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Monday, February 11, 2008

Just another example of the workings of some members of the upper Cambodian political hierarchy?

This draft report was submitted by J. Rupert, a free-lance reporter in SE Asia.

A Russian-American businessman from New York, who
came to the U. S. 19 years ago and has since become a naturalized U. S. citizen, came to Cambodia in June of 2006 the first time. He met a Cambodian government official who happened to speak Russian, giving them some common ground. A friend who was also visiting in Cambodia introduced him to the official at that time.

The American businessman, 50, runs a consulting and investment business in the U.S. looking for opportunities in under-developed countries. He has wide-ranging contacts in the private equity capital world in the U. S., including Blackstone and the Texas Pacific Group, both big players in the business. He holds a degree in economics from the University in Kiev and currently pursues projects in Bosnia.

The Cambodian official indicated that there were great opportunities for foreign investors in Cambodia as the government was actively seeking foreign investment to develop and exploit the resources of that country. The endeavors of the government had in the past been rather futile as they had always hooked up with companies from China, Korea, Taiwan and other threshold countries, that were long on promises but short on actual accomplishments. They were now happy to be dealing with a U. S. based company, which automatically elevated their efforts into the realm of credibility and, they believed, feasibility.

The American businessman invited the Cambodian official to New York at the end of 2006 to familiarize him with his business.

As a result of that alliance they started a Cambodian-U. S. company in Phnom Penh to pursue investment objectives. The company was registered in January 2007. The shares were distributed at 51% for the Cambodian official and 49% for the U.S. businessman. The Khmer gentleman was the president and CEO, and the American the director and chairman. The initial paid-in capital according to the by-laws was to be $300,000, of which the American paid in $155,000 with the Cambodian’s share deferred until another cash-earning transaction had been finalized, which would then allow him to pay in his share.

Eventually, the company was awarded vast concessions. It did not have to pay any up-front fees but was solely required to donate $15,000 to the fight against poverty in Cambodia. Needless to say that the Cambodian official played a vital role in helping these negotiations along in favor of the company, being the majority share-holder in it. If these investments came to fruition the windfall profits for the company would be phenomenal.

An agreement between the company and the Cambodian government was signed in Phnom Penh. The Cambodian official also managed to get an audience with King Sihamoni for both himself and the American businessman and other representatives in this very promising enterprise.

In March of 2007 the Cambodian official indicated a good short-term business opportunity to the American. The Cambodian official had found out one of the smaller banks operating in Cambodia was for sale. He asked the American businessman to help find buyers. Through his widespread connections the American, with the help of a friend, was able to get a group of businessman from one of the former Soviet republics interested in this. Another friend of his, a Canadian attorney, drew up the necessary paperwork. The bank was eventually sold to a company from that former Soviet republic for $25 million. The $25 million deal was initially supposed to be signed in New York and paid into an account at a large U. S. bank. The money was going to be wired from Latvia. The U. S. bank refused to accept the funds on the grounds that their origin was not identifiable; in other words, they had their doubts whether or not those funds came from legitimate sources. Eventually, the funds were handled through Singapore.

The company, as the agent, received a commission of $1.2 million. On completion of the deal at or around the end of June 2007 the bank handed over a check made out to the company in that amount. This check was deposited into the company’s account at that bank at the end of June.

On the Monday following the deposit the American businessman went to the bank only to find out that almost the complete funds had been withdrawn, $550,000 had been transferred into the Cambodian official’s personal account. He had also withdrawn $200,000 of that money in cash. The bank posted only a $1.0 million debit as a check deposit.

When he confronted the Cambodian official with this fact he was told that this is the way things are done in Cambodia and that the money was rightfully his as he had steered the American businessman to the sale in the first place. The Cambodian official agreed to pay back the American’s original stake in the company, $155,000, which had been declared as a loan, plus his commission of $50,000, altogether totaling about $215,000, to make a clean slate. When the American disagreed, asking for half the commission, the Cambodian official said he better go along with this deal if he valued his life. The American was so shocked by this direct threat on his life that he agreed to the deal. He received his money the same afternoon. He feared for his safety and checked out of his hotel and into another undisclosed hotel the same day. He hurriedly left the country the following day.

The American businessman, as a 49% owner of the Cambodian company, was rightfully entitled to 49% of the profits earned in that company. In Western companies this is done by distributing the net profits earned as dividends to the shareholders based on their holdings in the company. As the Cambodian official was the CEO he certainly had the right to manage the day-to-day business of the company including disbursing funds for business purposes but the arbitrary transfer of almost all business funds available in the account at that time into his personal account without the consent of the board was against the by-laws of the company. In countries that operate under the rule of law this would clearly constitute embezzlement.

His U. S. attorneys whom the American businessman had contacted back in New York obviously found it not feasible or practicable to pursue this case in a Cambodian court. He has not filed any charges. He also received an email from a friend in Cambodia saying that he had heard the American would be arrested the minute he set foot on Cambodian soil again. On what charges? Seeing another related story further down in this article it is easy to see what charges could be leveled against the American businessman, whether true or not.

When traveling to Cambodia in June of 2007 the American’s intention was to conduct further negotiations with the Cambodian government about the concessions and to inform them what he had accomplished in the meantime in terms of lining up more funding.

