A million dollar payment made by BHP Billiton to the Cambodian Government in 2006 for the right to explore for bauxite in the northeast of the country bought the company far more than it bargained for. Although Global Witness is not accusing BHP Billiton of corruption, the fallout tells of the harsh realities companies face when operating in countries like Cambodia, with entrenched corruption and opaque revenue procedures.

BHP Billiton is one of a number of international companies recently granted exploration rights to Cambodia’s booming extractive industries sector. Their concession was a joint venture with Mitsubishi. Global Witness first came across BHP Billiton’s operations when investigating developments in the country’s extractive industries sector for its 2009 report Country for Sale[1]. This report exposed how rights to exploit oil and mineral resources had been allocated behind closed doors by a small number of powerbrokers surrounding the prime minister and other senior officials. The beneficiaries of many of these deals are members of the ruling elite or their family members. Meanwhile, evidence suggests that millions of dollars paid by oil and mining companies to secure access to these resources may be missing from the national accounts[2]. Cambodia – one of the world’s poorest countries – could eventually earn enough from its oil, gas and minerals to become independent of foreign development aid. However, this future is being jeopardised by high-level corruption, nepotism and patronage in the allocation and management of these critical public assets.

According to a Cambodian newspaper report, Cambodia’s Minister for Water Resources told the country’s National Assembly that BHP Billton had paid US$2.5 million to the government to secure a bauxite mining concession[3]. The Minister described the payment as ‘tea money’, a customary term for an unofficial payment in Cambodia. Global Witness wrote to the company in 2008 to ask about any forms of payment it had made to the Cambodian government or any government officials. The company’s response confirmed it had set up a social development fund of US$2.5 million which was “designed to improve the general health, education culture and welfare of the people of Cambodia”[4]. BHP Billiton also confirmed that an additional payment of US$1 million was made by the company to the government to secure access to the mineral concession.

However, the company rejected any assertion that the payment under the minerals exploration agreement was inappropriate. Global Witness has obtained government figures which provide information on annual income to the Cambodian state in 2006. According to these, non-tax revenue from mining concessions was US$443,866[5]. If the money from BHP Billiton appears elsewhere in these documents, it is not clear where. This raises questions as to where BHP Billiton’s US$1 million payment has gone, and how companies manage the risk of investing in corrupt environments. BHP Billiton reportedly decided to pull out of Cambodia in 2009 because it did not find bauxite in sufficient quantities to justify extraction[6].

BHP Billiton is not unique. Other extractive companies have made large payments to the Cambodian government which are not showing up in the national accounts[7]. The government
has recently begun to disclose “non-tax revenues” for the extractive industries. However, so far only single, aggregated monthly figures across the entire sector have been released, frequently with a reporting delay of more than 6 months, and some payments have not appeared at all. This is far from the international standard promoted through the Extractive Industries Transparency Initiative (EITI).

In April 2010 the U.S. Securities and Exchange Commission (SEC) announced it had launched an investigation into potential anti-graft violations by BHP Billiton. The country in which the alleged activities took place has not been named, but was widely reported in the press to be Cambodia[8].

The mystery surrounding the destination of the US$1 million paid by BHP Billiton and the linking by the media of this figure and the SEC investigation underlines the vulnerabilities for companies operating in countries such as Cambodia. Despite pressure from international organisations, Cambodian civil society and its international donors, the government so far refuses to endorse EITI or adopt equivalent measures for disclosure of revenue transparency. The question is therefore, what can companies like BHP Billiton do in order to protect
themselves from these vulnerabilities?

One potential solution is the provision within the recently passed U.S. Dodd-Frank financial reform bill obliging U.S.-listed companies engaged in oil, gas or mineral extraction anywhere in the world to report how much they pay to governments in their annual filing to the SEC. This includes all royalties, taxes and payments, project by project and country by country. This bill not only creates a level playing field for all U.S. registered companies, but also enables civil society in countries with inadequate transparency procedures to call their government to account on missing revenue.

A second solution is for companies to proactively agree to publicly disclose such information. In Cambodia BHP Billiton acted more responsibly than other companies involved in the extractive industries sector: it was the only company to disclose information to Global Witness about payments made to the government.

BHP Billiton has also taken the lead internationally through its announcement in May 2010 that it will disclose all payments to governments on a country-by-country basis. Although the company’s disclosures in their most recent annual report do not yet achieve this goal, Global Witness welcomes this commitment and hopes it will be followed by similar announcements from other international companies operating in the mineral and petroleum sectors.

This article was written by Global Witness, http:// www.globalwitness.org

[1]. Global Witness is a UK-based organisation which investigates and campaigns to prevent natural resource-related conflict, corruption and associated environmental and human rights abuses. Further information about our work can be found at www. globalwitness.org and Country for Sale: How Cambodia’s elite has captured the country’s extractive industries is available for download at: http://www.globalwitness.org/media_library_detail.php/713/en/country_for_sale
[2]. The ‘Tableau des Opérations Financières de l’Etat’ of the Cambodian Ministry of Economy and Finance indicates non-tax revenue from the mining sector generated revenues of US$3 million between 2002 and 2008. However, evidence gathered by Global Witness from a variety of confidential, industry sources estimates the total should be closer to US$7 million.
[3]. The Cambodia Daily, ‘Gov’t gets $2.5 Million for Mine Exploration Contract’, 22 May 2007.
[4]. Letter from BHP Billiton to Global Witness, 13 November 2008.
[5]. Ministry of Economy and Finance, ‘Tableau des Opérations Financières de l’Etat’, non-tax revenue from mining concessions, 2006.
[6]. The Phnom Penh Post, “Billiton Shelves Bauxite Mine”, 28 August 2009, available for download at: http://www.phnompenhpost.com/index.php/2009082828051/Business/billiton-shelves-bauxite-mine.html (last accessed on 6 October 2010).
[7]. Interviews by Global Witness with confidential sources within Cambodia’s extractive industry, 2008. For further details see Country for Sale.
[8]. For example: The Australian, “BHP faces investigation into $2.7m Cambodia graft claim”, 22 April 2010, available for download http://www.theaustralian.com.au/business/mining-energy/bhp-faces-investigation-into-27m-cambodia-graft-claim/story-e6frg9df-1225856620017 (last accessed 6 October 2010) and The Sunday Times “Mining giant BHP Billiton admits it may have bribed foreign officials”, 22 April 2010, available for download http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article7103456.ece (last accessed 6 October 2010).