The U.S. Department of Treasury on Tuesday sanctioned a Chinese developer for the “seizure and demolition of local Cambodians’ land” during construction of the Dara Sakor project in Cambodia, which has been touted by Beijing as one of the key pieces in its Belt and Road infrastructure initiative.
The sanctions by the Treasury’s Office of Foreign Assets Control (OFAC), which target perpetrators of serious human rights abuse and corruption under the Global Magnitsky Human Rights Accountability Act, prohibit Union Development Group (UDG) from conducting business with any U.S. citizen and cuts it off from the U.S. financial system, the agency said in a statement.
Additionally, land granted to UDG as part of a lease by the Cambodian government extends into Botum Sakor National Park, a protected area which can only be handed over by royal decree. The Treasury Department said that in order to obtain the land, UDG falsified its registration to hide its Chinese ownership.
“After falsely registering as a Cambodian-owned entity in order to receive land for the Dara Sakor development project, UDG reverted to its true ownership and continued to operate without repercussions,” said Secretary Steven Mnuchin.
“The United States is committed to using the full range of its authorities to target these practices wherever they occur.”
The Treasury Department said that it had designated UDG for “acting for or on behalf of a current or former government official, who is responsible for or complicit in, or has directly or indirectly engaged in corruption”—in this case, a Chinese-owned company acting on behalf of a Chinese official.
Tuesday’s action was not the first taken by the Treasury Department against entities in connection with the U.S. $3.8 billion-dollar Dara Sakor project, which includes an airport, deep water seaport, and casino resort as part of an investment zone in the middle of the jungle in Koh Kong province.
In December last year, the agency sanctioned former senior Royal Cambodian Armed Forces (RCAF) general Kun Kim for corruption, noting that he was “instrumental in a development in Koh Kong province and had reaped significant financial benefit from his relationships with a People’s Republic of China (PRC) state-owned entity.”
On Tuesday, the Treasury confirmed that some of UDG’s “seizure and demolition” of land for the Dara Sakor project was conducted through Kun Kim.
“Specifically, with the assistance of Cambodian military forces provided through Kim, UDG prevented local villagers from planting rice paddy fields on the disputed land and was also accused of burning down the houses of villagers with whom it had conflicts, and of using private security and Cambodian military forces to control the movements of local villagers,” the statement said.
“Cambodia’s Council of Ministers issued a directive ordering UDG to stop destroying villagers’ property; however, UDG ignored the directive and continued the destruction.”
The Dara Sakor project has been mired in controversy ever since UDG’s parent company, Tianjin Wanlong Group, was granted a 99-year lease to 90,000 acres along 20 percent of Cambodia’s coastline in May 2008. The lease, which was handed to Tianjin Wanlong without an open bidding process, provided the company with more than triple the size of any concession allowed under Cambodia’s land law and exempted it from any payments for a decade.
UDG soon began clearing large swathes of forest from Botum Sakor National Park that was included as part of the land lease and forcing hundreds of families to relocate—many of which have yet to receive compensation they were promised as part of the deal 12 years ago.
Meanwhile, much of the Dara Sakor project remains unfinished, and structures that are—such as the casino and hotel—have been largely left to rot. Few tourists visit the area and not many companies have signed deals to set up a presence in the investment zone.
It is not entirely clear why Dara Sakor appeared to have been adopted as a Belt and Road project in 2017, when the China Development Bank told China’s official People’s Daily newspaper that it had underwritten a U.S. $15 million “Belt and Road” bond to support UDG’s building of a resort on Cambodia’s coast. The report did not mention Dara Sakor by name.
The project was also included in a 2017 Belt and Road yearbook published by an affiliate of China’s Ministry of Commerce, describing it as “the biggest project of the Belt and Road initiative so far.”
On Tuesday, the Treasury said that UDG-funded activities “have forced Cambodians from their land and devastated the environment, hurting the livelihoods of local communities, all under the guise of converting Cambodia into a regional logistics hub and tourist destination.”
“As is too often the case with Beijing’s One Belt One Road initiative, these activities have disproportionately benefitted the PRC, at the expense of the Cambodian people.”
The opacity of the project has led to fears, particularly in Washington, that Beijing may secretly be building a deep-water port naval base and airstrip for military use there as part of a bid to secure its territorial claims in the disputed waters of the South China Sea.
The Treasury said Tuesday that China “has used UDG’s projects in Cambodia to advance ambitions to project power globally,” noting that Cambodian government spokesperson Phay Siphan has said that Dara Sakor could be converted to host military assets.
“A permanent PRC military presence in Cambodia could threaten regional stability and undermine the prospects for the peaceful settlement of disputes, the promotion of maritime safety and security, and the freedom of navigation and overflight,” it said.
Vice President Mike Pence in 2018 wrote a letter to Prime Minister Hun Sen expressing fears that Cambodia might be planning to host Chinese military equipment at the Ream Naval Base in the coastal city of Sihanoukville, but Hun Sen dismissed the concerns.
Ream base was at the center of controversy last year after The Wall Street Journal in July cited U.S. and allied officials as confirming a secret deal to allow the Chinese to use part of the base for 30 years—with automatic renewals every 10 years after that—and to post military personnel, store weapons and berth warships.
The reported deal, which would provide China with its first naval staging facility in Southeast Asia and allow it to significantly expand patrols on the South China Sea, was vehemently denied at the time by Prime Minister Hun Sen, who said permitting foreign use of a military base in the country would “be in full contradiction to Cambodia’s constitution.”
Pivot to China
Increased ties between the militaries of Cambodia and China, which now include annual joint military exercises, come as Phnom Penh has increasingly pivoted towards Beijing since finding itself ostracized by Western governments over significant rollbacks on democratic freedoms.
In November 2017, Cambodia’s Supreme Court ruled to ban the main opposition Cambodia National Rescue Party (CNRP), months after its president, Kem Sokha, was arrested for an alleged plot to overthrow the government.
The dissolution of the CNRP was part of a wider crackdown by Hun Sen on the opposition, NGOs and the independent media, which paved the way for his ruling Cambodian People’s Party (CPP) to win all 125 seats in parliament in the country’s July 2018 general election.
While relations with the West have increasingly soured in the aftermath of the ballot, Cambodia’s government has since touted improved ties with China, which typically offers funding without many of the prerequisites that the U.S. and EU place on donations, such as improvements to human rights and rule of law.
Chinese investment now flows into Cambodian real estate, agriculture and entertainment—particularly to the port city of Sihanoukville—but Cambodians regularly chafe at what they say are unscrupulous business practices and unbecoming behavior by Chinese residents and worry that their country is increasingly bending to Beijing’s will.
In a statement, U.S. Secretary of State Mike Pompeo slammed UDG for its deceptive practices.
“Today’s action demonstrates how the Chinese Communist Party coopts companies to expand its influence, including by working through corrupt officials to use military force against innocent people in a blatant attempt to secure illicit financial gains,” he said.
“There are credible reports that the coastal development project at Dara Sakor could be used to host PRC military assets, and if so would go against Cambodia’s Constitution and could threaten Indo-Pacific stability, possibly impacting Cambodia’s sovereignty and the security of our allies.”
Sophal Ear, an associate professor of diplomacy and world affairs at Occidental College in California, called Tuesday’s sanctions “huge.”
“The press release is so detailed and extensive that it really sheds light on the shenanigans of UDG in Cambodia,” he said, lauding the Treasury Department for having “stepped up in this way.”
“It also means UDG is screwed. It’s now marked and really can’t do any business with U.S. banks or in U.S. dollars. Kind of hard in a country like Cambodia, which is so dollarized.”
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