Transparency International corruption index, Cambodia ranks 159th.
Corruption exists at all levels. Low-ranking public servants, most of whom have had to pay their superiors for the privilege of a job, recoup the money by requiring bribes to perform even the most routine of duties, to process a driver's licence application, approve a building permit, or register a business.
And it extends to the very top of the government. Senior ministers are regularly accused of accepting millions of dollars in ''tea money'' - a colloquial term for illegal, under-the-table payments - to grant forestry, oil and mining licences.
Sometimes, the money is window-dressed as donations for ''social funds'' or ''development projects'', but little of it is seen again. In 2009, the US ambassador to Cambodia, Carol Rodley, opined that $US500 million went missing in Cambodia each year.
So perhaps it should not have been a great surprise that last month, when the US financial markets regulator, the Securities and Exchange Commission, said it was investigating allegations of corruption involving BHP Billiton, speculation turned quickly to the company's operations in Cambodia. The SEC investigation is believed to centre on a deal between BHP Billiton and the Cambodian government signed in 2006, during a visit by Cambodian Prime Minister Hun Sen to Australia.
BHP conceded in its latest quarterly statement that an internal investigation had uncovered evidence "regarding possible violations of applicable anti-corruption laws involving interactions with government officials".
But the company has never confirmed that the SEC investigation is in any way related to dealings in Cambodia.
Whether or not it is the subject of the SEC inquiry, it is known that BHP paid $US1 million to the Cambodian government for a mining concession to conduct exploratory drilling for bauxite on 100,000 hectares in Mondolkiri province, in Cambodia's poor far east.
The world's biggest mining company also gave the government an additional $US2.5 million to go towards a ''social fund'' for development projects for local communities.
BHP's money was paid into a Cambodian bank account in September 2006. The money has not been seen, or accounted for, since.
BusinessDay has obtained the Cambodian government's budget statement for 2006, which is not released publicly. It shows revenue from mining concessions for that year of just $US443,000.
Despite promises from the government that the social fund money would be administered by the Finance Ministry, the documents show none of BHP's $US3.5 million appeared on the government's books. And while the ''social fund'' money was variously promised, by BHP and the Cambodian government, to start irrigation projects, and to build dams, schools and hospitals in the province, none of the money was seen in Mondolkiri.
Asked in 2007 about the money received from BHP, Cambodian Water Resources Minister Lim Kean Hor told the national parliament the money was "tea money".
"The royal government got tea money, $2.5 million, from the bauxite investment with Australia," he told parliament.
Hor was backed by another senior member of the ruling Cambodian People's Party, Cheam Yeap, who said "the money is just for friendship".
Both ministers refused interviews with BusinessDay. BHP has steadfastly denied the money it paid was ''tea money''.
''BHP Billiton operates over 100 assets in 25 countries,'' a spokeswoman said.
''We operate according to a strict code of business conduct, which is based on the values contained in the company's charter and has been prepared to assist our people, wherever they may be located, to work in a way that upholds the highest ethical standards.
''Each of BHP Billiton's businesses is required to ensure that all employees, contractors and others with whom they work understand the requirements of the code. The code prohibits bribery and corruption in all forms.
''The code is supported by a business conduct advisory service. This includes a multi-lingual, 24-hours-a-day call centre and online case management system. As a leading global resources company operating in so many parts of the world, we believe that operating sustainably and responsibly underpins everything we do.''
But anti-corruption campaigners and members of the Cambodian parliament say BHP must have known the money it paid in September 2006 was a bribe and would never reach the communities displaced by its mining activities.
For 15 years, Cambodian-born, Adelaide-educated Son Chhay has sat on the opposition benches in Cambodia's parliament, railing against rampant corruption.
He says bribery is "normal practice" in Cambodia and the major reason is that most Cambodians are still desperately poor.
Earlier this year, he walked out of parliament in protest at new anti-corruption laws, which allow senior government officials to keep their compulsory declaration of assets confidential.
"The law legalises corruption, it's not a fight against it,'' he says. ''People in government do not have the will to fight corruption because it is they who benefit. You can see that all the senior ministers, including the Prime Minister, have hundreds of millions [of dollars].
''Their houses are like castles, their wives are wearing $100,000 rings, compared to the poor, who hardly even have a proper place to live.
"No doubt BHP knew from the beginning this money is a bribe, is bribery; they knew from the beginning. They cannot ignore this reality by saying the company believed that the money was just paid properly, legally, to the government. There is no excuse for BHP."
Defending the payment's legitimacy this month, Hun Sen said: "I ordered to use this money to build the Charoek dam in Pursat province, but later this company requested a part of the fund to build schools and hospitals in Mondolkiri province."
For its part, BHP said in a letter to non-government organisation Global Witness that it had retained control of the money, which was to be administered by a committee over which it had veto. However, the company concedes it lost control, with some money allocated to a "social infrastructure project not approved by BHP Billiton".
