A BANKING scandal that involves alleged drug money laundering in Montreal, a
bank collapse in Phnom Penh and losses on futures trading in Chicago now
threatens to suck in senior Cambodian government officials, according to
documents obtained by the Post.
Official corruption and grossly negligent
supervision of the banking system have been alleged.
The Credit Bank of
Cambodia (CBC), which was closed by the Cambodian government and its assets
formally frozen on 6 May, is at the center of the scandal that has implicated
senior government officials in illegal activities.
It has also given
credence to long-held suspicions that the Cambodian financial services sector is
riddled with banks that fail to meet basic minimum requirements under current
Cambodian law that will likely lead to more bank closures in coming months,
according to banking sources.
The CBC was shut down earlier this month
after it was revealed that it failed to meet the Cambodian central bank's
minimum capital requirements after it suffered losses of $1.5 million on the
Chicago futures market in March. The losses prompted a Canadian securities firm,
Marleau Lemire, to take legal action against the CBC's shareholders in Canada
and Cambodia. This now threatens to draw in senior Cambodian government
officials in illegalities and further undermine the reputation of the banking
sector as a whole.
The Cambodian government acknowledges that the CBC has
ignored the Cambodian National Bank's (NBC) reporting demands, misrepresented to
the NBC the value of its assets, refused to name the CBC's real shareholders as
required by law, and failed to appoint a required auditor.
to withdraw the license was taken after long consultation and careful
consideration of all the facts, and was made to protect banking customers," said
the NBC governor Thor Peng Leath on 11 May.
But the bank's creditors and
senior government officials say it is too little too late, and that the central
bank governor is implicated in illegal activities and preferential treatment to
the bank. They question why, and the manner in which, the CBC was given a
license to operate in the first place.
The CBC was issued a $3 million
loan from the central bank on 31 May 1994 by Governor Leath to establish the
minimum capital the law requires for the central bank to issue an operating
license to the CBC. The use of a loan from a central bank - charged with
regulating and supervising the commercial banking sector - to shareholders in a
private bank to establish minimum capital required by the government is highly
irregular, admit central bank officials. Both the loan - and the license - were
issued on the last day by law when banks were issued licenses in
Governor Leath issued the loan to Leng Ky Lech and her husband
- two principle shareholders of the CBC - at the same time that Canadian
authorities were moving to arrest her for money laundering. According to
Canadian court documents, she is alleged to have exchanged Canadian$101,000 into
foreign currency between March and June 1994 in a series of sting operations
conducted by Canadian undercover narcotics police. Each time the cops identified
themselves as drug dealers in need of laundering money, she is alleged to have
agreed to accommodate them, according to sources. She is now under indictment
for eight counts of money laundering in Montreal. Leng Ky Lech and her husband
are also facing criminal and other charges in Canada for fraud in relation to
the losses they suffered when they couldn't meet a margin call on the futures
market in Chicago in March. Their assets have been frozen in
Officials of Marleau Lemire, who say the CBC never had the
capital required under Cambodian law, say the Cambodian government should be
held accountable to the CBC creditors because they issued a license in violation
of Cambodian law. They are threatening to file legal action against the NBC in
the Cambodian court.
But when Marleau Lemire moved to seize their assets
in Cambodia, things became more complicated.
The Canadian securities firm
first asked the Cambodian central bank to freeze the assets of the CBC on 4
April, but according to their officials, were met with a less than enthusiastic
response from the central bank Governor.
"The National Bank on receipt
of our complaint should have taken immediate action to see that our funds were
secured, instead of waiting a month," says Howard Eisen, executive vice
president of Marleau Lemire. "The National Bank acted with serious
improprieties. Their conduct has been irregular, inappropriate and illegal...
this has been a complete sham that the government has been party
Eisen points the finger at the bank governor and the Cambodian
banking system, saying that the CBC should never have been issued an operating
license and that the assets of the bank were never secured.
malfeasance and dereliction of duty of a senior bank officer - the bank governor
Thor Peng Leath - has caused us harm in both licensing the bank, regulating the
bank, and solving the problem. The National Bank misrepresented facts and did
not perform their proper duties."
Eisen says the CBC "misrepresented
their financials. We know they never had five million dollars. The NBC, by
allowing the CBC to represent themselves as a bank and to represent themselves
as being funded by $5 million in assets, is responsible."
And, to add
insult to injury, the central bank allowed assets to be withdrawn from the CBC
after it had been officially closed and its assets seized on 6 May. On 6 May,
the central bank placed its own officials on the premises of the CBC, failing to
appoint an independent auditor for more than ten days, central bank officials
confirm. Some say it is like putting a fox in the chicken coop.
to CBC documents obtained by the Post, on May 4 former Cambodian commerce
minister and now ambassador to Washington Var Huot deposited $145,000 in $100
dollar bills into a personal account at the CBC, according to a CBC deposit slip
signed by Huot and obtained by the Post. Var Huot is a long time associate of
central bank governor Leath. The CBC was on the verge of being closed at the
time of his deposit on 4 May - a fact which was well known within government
circles, say central bank officials. On Saturday May 6, two days later, the
central bank froze the CBC assets. On Monday morning, May 8, Leath authorized
the withdrawal of Var Huot's $145,000 - despite the CBC assets being frozen.
