Spotlight on PRC state-owned enterprises and corruption

Spotlight on PRC state-owned enterprises and corruption

FORUM Staff

The U.S. Treasury Department announced sanctions in mid-September 2020 against the People’s Republic of China (PRC)-owned Union Development Group Co. Ltd. (UDG) for corruption involving forced seizure, intimidation and destruction of protected land for the construction of the Dara Sakor project in Cambodia.

The action blocks all of UDG’s property and interests within U.S. jurisdiction and prohibits U.S. citizens from engaging in transactions with UDG. The Treasury Department imposed the measures pursuant to Executive Order 13818, which builds upon and implements the Global Magnitsky Human Rights Accountability Act, which targets perpetrators of human rights abuse and endemic corruption.

Corruption is a global problem that undermines governments’ ability to adequately care for citizens; erodes the legal, moral and ethical fabric of society; and facilitates transnational crime. The UDG sanctions highlight a key enabler of corruption — especially in the Indo-Pacific region — which is the PRC’s network of state-owned enterprises (SOEs). While many Chinese SOEs spearhead Beijing’s massive One Belt, One Road projects and other investments worldwide, they have drawn constant criticism for their questionable business practices and lack of transparency. Many PRC companies have been debarred from the World Bank and other multilateral development banks for fraud and corruption, including inflated costs and bribery.

UDG, an obscure Chinese SOE with no prior international activity, is a prime example of such a company.

With no open bidding process, the Cambodian government in 2008 awarded UDG a 99-year lease for more than 40,000 hectares in Dara Sakor, a concession three times the size allowed under Cambodian law. The leased land, worth U.S. $3.8 billion, extends into Botum Sakor National Park, a natural preserve that can only be ceded by royal decree.

UDG skirted these restrictions by setting up several front companies; each received a contiguous land parcel just within the allowed limit, as well as registering them as Cambodian-owned. UDG was also exempt from any lease payments for a decade. (Pictured: An airport construction site is seen in an area developed by People’s Republic of China-run Union Development Group at Botum Sakor in Koh Kong province, Cambodia, in May 2018.)

The PRC’s investment-driven footprints are often made possible by host-nation officials who view their relationships with Chinese SOEs as opportunities to sustain and legitimize corrupt practices. In the case of UDG’s Dara Sakor project, a senior Cambodian general, Kun Kim, used Cambodian military forces to forcibly clear land and intimidate villagers. This included preventing villagers from farming in disputed lands, burning down their homes and restricting their movements.

UDG’s activities continued with impunity despite international condemnation and a directive by Cambodia’s Council of Ministers to desist from destroying residents’ property. In return for his services, Kim reaped significant financial benefit from UDG. He was sanctioned by the U.S. Treasury Department in December 2019. Kim was replaced as the country’s Air Force chief of staff for allegedly not sharing profits from his unlawful businesses, among other reasons.

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