How Deep Does BHP’s Liability Run in Cambodia?

Whatever BHP Billiton may have done in Cambodia, it never made a dime.

The resources behemoth, which announced last week that it was the target of an investigation by US market regulators for the suspected bribery of a government somewhere outside of China, had by one account a three-year, $10 million budget to explore for bauxite in addition to handing out $3.5 million to the government and various NGOs.

Despite this spending, the spoon never made it to the mouth: After rummaging around Mondolkiri province, the company packed up and left, declining to comment on reports that it had failed to negotiate the transshipment of Cambodian ore to the company’s Mozal aluminum smelter in Mozambique, where electricity is plentiful and cheap.

If indeed bribes were paid to Cambodian officials, they did not result in returns, whether illicit or legitimate, for BHP’s investors in New York, where the blue chip company is traded.

BHP CEO Marius Kloppers on Friday described the probe by the US Securities and Exchange Commission as a trifle on the company’s balance sheet, which recorded $5.7 billion in net profits for the second half of last year.

“We think the potential issue we’ve got in the total scale of the company is very modest,” he told The Financial Times. However, he hastened to add that any bribery is always a serious matter.

“Even if there was 50 cents that had changed hands to a government official, it would have been an unbelievably big deal,” he said.

The Australian newspaper reported Friday that BHP had given the SEC a batch of e-mails between company executives and Cambodian government officials that may represent a breach of the US Foreign Corrupt Practices Act, a law outlawing bribery by companies whose securities are traded in the US. The government last week denied any wrongdoing.

Designed to prevent companies that sell investments in the US from victimizing weaker countries by engaging in corruption, the law has created massive headaches for the world’s largest firms.

Siemens, Europe’s largest engineering company, settled with the US and German governments in 2008, agreeing to pay $1.6 billion in fines in the largest such case to date, which involved $1.4 billion in bribes for contracts including Argentine national identity cards, a mass transit network in Venezuela and a Bangladeshi mobile telephone network.

The British arms maker BAE Systems pleaded guilty in Washington last month to conspiracy charges and paid a $400 million fine. Chevron Corporation, the third-largest company in the US, which is exploring for oil and gas in Cambodian waters, paid a $30 million fine in 2007 over $20 million in bribes paid to purchase Iraqi oil.

Compared to such huge amounts of bribery and profit, the BHP affair may indeed seem to be “very modest,” as the company’s honcho Mr Kloppers said last week.

But the sums also indicate the tremendous pressure that such companies, some of which report annual earnings roughly equal to the size of the entire Cambodian economy, can bring to bear on government officials in poor countries.

So what is a little “tea money,” as the Cambodian government called a BHP signing bonus in 2007, worth to regulators in Washington?

“There is usually some effort at proportionality in fixing financial penalties for FCPA violations,” Richard Cassin, a lawyer in Singapore who helps companies comply with the US Foreign Corrupt Practices Act, wrote in an e-mail.

“[M]ost major US investigations now involve multiple jurisdictions, and as the facts pile up, the target companies become more amenable to a plea bargain or settlement,” said Mr Cassin, author of The FCPA Blog.

“It’s hard to say at this stage what liability BHP may have. It can depend, for example, on management knowledge and involvement in any alleged criminal behavior.”

The company’s share price appeared largely indifferent to word of the SEC investigation, closing down Friday at $78.10 on the New York Stock Exchange, representing a 0.46 percent drop since the probe was announced on Wednesday, but maintaining strong gains since the start of February, when shares were trading at under $70.

      (Additional reporting by Simon Marks)


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