In a handwritten note, dated 8 May and signed by the head of the central
bank's supervision department on Var Huot's CBC bank account balance sheet, the
central bank official wrote: "I have received a phone call and received direct
orders from H.E. the Governor General at 9:30am on 8 May, 1995 to make the
transfer as requested by H.E. Var Huot for the cause of the Cambodian
The chief of the central bank's supervision department, Chea
Sok, was placed in charge of the CBC by the central bank on May 6. He was also
the official who signed the loan agreement between the central bank and the CBC,
per order of the central bank governor, on 31 May 1994.
Var Huot, who
only arrived in Washington on 27 May to assume his new post as ambassador,
acknowledged the transfer of money. In a telephone interview on 30 May, he said:
"We made a deposit at the CBC for transfering the money to the U.S. It is
government money to bring to Washington."
Var Huot said: "We withdrew
the money (from the CBC) because it was time for me to leave Cambodia... in
Cambodia, we can put the money in any bank. There was no preferential
He refused to answer why he deposited the money at CBC for
transfer, only to take it out four days later if the intent was to use the CBC
to transfer the funds to Washington. He declined comment when asked why it was
neccesary to withdraw the money from one local bank to deposit in another local
bank, had the purpose been to later transfer it to Washinton.
whether the money was brought to the United States in cash, he replied: "That is
Some banking officials believe that the deposit was only on
paper and was an attempt to illegally remove bank assets from the CBC,
contending it was Cambodian government money and therefore exempt.
government officials confirm that the Finance Ministry released $148,000 on 14
April to Var Huot for repairs on the Cambodian embassy in Washington.
Central Bank officials say that the central bank's authorization to
withdraw the money was based on the contention that the deposit was Cambodian
government funds, which they decided to exempt from the order to freeze assets.
But Cambodian law requires that government funds be deposited in the central
bank, not commercial or personal bank accounts. This makes the deposit to Var
Huot's personal account illegal, according to Phnom Penh based
Var Huot acknowledged that the bank account was his personal
account, but said: "In Cambodia an official can put the money in any bank
providing this money is safe."
Says Eisen of the Canadian securities
firm: "Why would he transfer money to the bank on May 4 if he knew it was under
investigation? It would be a prudent impression that this was a fake
Regardless, central bank officials acknowledge that the
withdrawal on May 8 from the CBC violated the central banks own directive to
freeze all assets.
On May 9 - three days after CBC assets were frozen - a
letter acknowledging a transfer from CBC of $380,380 to Theraprim pharmaceutical
company in France was received at the CBC, according to a copy of the document
on Theraprim letterhead dated May 9. According to French government documents,
Therprim is 100% owned by Hay Ly Eang, who is also a nephew of the central bank
governor Thor Peng Leath.
But how much assets the CBC actually has
remains very murky, government sources acknowledge. According to documents
obtained by the Post, the CBC in March declared to the government that their
bank had a total of only $4,000 deposits and $12,000 cash on hand.
documents contradict the bank's official reports. For instance, three
certificate of deposits of one customer amounting to $230,000 were uncovered,
but no evidence of the whereabouts of the money has been found. When queried,
the CBC bank chairman informed officials that the deposits "were a personal loan
from him to the customer and not a bank transaction." The certificates of
deposit are stamped with the bank seal as on official bank documents.
Post has learned that an independent liquidater appointed last week intends to
file charges against the CBC in Cambodian court, saying that the bank has failed
to produce any formal records. "The liquidaters have found no accounting
records, almost no documents of transfers, withdrawals, bank records," said one
source close the investigation. "They are receiving no cooperation from the
Sources say that the CBC has produced no records of it's banking
activities in 1995 and few were found on the bank premises after it's closure.
Officials say that the CBC bank vault "was virtually empty" when central bank
officials entered it on 6 May.
In a May 18 letter to the central bank
Governor Leath, Marleau Lemire threatened to "take legal action against the
National Bank of Cambodia for irregularities in licensing and capitalization of
the CBC at the outset." In addition, on May 22, the company wrote again to the
governor saying: "We have uncovered and observed a pattern of preferential
treatment of the CBC by the National Bank... unfortunately the National Bank's
irregularities continued after the closure of the CBC... We protest the delay in
which the administrator was appointed. During this delay the pattern of partial
and favorable treatment was continued by the temporary "administrators"
appointed by the National Bank."
Senior government sources say that
similar problems exposed at CBC are likely to be revealed in other banks in
coming months. Of the 30 banks in Phnom Penh - including 16 local banks with no
other branches - several are suspected to be undercapitalized and may be closed
after audits are scrutinized. The CBC case, they say, may only be the beginning.