On November 10, 2021, the US Departments of State, Treasury, and Commerce issued a joint advisory (the “Advisory”) cautioning US companies operating in or considering operations in Cambodia to be conscious of dealings with entities and in sectors potentially involved in human rights abuses, criminal activities, and corrupt business practices. We describe the Advisory in additional detail below.
On the same day the Advisory was issued, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) sanctioned two Cambodian government officials, Chau Phirun and Tea Vinh, for their roles in corruption in Cambodia pursuant to Executive Order 13818, which builds upon and implements the Global Magnitsky Human Rights Accountability Act (“Global Magnitsky Act”). The State Department also announced visa restrictions on Chau and Tea, and their eligible immediate family members, under Section 7031(c) of the FY 2021 Department of State, Foreign Operations, and Related Programs Appropriations Act.
Potential Risks Exposures When Doing Business in Cambodia
The Advisory focuses on two areas of risk exposure including (i) illicit finance activities and related risks in the finance, real estate, casino and infrastructure sectors, and (ii) transactions with entities involved in trafficking in persons, wildlife, and narcotics trafficking in Cambodia and related risks for the manufacturing and timber sectors. The Advisory highlights the significant reputational and economic risks associated with such activities, and also provides insights into potential legal risks from a sanctions, export controls, AML/CFT and anti-bribery perspective.
Primary and Secondary Sanctions Exposure: Companies that deal with Cambodia entities that engage in human rights abuses, criminal activities, or corruption as noted in the Advisory may be subject to primary and secondary US sanctions. In addition to Chau and Tea, a number of parties in Cambodia have already been designated by OFAC, warranting additional due diligence and screening of counterparties involved in companies’ supply chains. “US Persons” are generally prohibited from engaging in transactions with these parties and any entities 50% or more owned by these parties. “US Persons” include (i) entities organized under US laws and their non-US branches, (ii) individuals or entities in the United States, or (iii) US citizens or permanent resident aliens (“Green Card” holders) wherever located or employed. Non-US persons may also be liable if they cause any US Persons to engage in any prohibited SDN-related transactions.
OFAC is expected to continue using its authority under Executive Order 13818 to designate parties engaged in corruption, bribery, and other acts that influence actions taken by the government of Cambodia. The Global Magnitsky Act authorizes the US President, among other things, to impose sanctions on any individual or entity who is responsible for gross violations of internationally recognized human rights committed against individuals in any non-US country seeking to expose illegal activity carried out by government officials, or to obtain, exercise, or promote human rights and freedoms and parties that have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, such activities. Our prior blog post on the Global Magnitsky Act can be found here.
Export Controls: The Advisory also reminds companies that the Commerce Department’s Bureau of Industry and Security maintains export controls on exports and reexports to Cambodia of items subject to the Export Administration Regulations, in addition to unilateral controls concerning countries in the region that commit human rights abuses and suppress democracy.
AML/CFT and FCPA Violations: According to the Advisory, certain sectors of the Cambodian economy remain targets for money laundering given Cambodia remains a largely cash based country and there is a significant amount of foreign investment in the real estate sector that occurs outside of the banking system. Cambodia remains on the “grey list” of countries subject to enhanced monitoring by the Financial Action Task Force, which indicates lack of oversight and gaps in the AML/CFT compliance infrastructure in the country. The Advisory recommends that US financial institutions assess their potential exposure to the risk of handling the proceeds of forced labor, wildlife trafficking, and drug trafficking and to implement proportionate mitigating measures and internal controls. These recommendations align with financial institutions’ obligations under the Bank Secrecy Act.
US law also criminalizes knowingly benefitting financially, or receiving anything of value, from participation in a venture that has engaged in obtaining or providing labor or services of a person by any of the prohibited means. It remains critical for foreign investors to comply with local and international anti-corruption regulations, including the US Foreign Corrupt Practices Act.
Forced Labor Violations and Impact on Modern Slavery Statements: The Advisory notes children in Cambodia are subjected to the worst forms of child labor, including in commercial sexual exploitation, sometimes because of human trafficking, and in forced labor in brickmaking. US law criminalizes not only knowingly providing or obtaining the labor or services of a person by any of the prohibited means, but also criminalizes knowingly benefitting financially, or receiving anything of value, from participation in a venture that has engaged in obtaining or providing labor or services of a person by any of the prohibited means, knowingor in reckless disregard of the fact that the venture had engaged in providing or obtaining forced labor. The DHS agencies, US Customs and Border Protection (“CBP”) and US Immigration and Customs Enforcement, enforce prohibitions against importing and benefitting from supply chain-related use of forced labor goods through civil and criminal enforcement actions pursuant to section 307 of the Tariff Act of 1930 and the Trade Facilitation and Trade Enforcement Act of 2015. Specifically, CBP has the authority to deny entry of such goods, potentially resulting in the goods being seized and forfeited, along with civil penalties against the importer and other parties. There has been an increase in CBP’s issuance of Withhold Release Orders to detain goods at the port of entry until a finding regarding the forced labor concerns is reached. For more information on US force labor advisories, please see our blog post here.
If your company is required to issue a Modern Slavery Statement under applicable laws, it is important to perform further due diligence in Cambodia to ensure operations and business partners are free from slavery and human trafficking and provide appropriate disclosures.