Former BHP Billiton employees say the money has never been seen in Mondolkiri province. The miner's former community official in Mondolkiri, Nok Ven, says no community projects were funded with BHP Billiton's money.
"There's no such thing happen in Mondolkiri province,'' he says. ''There's no school, there's no irrigation. There's nothing at all happened.''
Nok Ven resigned from BHP Billiton because he felt the mining giant ignored the wishes of the indigenous Bunong people, who were shut out of forests they used for food and cultural practices.
BHP Billiton did, separately from the $US2.5 million social fund payment, donate nearly $US470,000 to six non-government organisations working in Mondolkiri province.
Chhay says it is common for tea money to be paid over and above mining licence fees, and for the money to vanish.
"The tea money paid by BHP to the government I think is just the same thing,'' he says. ''We could not find where this money [went] ... there is no doubt that this money was somehow paid to someone, but there's no evidence it will be part of the government budget."
He says Cambodia is institutionally corrupt, with senior government officials bleeding natural resources for their own profit, while international donors contribute fully half the budget to keep the state afloat.
Cambodia is also one of the region's least-developed nations. Nearly 70 per cent of the populace survive on less than $2 a day. A third of children under five are malnourished.
And yet, Cambodia is not a country without means, nor potential. It is simply that the country's means are in the hands of so few, and it's potential so often abused.
Eleanor Nichol, a campaigner with Global Witness and author of Country For Sale, an examination of the developing country's extractive industries, says Cambodia's political and economic system is sculpted to the benefit of a few key individuals.
"It's a system of government where the state is treated as a personal slush fund, as opposed to what we understand as normal government, which is one that acts in the best interests of its people,'' she says.
She says donor money is funnelled to keep basic state services such as health, education, and infrastructure operating, while private interests ''bleed the state of its other assets'' - particularly its natural resources.
In the decades after the Khmer Rouge period, Cambodia's greatest natural resource - its wealth of untouched forest - was comprehensively stripped. Primary forest cover was reduced from 70 per cent in 1970 to just 3.1 per cent today.
Between 1990 and 2005, Cambodia lost 2.5 million hectares of forest, with the huge profits going into the pockets of a powerbroking few, members of the cabal that surrounds Prime Minister Hun Sen.
Now there are serious concerns the same will happen with Cambodia's remaining natural resources: its minerals, its fish stocks, its oil. These industries are all in their infancy, and their eventual value is not yet clear, but they are growing exponentially and unchecked. Potentially, they are worth hundreds of millions of dollars a year to a country that still cannot pay its own bills.
As well as being excluded from any of the economic benefits of the sale of their country's resources, it is ordinary Cambodians who suffer most directly from the land concessions being granted across their country.
Typically, the people are simply kicked off farmlands or forests they have used for generations for food and to generate income. But in many cases, entire villages are forcibly evicted by government soldiers, homes burnt and land seized, all without compensation.
Thousands of people have been displaced, and scores shot and killed by troops acting on government orders.
Most of the companies coming to Cambodia seeking mining licences are from China and Vietnam. Many are new enterprises, without a corporate reputation to uphold, and bring no mining experience to their new venture.
These companies, Chhay says, are uninterested in a transparent process, and are happy to pay whatever, to whomever, for access to Cambodia's natural resources.
And so, while it may not surprise many to learn that BHP found corruption in Cambodia, anti-corruption campaigners in Cambodia were surprised to hear the allegations levelled at BHP.
Time and again, BusinessDay hears that BHP's presence was welcomed in Cambodia. BHP was supposed to be the good guy.
With its hard-won reputation as a scrupulously honest operator, it was hoped the world's biggest miner could use its corporate influence to insist on strict standards of propriety.
Other multinational companies have also become embroiled in corruption allegations.
French oil company Total paid $US8 million to a social development fund, and $US20 million as a ''signature bonus'' direct to the government for the right to drill for oil offshore, while South Korean miner Kenertec paid a $US1 million ''start bonus'' simply for permission to begin work.
But while there is no shortage of interest, domestically and internationally, in Cambodia developing a transparent governance system for its new extractive industries, for every step the country takes towards greater accountability, there has been an equivalent leap back.
Global Witness' Eleanor Nichol says Cambodia has been effectively "captured" by a dishonest and self-interested clique, formed around the Prime Minister, his friends and family.
"The fact that Cambodia is completely corrupt is not a national secret,'' she says. ''Any company with even basic due diligence would know this and I'm sure BHP had very good due diligence procedures and systems in place. So they'd have gone in with their eyes wide open."
She says the BHP case raises questions about multinational companies, many with strong corporate reputations to protect, dealing with highly corrupt states.
"What responsibility do companies have to make sure the money that they pay the government actually reaches government coffers?'' she says.
"How do they ensure that the bank account numbers they've been given aren't the bank account numbers of senior public officials and are actually going to the Ministry of Finance? When you're dealing with a state that is captured by a small group of individuals, corruption can be more nuanced than the straight up 'give me a million dollars under-the-table' bribery."