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Australia's ANZ to compensate Cambodian families over land loss

Bank admits due diligence 'failings' in loan to sugar company that bulldozed villages

ANZ has acknowledged "failings" in its due diligence regarding a $40 million loan to a Cambodian sugar plantation operator.    © Reuters

PHNOM PENH -- Australia's ANZ will compensate hundreds of families forcibly evicted by a Cambodian sugar plantation and refinery to which it loaned $40 million a decade ago.

Experts say the settlement sets an important precedent for how other major banks deal with human rights issues, particularly in emerging markets, and could influence other ongoing disputes.

The settlement, announced on Thursday, follows a years' long campaign by NGOs on behalf of communities kicked off their farms by Phnom Penh Sugar's operation in Kampong Speu, a province to the west of capital Phnom Penh.

The company is owned by Cambodian-Thai business tycoon and senator Ly Yong Phat and has long been mired in allegations of human rights abuses, including child labor.

ANZ, one of Australia's big four banks, agreed to pay affected families the gross profit it earned on the $40 million loan it gave Phnom Penh Sugar in 2011. The loan was made via ANZ Royal, its joint venture with Cambodian conglomerate Royal Group which formally ended last year when the Australian bank finalized the sale of its 55% stake to Japan's J Trust.

The exact amount of compensation was not revealed and its recipients are bound by a confidentiality clause in the agreement. An ANZ spokesman declined to provide figures.

In 2018, ANZ chief executive Shanye Elliot acknowledged to a parliamentary committee the families faced a "dreadful situation." Elliot was also grilled by shareholders at ANZ's 2019 annual meeting in December.

"We should have done better due diligence at that time to understand the way that company operated. We admitted that, that was a failing on our part." he said, according to a transcript of the AGM.

The resolution stems from a 2014 complaint made by two NGOs, Inclusive Development International and Equitable Cambodia, to the Australian National Contact Point, or AusNCP, which operates under Australia's Treasury.

AusNCP receives complaints against Australian firms operating overseas and mediates in cases where they are accused of failing to meet Organization for Economic Cooperation and Development guidelines for multinationals.

In a joint statement released via AusNCP, ANZ acknowledged its due diligence on the sugar project funded by its loan was "inadequate" and recognized the hardships faced by affected communities but noted it was not legally liable for their plight. It also committed to "review and strengthen its human rights policies."

Soeung Sokhom, a representative of the affected families, said communities were "deeply grateful" that ANZ had resolved the complaint.

Soeung and his family were among more than 1300 households whose land was forcibly seized and bulldozed by the sugar company's staff, backed by military and police personnel, beginning in February 2010. LYP Group, which controls Phnom Penh Sugar, did not respond to an email request for comment.

"We have experienced huge difficulties with our livelihoods since the sugar company took our land almost ten years ago, and this contribution will greatly help our situation," Soeung said in a statement.

Head of Equitable Cambodia Eang Vuthy called the agreement "an important step [to] repair the damage." He said the affected communities still faced pressure from Phnom Penh Sugar to accept compensation and drop claims for land to be returned. "It's still very bad."

IDI executive director David Pred called the decision a "big deal" for banks' accountability. He noted this was just the third time in 330 cases filed by NGOs to the OECD's National Contact Point system that the process had led to a concrete financial remedy.

Pred pointed to an OECD complaint lodged against ING for financing palm oil companies linked to rights and environmental abuses as a case that could be impacted by the ANZ decision.

"This helps solidify the human rights norm that banks can in fact contribute to harms through their corporate lending and in such cases are responsible for contributing to remedy," Pred told Nikkei.

"This should make it easier for the next bank that is found to have funded harmful projects to do this, and hopefully this will encourage banks to improve their due diligence so they don't fund harmful projects in the first place."

Martin Smith, head of markets analysis at East & Partners, a business banking market research and analysis firm, agreed that the decision sets an important precedent.

"Is this going to affect other banks' dealings and other human rights instances? Absolutely," Smith said.

"It is very much an important example set by ANZ despite the fact that it's taken 10 years. ... This does cast a spotlight on a number of the larger international banks that are funding emerging markets as well. They're certainly going to be monitoring this outcome very closely."

He added the agreement carried added importance because it sent a message that banks should no longer just "walk away" from markets when human rights or environmental concerns arise.

Australian banks in particular have faced increased scrutiny of their practices in recent years after public inquiries into the banking and finance sector exposed numerous cases of malpractice.

Carol Adams, a professor at Australia's Swinburne University of Technology's Faculty of Business and Law, said while the probes had increased scrutiny of banks' culture, more needed to be done to improve due diligence and mandatory reporting.

"There's a whole range of social and environmental risks that banks and asset managers are just not putting enough resources into assessing and it is coming back to bite them on a regular basis," said Adams.

"They're not asking the right questions ... to identify those risks."

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