In Cambodia, A Close Friendship With The PM Leads To Vast Wealth For One Power Couple [Is Hun Sen the most corrupted leader in the world?]

Megha BahreeContributor

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This story appears in the October 20, 2014 issue of Forbes Asia.

In summer 2013 Pal Liv, a farmer in Cambodia’s Pursat Province, 140 miles north of the capital Phnom Penh, watched as maybe ten men came on tractors and pulled up the bananas, rice, beans and corn he had planted. A larger contingent, some armed and others with badges, supervised the destruction. Nearly half his 3.5 hectares was seized. By Pal’s telling, it wasn’t the first time that his parcel and his living had been carved up–and by the Pheapimex Group, a company with powerful owners and connections.

A similar thing had happened three years before, he says. That time the men had moved in on what Pal says were 10 hectares belonging to him. His crops were surrounded by what he describes as a forest that he and his family tapped for resins and fruits. The company logged the trees for timber.

Farmer Pal Liv, seen with his grandchildren, is no longer able to make ends meet, his land carved up by Pheapimex. (credit:© Thomas Cristofoletti / Ruom for Forbes)

Pal, 55, has tried to scramble back, as he also did after the Khmer Rouge took his original family homestead in the late 1970s. Land rights in the country have been in flux since. Following his first brush with Pheapimex, in a period when the Cambodian government was under pressure to respect customary possessions, he was able to get his title to the 3.5 hectares. Now that’s been shaved to 2, and he can’t make ends meet.

Cambodia, one of the poorest nations in Asia, holds potentially rich payoffs for the well-placed. In the past decade it’s seemingly moved to embrace a market economy and averaged GDP growth of 7.9% from 2000 to 2013, driven predominantly by the textile and tourism sectors. (While agriculture’s contribution to growth has fallen over the last two decades, it’s still the main source of livelihood in rural areas.)

Officially a multiparty democracy, in reality the country remains a one-party state dominated by the Cambodian Peoples Party and Prime Minister Hun Sen, a recast Khmer Rouge official in power since 1985. The open doors to new investment during his reign have yielded the most access to a coterie of cronies of his and his wife, Bun Rany. Two of these are Senator Lao Meng Khin and his equally powerful wife, Choeung Sopheap, better known as Yeay Phu. They own Pheapimex and other firms active elsewhere in the nation.

Bun Rany and Yeay Phu are friends, often traveling together and serving on the board of the Cambodian Red Cross. The U.S. embassy in Phnom Penh in a 2007 cable titled Cambodia’s Top Ten Tycoons–released by WikiLeaks–explained how the prime minister bridged political and private sectors, and maintained a pretense of civil society, by cultivating relationships with the country’s most prominent tycoons.

“These business leaders contribute money to the ruling Cambodian Peoples Party (CPP), and Hun Sen can call on them to fund charities and public works projects, and to attract foreign investment, achievements for which the CPP can claim credit,” the cable said. “In return the business tycoons enjoy the added credibility and legitimacy of having the prime minister’s support.

These symbiotic relationships illustrate the networks of business tycoons, political figures and government officials that have formed in Cambodia, which reinforce the culture of impunity and limit progress on reforms such as Hun Sen’s self-declared war on corruption.’ ”

The cable called Lao and Yeay Phu “

one of the most politically and economically connected couples in the country (after Prime Minister Hun Sen and his wife, and Commerce Minister Cham Prasidh and his wife).” Lao Meng Khin has been a CPP senator since 2006.

In the murky world of Cambodian business, not much is known–even by Global Witness, a British nonprofit that has been monitoring the activity–about the status of the various projects the couple has been linked with over the years, including a couple of coal-fired power plants, a hydropower plant and a bauxite mine. Along the way, however, the pair’s efforts have been a magnet for Chinese capital (see box, opposite).

Farmland in Pursat Province confiscated by Pheapimex, 140 miles north of Phnom Penh. (credit: © Thomas Cristofoletti / Ruom for Forbes)

Cambodia lacks transparency on such investments. What is known, says Global Witness, is that through Pheapimex and the various logging and land concessions it’s chalked up over the years, the owners control about 7% of Cambodia’s total land area–despite a law aimed at restricting any individual’s property to 10,000 hectares (24,700 acres). While the forest concessions are inactive because of a government decree banning logging, the pair remain in possession, and farmers like Pal must battle to keep what they can.

“There is growing public anger over the means by which both the government and private companies are forcing existing residents off the land,” says U.K. risk analysis firm Maplecroft in a report. “There have also been reports of the government employing the military to conduct forced evictions. Affected populations are often inadequately compensated.”

