When General Electric in 2007 showed interest in acquiring Vetco Gray, one of the world’s leading suppliers of oil and gas equipment, due diligence paid dividends.
In February that year, the month before the acquisition finally went through, Vetco Gray pleaded guilty to violating anti-bribery provisions in the Foreign Corrupt Practices Act for payments made to Nigerian customs officials.
General Electric did not pay the $26 million in criminal fines, as Vetco International Ltd, the owner of Vetco Gray, settled the costs as a condition of the sale to General Electric.
That case was recounted to government officials and members of the private sector at a private workshop in Phnom Penh yesterday to illustrate the importance of doing one’s homework before entering into new markets with third parties.
Held by the American Cambodian Business Council and attended by the head of the Anticorruption Unit Om Yentieng, the workshop also educated members about recent legislation adopted in developed economies in the West that is likely to affect how foreign companies operate abroad.
As Cambodia opens up its doors to foreign investors and tries to attract more capital inflows, the regulatory framework surrounding corruption both domestically and abroad is placing new rules on how foreign companies do business.
In July last year, the US Senate passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law requires US-traded natural resource companies to disclose all payments to governments worldwide, including Cambodia, by 2012.
And in April last year, the UK passed a Bribery Act that penalizes bribing foreign officials. All will have an impact on how foreign enterprises from the two countries do business in Cambodia.
The Organization for Economic Co-operation and Development also issued guidelines last year for preventing and detecting the bribery of foreign public officials in their international business transactions.
“The issue of anticorruption is growing in the region. You see laws coming up in Singapore, in Malaysia, Indonesia. There is obviously a lot of public awareness about the cost of corruption and the cost that it has to business,” Lim Yean Nyok, legal counsel for General Electric in the Asean region, said in an interview.
As with the Vetco Gray case, Ms Lim said that doing business abroad had come with a learning curve for General Electric and that due diligence in how and where the company does business had been increasing over the years.
“When you want to buy another company or go into another market, you want to do a due diligence. You want to find out what the market landscape is like, understand the risks,” she said.
Investors yesterday said the existence of the recently adopted Anticorruption Law had helped lay down a proper framework to try and hold businesses accountable in their commercial activities.
Under the anticorruption law, paying a bribe to a public official can now be punished by between five and 10 years in jail.
“If you’re talking about direction, I think that getting that anticorruption law out to the public is a great move in the right direction,” said Ms Lim. “You need to first set the framework and then create awareness around this piece of framework so that people start understanding that there are other ways of doing business.”
Indeed corruption is not a cheap business. At an anticorruption concert in Phnom Penh in June 2009, the US Ambassador Carole Rodley said that corruption costs Cambodia $500 million per year, drawing expressions of outrage from Cambodian officials.
“We’ve got worldwide changes in corruption or anticorruption laws,” said James Swander, executive director of the American Cambodian Business Council, adding that businesses needed to be educated on what standards in transparency and accountability are now necessary when operating businesses abroad.
“There have been companies that have come and left because of the issues” related to corruption, he said.
Experts say that stamping out widespread corruption is essential if Cambodia is to attract more investment, especially as the country prepares to open its stock market, scheduled for July this year.
Corruption “is a big deal and for a country that is sort of trying to attract foreign direct investment,” said Lim Chin Kok, a partner with the forensic practice for the advisory firm KPMG. “These days, if there are any signs or suspicions of corrupt activities taking place, the investors don’t even want to come near.”
Still, critics say that implementing the existing framework for corruption remains a challenge.
“They all have to respect the current anticorruption law,” said Mam Sambath, chairperson for Cambodians for Resource Revenue Transparency, with regard to companies from countries that do not have the same regulations governing how companies operate abroad. “They need to learn from the companies from countries who are working toward accountability and transparency.”