Following a series of government agency actions in the final months of 2021, U.S. businesses are advised to evaluate their operations in Cambodia and ensure compliance in the new year. Beginning with the tri-agency Cambodia Business Advisory on High-Risk Investments and Interactions (Business Advisory), issued by the U.S. Department of State (State), U.S. Department of the Treasury (Treasury) and U.S. Department of Commerce (Commerce) in November 2021, the U.S. government has taken an increasingly more stringent position against U.S. exports and other business operations in Cambodia, citing corruption, human rights abuses and Chinese government influence. Of note, the State Department and Commerce Department recently issued rules restricting exports to Cambodia, which updated the Export Administration Regulations (EAR) and International Traffic in Arms Regulations (ITAR). The Treasury Department also added two Cambodian nationals to its Specially Designated National and Blocked Persons List (SDN List).
Cambodia Business Advisory
As a matter of policy, the U.S. government has signaled a heightened concern with activities in Cambodia, and highlights two areas that can pose significant risk to U.S. businesses: 1) illicit and corrupt finance activities in Cambodia, especially in the financial, real estate, casino and infrastructure sectors and 2) involvement with Cambodian entities that participate in human, wildlife and narcotics trafficking. In response to these risks, State, Commerce and Treasury Departments advise increased due diligence with respect to any business undertaken with Cambodian entities or persons.
In particular, U.S. businesses engaged in infrastructure projects in Cambodia should undertake enhanced due diligence on the parties and processes involved in the project. The Business Advisory cautioned that “some foreign firms have relied on Cambodian military forces to clear land for infrastructure projects, which carried out displacement campaigns that violated Cambodians’ human rights.” Additional vigilance was also specifically advised for U.S. businesses operating in the logging, animal product and related industries.
Earlier in 2021, Deputy Secretary of State Wendy Sherman visited Cambodia on an official visit, during which she expressed concerns related to the Chinese military’s presence in and construction of facilities at Ream Naval Base on the coast of the Gulf of Thailand. Deputy Secretary Sherman noted that the increased Chinese military presence had the potential to negatively impact U.S.-Cambodia relations, and the subsequent actions by State, Commerce and Treasury Departments are evidence of that negative impact. Generally, the Business Advisory puts U.S. businesses on notice that State, Commerce and Treasury Departments are aware of and monitoring the corruption, trafficking and human rights abuses in Cambodia, and are ready and willing to enforce U.S. laws against U.S. businesses as they relate to activities in Cambodia.
New Export Restrictions in the EAR
The Commerce Department’s Bureau of Industry and Security (BIS) issued a new rule in December, which updated several provisions of the EAR as it relates to Cambodia. As justification for the changes, BIS stated that “recent actions by the Government of Cambodia  are contrary to the national security and foreign policy interest of the United States and threaten regional security.”
The changes in the EAR reflect the more restrictive licensing approach BIS will take toward Cambodia:
- Cambodia was added to the list of countries subject to the licensing policy in § 742.4(b)(7) of the EAR, which controls items for national security purposes.
- Cambodia also was added to the list of countries subject to the military end-use and military end-user restrictions in § 744.21 and supplement No. 7 to Part 744 of the EAR. With this change, Cambodia joins Burma, China, the Russian Federation and Venezuela as destinations for which a presumption of denial will be applied to application for export of items in supplement No. 2 to Part 744 of the EAR.
- Similarly, Cambodia was added to the list of countries subject to the military-intelligence end-use and military-intelligence end-user restrictions in § 744.22 of the EAR, which also carries an associated presumption of denial.
- Finally, Cambodia was added to Country Group D:5 in supplement No. 1 to Part 740 of the EAR, thereby designating it as a “U.S. Arms Embargoed Countr[y].” Inclusion in Country Group D:5 further restricts exports to Cambodia, through de minimus U.S. content restrictions, minimized license exception availability and stricter licensing policies for certain items.
Updates to the ITAR
Consistent with BIS’ actions vis-à-vis the EAR, the State Department’s Directorate of Defense Trade Controls (DDTC) issued a rule amending § 126.1 of the ITAR to include Cambodia on the list of countries subject to a policy of denial for exports of defense articles and services. As a result of this designation, DDTC will apply a policy of denial except when the exports are related to conventional weapons destruction or humanitarian demining activities. The addition of Cambodia to § 126.1 of the ITAR also precludes use of several exemptions previously available for exports to Cambodia.
Together with the revisions to the EAR, these amendments to the ITAR demonstrate a willingness by U.S. government agencies to react quickly to destabilizing and threatening foreign policy changes abroad.
Additions to the SDN List
Lastly, the Treasury Department’s Office of Foreign Assets Control published a notice adding two Cambodian nationals to its SDN List, citing involvement in significant corruption. The two individuals are known to be involved in the Ream Naval Base which, as noted above, is host to an increased Chinese military presence.
As the situation on the ground in Cambodia progresses, and any corresponding U.S. government actions are taken, Holland & Knight will continue to monitor what rules, restrictions and license requirements may apply to U.S. businesses seeking to do business in Cambodia.