On returning to New York and on account of these events he decided to advise his investors that Cambodia is not ready for a major development along established business guidelines. He stated that some politician’s greed interfered with the regular and normal conduct of business in Cambodia and that a large portion of any investment might be sidelined into personal pockets.

During approximately the same period of time – from June 2006 onwards - there was another Russian businessman in Cambodia who negotiated with the government for some major tourist development. This was to be a $300 million project. The developer was to invest $5.0 million of his own money in the project and had paid a sizable concession fee to the Cambodian government. He had committed to raising the full investment funds from other Russian and Ukrainian businessmen who had made a lot of money in the new Russian economy and were looking for profitable investments. He submitted a business plan with detailed renderings of the development. As before, the Cambodian official also acted as a go-between to facilitate negotiations.

The Russo-American and the Russian had met through joint acquaintances in Cambodia and found some common ground in their business ventures and thought about raising the investment funds for the tourist development together. They were in the process of fine-tuning the budget and business plan for a presentation to potential future investors.

Surprisingly, the Cambodian official repeatedly mentioned to the American businessman that the tourist development was going to be available for bidding again shortly, which left the American businessman somewhat bewildered as he had entered into discussions with the Russian – the owner of the concession - about the funding for that project. He really didn’t know what to think of this. On account of the understanding with the Russian the company had even included the development on their website.

As is the custom with many foreign investors coming to Cambodia they are treated to some lavish Cambodian hospitality including visits to nightclubs with young hostesses at the investor’s disposal. The Russian’s sexual inclinations obviously ran to young girls under the age of 14. Here too, the Cambodian official lent a helping hand by arranging a steady supply of those girls for the Russian. The venue for such nights on the town usually was the well-known Club 99 in Phnom Penh. Other people present on those outings, among them the American businessman at one time; say that the Cambodian official sometimes did partake in those sexual escapades. The American businessman states that he declined the services of the hostesses.

The Russian was eventually arrested in October 2007 on child sex charges. He is sitting in prison awaiting trial. The disturbing question here is why the Russian was not arrested until October 2007 when the alleged incidents had occurred in the spring of that year. The parents of the girls had not filed complaints with the police in Sihanoukville until October.

It is widely believed that a sizable payment to certain officials would have made these charges go away. A man of means such as the Russian could also have compensated the girls and their parents generously for them to either not file the complaints in the first place or withdraw them later on. All this did not happen in this case of a prominent foreign businessman who had hitherto enjoyed the full support of government officials. Why not? Additionally, given the fact that other Asian nationals come to Cambodia to indulge in their preference for underage virgins, this arrest is raising some serious questions about the real motivations behind this arrest. The sale of young girl’s virginity is apparently never prosecuted by the authorities, as there is not a single incident known to the public where it was prosecuted, as opposed to news about Western pedophiles, which receive wide coverage in the media. This might lend itself to a very strong suspicion that the Russian ran afoul of a business associate who then orchestrated the complaints and the official charges and who had close ties to the Cambodian police precluding any attempt to whitewash these charges. One might assume that such an associate could only be a high Cambodian official.

In both cases the Cambodian official played a big role as facilitator and financial benefactor. Certainly, there was a huge conflict of interest as the Cambodian official was and still is a highly placed in the Cambodian hierarchy. He obviously wields enough influence on ministers and lesser officials to help decisions go according to his advice.

It is rather difficult to allege and prove criminal wrongdoing in the transfer of funds into his own account, as he did play a broker’s role in that deal. Was he entitled to almost $1.0 million for that? Naturally, the American businessman is angry and feels double-crossed. But definitely greed gained the upper hand in this event. If the American businessman had indeed procured investors for the industrial development, as he claims, the Cambodian official did not do his country a great favor by allegedly double-crossing his American partner in business.

Needless to say, that both the exploration and exploitation of those concessions will not happen in the near future. The Cambodian government will have to look for new investors. The tourist development, which raised some environmental concerns in the first place, is off for the time being, too, until a new investor has been found.

Given the history and circumstances of these two inter-related events it is doubtful that any serious investor, on hearing this story, would even begin to look at Cambodia. Though this may be a single incident, stories like this tend to cast a bad spell on Cambodian officials per se. It is obvious, though, that the American was rather naïve in not implementing the necessary checks and balances, which any prudent businessman would have done, whether or not he is dealing with a trusted partner. Many businesspeople from South Korea and China come to Cambodia to do business there unhindered and successfully, though there have been occasional reports of fraud committed by Cambodian businessmen. But then, these foreign investors sometimes commit fraud themselves.

Naturally, huge multinational companies such as Chevron wield so much clout worldwide and can afford to pay substantial fees to government officials that they can go about their business unhindered.

When asked how the Cambodian official might explain all these events the American said that he will most certainly deny any wrong-doing and claim that everything he did was legal, that he was within his rights, and that no threats were uttered. This would be hard to refute since there are no documents besides the bank transfer statements to corroborate the insinuations, innuendos, and, in fact, accusations contained in the American’s story. It is one of those “he said, he said”-stories.

Given the purported threat and the present situation in Cambodia where the law is enforced somewhat haphazardly, the writer did not feel comfortable contacting the Cambodian businessman for his comments. The names of the protagonists are being withheld for safety reasons.

The report was compiled on the basis of several emails from the American businessman and an extensive phone interview held on Tuesday, Nov. 06, 2007.

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