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On November 10, the Department of State (“DOS”), Department of Treasury, and Department of Commerce released an advisory titled “Considerations for US Companies and Organizations that Conduct Business in Cambodia within Key Sectors or in Partnership with High Risk Entities” (the “Cambodia Advisory”).  The Cambodia Advisory is focused on corporations and, according to the accompanying press release, is meant to caution businesses currently operating, or considering operations, in Cambodia to be mindful of interactions with entities and sectors potentially involved in human rights abuses, criminal activities, and corrupt business practices.  This blog post will be focused on the corruption and responsible sourcing risks highlighted by the Cambodia Advisory.  

The Cambodia Advisory emphasizes Cambodia’s rampant corruption problem.  It notes that an increase in foreign investment from investors willing to engage in corrupt practices, combined with opaque official and unofficial investment processes, further drives the overall rise in corruption.  Due to the significant growth of the financial, real estate, casino, and infrastructure sectors in Cambodia over the past several years, companies in these sectors are stated to be particularly likely to experience corruption.

The Cambodia Advisory also states that doing business in Cambodia presents a heightened risk of human trafficking, child exploitation, and forced labor.  The tourism, brickmaking, construction, rubber, casino, and entertainment industries are specifically noted as industries where instances of human trafficking, child labor, and forced labor have been increasingly more common.

Finally, the Cambodia Advisory cautions about business operations in the logging, animal-related products and other linked industries due to an uptick in conservation crimes such as illegal logging and wildlife trafficking.  Cambodia was identified as a Country of Concern under the 2020 Eliminate, Neutralize, and Disrupt Wildlife Trafficking (END) Act Report as a result of being a major source, transit, and destination point for trafficked wildlife and wildlife and timber products, such as ivory and rosewood.

Considering the above risks, the Cambodia Advisory suggests that companies doing business in Cambodia keep in mind the following laws, regulations and official guidance resources:

  • the Bank Secrecy Act (applicable only to financial institutions);
  • FinCEN regulations, advisories, and guidance (applicable only to financial institutions);
  • Department of Labor’s Comply Chain tool, which provides information on due diligence measures specific to forced labor in supply chains;
  • DOS’s Responsible Sourcing Tool, which includes an in-depth examination of 11 key sectors and 43 commodities at risk for human trafficking or trafficking-related practices, as well as 10 risk-management tools;
  • enforcement actions brought by the Department of Justice Human Trafficking Prosecution Unit;
  • reports on the links between conservation crimes, corruption, drug trafficking, human rights abuses, and money laundering issued by the Financial Action Task Force.

The Cambodia Advisory also specifically mentions the Trafficking Victims Protection Reauthorization Act (“TVPRA”), which criminalized knowingly engaging in forced labor or human trafficking and benefitting financially, or receiving anything of value, from participation in a venture that has engaged in human trafficking or forced labor while knowing about the human trafficking / forced labor or being in reckless disregard of this information.  The TVPRA also provides for a civil remedy for victims of forced labor or human trafficking if a preponderance of evidence shows that the individual or entity benefitted from participating in a venture that it knew or should have known was engaged in forced labor or human trafficking.  The latest court decision assessing the extent of corporate liability under the TVPRA was analyzed in our earlier blog post.

Finally, the Cambodia Advisory recommends reviewing existing due diligence materials on supply chains linked to Cambodia, including supply chain mapping and traceability efforts, as these are effective means of identifying products potentially linked to forced labor, human trafficking, wildlife trafficking or illegal logging.  To the extent companies are exposed to Cambodian entities involved in these activities, they are advised to consider the reputational, economic, and legal risks associated with business relationships with such entities.

Implications of the Cambodia Advisory for Corporations

The Cambodia Advisory demonstrates how corruption and responsible sourcing risks often overlap and result in a challenging business environment.  It also shows that Cambodia is likely to be a part of the US government’s focus when it comes to corruption and human trafficking / forced labor enforcement; although, this does not mean that other jurisdictions that have a track record of corruption and human rights abuse will be deprioritized or overlooked.  Importantly, the Cambodia Advisory does not prohibit doing business in Cambodia.  Provided that corruption and human rights abuse risks associated with business partners and other entities within the supply chain are appropriately measured and addressed, the risk of liability under the laws and regulations listed above is substantially lower.  Consequently, we recommend that companies identify any of their suppliers, sub-suppliers, and other business partners based in Cambodia (and other jurisdictions with a low TI CPI index and poor human rights record) and consider the following:

  • ensure that these third parties were subject to a reputational due diligence review, and their due diligence file is not outdated;
  • ensure that any third parties that directly deal with the company do so based on a formal written agreement;
  • ensure that the relevant third party agreements contain the compliance clauses required by company policies;
  • ensure that Cambodia is within the scope of the company’s next audit cycle (including supplier audit cycle);
  • consider reminding the third party of the company’s compliance expectations (e.g., during the renewal of their agreement);
  • consider any additional risk mitigation measures necessary based on due diligence findings.
Author

Maria Piontkovska is an associate in Baker McKenzie's Washington, DC office. Maria advises clients on reducing anti-corruption compliance risks stemming from operating business in emerging markets and handles internal investigations and related interactions with law enforcement authorities.

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