One doesn’t have to go beyond the Cambodian capital to see this play out in an area called Boeung Kak Lake. Once the largest body of water in the city and a scenic spot for villagers, it also served as a main drainage basin for managing Cambodia’s intense monsoons. The government leased the 133-hectare area in 2007 for 99 years to Shukaku, another company owned by Lao and Yeay, for $79 million, or $0.60 a square meter. In 2011 the government approved their plans to build luxury hotels, condos, shopping malls, a hospital, a school and residential and commercial buildings at a cost of $2 billion.

Since then the lake has been mostly filled with sand, and three-quarters of the 4,000 families living around it are gone, evicted, their houses razed or inundated with mud, and drainage in the area blocked–all amid repeated clashes with the police and military.

Things came to a boil in April 2011 when several residents, including two children, were manhandled by security forces in front of a Phnom Penh municipal building as they attempted to press authorities to stop pumping sand into the lake and to reach a settlement, says the Cambodia Center for Human Rights, an NGO in the capital. Nine women were arrested and forced to sign confessions admitting provocation and responsibility for the violence, the group says. (They were released a day later.)

Phan Chhunreth was one of them. She and her extended family of 12 are remaining holdouts. They bought a house in a Boeung Kak Lake village in 1993. Phan, 55, runs a small convenience store, while her husband ferries passengers on a motorbike. They rent out a room in their house for additional income. Phan doesn’t have a title to her house, like many in the country. (Some have not been recovered since the Khmer Rouge days.) Dressed simply on an August day, she says she is still waiting for the title the government promised her in 2005. “I’ve been beaten, and I’ve been to jail,” she says. “The government development policy does not provide justice and equality for all.”

Meantime, Shukaku’s grand plans have become dormant as a prominent investor in its Chinese partner, Inner Mongolia Erdos Hung Jun Investment, is reportedly under investigation in China. (That would be Chen Jihong of Denzheng Resources, who appeared on the 2010 FORBES CHINA rich list at $500 million.) Though the probe is not believed to be related to the Phnom Penh project, the contentious area has been given over mostly to wild grass, at the far end of which lies the prime minister’s office and newer towers in the capital’s skyline.

Boeung Kak Lake, once the largest body of water in Phnom Penh, is mostly filled in with sand as part of a stalled development project (the prime minister’s office and new towers are in the background). (credit:Omar Havana/Getty Images)

Boeung Kak Lake was also at the heart of a 2011 decision by the World Bank to place a moratorium on loans to Cambodia until the 779 families still living there were adequately compensated. The accompanying global media glare shined a rare light on the owners of Boeung Kak Lake and their relationship with the government. Two days later, on Aug. 11, 2011, Hun Sen authorized that 12.44 hectares of land within the Boeung Kak development area be allocated to the remaining families for onsite housing on plots with legal ownership. Most of those families, like Phan’s, are still waiting for their land, and as of last January the World Bank held off plans to resume lending.

Will Lao Meng Khin or Yeay Phu comment? Neither seems to have an office number or business Web address. When FORBES ASIA approached their mansion in Phnom Penh, a staff member laughed and said, “No journalists,” before quickly retreating and shutting an ornate brown-and-gold gate. The house is on a tree-lined street in a posh neighborhood, and military police guard it around the clock.

Meanwhile, away from even the meager protection that some watchful media are able to provide the landless in Phnom Penh, Pal Liv in Pursat, his ribs visible above the blue shorts, assesses his plight. “Earlier we had enough rice for everyone to eat, and we could buy new clothes for the children,” he says. The land yielded enough vegetables for his family and often extra to sell. As the skies opened up to a brief shower, a daughter and five grandchildren huddled in the doorway of the tiny one-room hut built with hay and supported on stilts, and he went on: “But ever since I’ve lost the land to the company, I don’t earn enough to send my grandchildren to school or to buy new clothes for them. There is no spare money, and we have run through our savings.”

Pheapimex cultivates cassava and potatoes on the logged land on the horizon. Pal’s wife and another daughter and son-in-law work those fields from 6 a.m. to 5 p.m. but get paid only if they meet the target that has been set for the day, says Pal. Once his wife was jammed with several other workers in a mini-truck transporting them to a farther-off field when it overturned. She broke her arm, and the company gave her $50 to have it taken care of. It was not set properly, and her wrist juts out awkwardly.

It is far from the only casualty of Cambodia’s economic rush that needs a better fix.