Ministry Lists Fees to Help Firms Avoid Graft Claims

January 29, 2013 

By Simon Marks and Neou Vannarin
The Cambodia Daily

The government has publicly issued lists showing the costs of fees that businesses must pay to authorities for various services, in an effort to help companies avoid making informal payments made illegal by the anticorruption law.

The lists were drafted during the past year after Cambodia adopted articles in its Penal Code that stipulated that all informal payments made to officials were illegal. Foreign businesses here responded by informing the government that it was simply impossible to do business without paying such fees.

According to a proclamation signed by Finance Minister Keat Chhon on December 27, the list of fees covers 134 payments businesses often make to the ministry’s departments of customs and taxation—two bodies that investors have long cited as problematic due to their high levels of graft.

The proclamation also covers 175 different fees charged by the Ministry of Commerce and its CamControl department, which regulates the country’s imports and exports.

A separate proclamation for fees made to the Council for the Development of Cambodia (CDC)—a body that approves investment plans in the country—was signed by Mr. Chhon on December 28 and lists a total of 78 official fees.

For example, changing a company’s business sector or name costs 2 million riel, or about $500. Gaining approval for investment plans costs $10,000.

The price for processing a goods container at the customs department is $15, while a license to export and import goods for a year costs $5,000. Creating a com­­pany at the Ministry of Commerce costs $17.50 and can be done in two hours. Year-long casino licenses issued by the Ministry of Finance cost $30,000, while a license for operating an insurance company costs $1,250 per year and must be issued within 45 days.

Formalizing such fees is of great importance to foreign companies, particularly those from the U.S., Australia and Europe, where anticorruption laws are strictest.

Article 605 of the Penal Code for­bids the payment of a “facilitation fee”—a financial transaction that receives no receipt—to a public official. Those found guilty of making such payments can go to jail for between five and 10 years. And the government official who receives the payment can be imprisoned for seven to 15 years.

So far, the CDC, the Ministry of Commerce and the Ministry of Finance are the only bodies to issue their lists publicly. But eventually, 18 ministries will release price lists, including the Ministries of Land Management and of Agriculture, where firms with economic land concessions must go to organize their contracts.

Investors and economists said the price lists were a positive step toward stamping out corruption. However, whether or not the lists are totally respected will determine how effective they become. One risk is that government officials will provide a receipt for the official payment but continue to ask for informal payments on the side.

“It gives certainty and transparency to investment applications. When you’re doing the market en­try aspect of the matter, now there is certainty and transparency to that process, which is something we’ve been asking for,” said Mathew Rendall, a partner at the legal consultancy Sciaroni & Associates.

“From what we’ve seen, the prices are less than what they were when they were facilitation fees. For some of them, there are no fees at all,” he added.

Still, as with many laws in Cambodia, investors will likely have to wait and see whether the new price regime is put into effect correctly. “The test will be whether or not it actually gets implemented, whether they actually issue receipts,” Mr. Rendall said.

Chan Sophal, president of the Cambodian Economic Association, agreed.

“I think it is a positive step forward. But it may not eliminate corruption. There are many ways that corruption can be committed,” he said.

Moa Thora, secretary of state at the Ministry of Commerce, said the new lists would help com­­panies know the actual cost of doing business in the country.

“Transparency is what we want,” he said. “If officials overcharge for services, a complaint can be filed.”

“The fees from the services will be shared among the officials and the other 50 percent will go to the government,” he added.

When Cambodia brought in its anticorruption law in 2010, investors from the U.S. and Europe raised concerns that doing business in the country had become riskier due to strict rules at home against making informal payments in countries where such pay­ments are likewise illegal.

The Asian Development Bank noted in a report last year that there are still huge gaps in the government’s management of its finances. The report stated that the government’s Public Financial Management Reform Program was being implemented too slowly and that ministries here are still poorly audited.

Anticorruption legislation has “not yet achieved significant results,” the report said. “Corruption remains significant and difficult to mitigate in the short term.”

“[T]he police, judges and courts, public registry, taxation and customs, as well as the education system, continue to be perceived as the most corrupt institutions,” the report added.

The decision by American logistics giant FedEx in February 2011 to reduce operations here in order to comply with Cambodia’s anticorruption law was one telling example of how concerns over corruption affected international businesses.

FedEx said it stopped accepting shipments to Cambodia valued at more than $300 because of ingrained practices that required the company to pay undocumented fees to customs officials on items valued over that amount.

“This is a move in the right direction to facilitate doing business for European companies and I would think those from the U.S. as well,” said Dominique Catry, group managing director for Comin Asia, a regional engineering firm founded in Cambodia.

“This will help European firms to invest in Cambodia as facilitation fees should no longer be a handicap or burden for doing businesses,” Mr. Catry, who is al­so chairman of the European Chamber of Commerce (Euro­Cham) in Cambodia, added.

Mr. Catry also said that concerns over informal payments had been underlined by EuroCham during meetings with the CDC and had actively been taken on board by the body’s secretary-general, Sok Chenda.

Still, he warned that not all government bodies would be so forth­coming in complying with the new lists.

“There can be negative secon­dary effects,” he said. “There are those in the administration who are less interested in efficiency. They have less interest in things moving ahead rapidly,” he said. “But let’s wait and see once it’s implemented. It will be difficult to eradicate the problem completely.”