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Pros and cons of selling Khmer citizenship

Pros and cons of selling Khmer citizenship

LIKE most nationality laws, the draft nationality law now before the National Assembly

allows foreigners to become naturalized Cambodian citizens upon satisfaction of certain

conditions. Two of the more important conditions are seven year residency in Cambodia

prior to naturalization, and the ability to speak and write Khmer.

Unlike most nationality laws, the draft nationality law of Cambodia allows foreigners

to, in essence, purchase Cambodian citizenship. A foreigner investing $500,000 can

become a Cambodian citizen without satisfying the seven year residency requirement,

but must still satisfy the language and other requirements. A foreigner who donates

$400,000 to the state budget can obtain citizenship without satisfying either the

residency or language requirements.

Few other nationality laws take the same approach as Cambodia. We have reviewed the

nationality laws of South Korea, Japan, Singapore, Lao PDR, Malaysia, Burma, USA,

UK, Australia, India, and France. None contain similar provisions. Most countries

deal with the issue of investment promotion by providing for special, more lenient

visa or residency rules for foreign investors during the period of investment.

Some countries do allow foreigners, in exceptional cases, to waive the usual naturalization

conditions and obtain citizenship. India, for example, allows such waiver for foreigners

rendering distinguished service to India in science, philosophy, art literature,

world peace or human progress - investment notably left out. France will waive its

residency requirement, if the applicant's citizenship would be of exceptional value

and interest to France. The French law is similar to Article 13 of the Cambodian

draft law.

A few developing nations reportedly also grant citizenship to investors or donors

in a manner similar to Cambodia's draft law, although we have yet been able to locate

the laws themselves for verification.

So why does Cambodia need to adopt special citizenship provisions rejected by most

other countries? Does Cambodia need to encourage foreign investment and enlarge the

state budget more so than other countries?

The answer to both of these questions is a strong yes. For reasons obvious to most,

including Cambodia's small market, recent history, and competitive neighbors, Cambodia

must encourage inbound investment and capital flow - both into the country and into

the state treasury.

Given that Cambodia needs to encourage investment and fill the state coffers, does

Cambodia really need to sell its citizenship to accomplish these goals? This is a

much more difficult question, deserving a much more involved response.

The main motive for a foreigner to donate or invest substantial sums to become a

citizen of Cambodia would be to enjoy certain economic rights reserved exclusively

to Cambodian citizens. The economic right most coveted by foreigners is land ownership.

The right to own land would undoubtedly be a substantial benefit to most foreigners

with an interest in Cambodia. Given the present difficulties and uncertainties in

the Cambodian legal system, becoming the legal, registered owner of land could be

a valuable benefit for foreigners who invest funds in projects involving land or

other real property.

On the other hand, citizenship need not be given to foreigners to give them stronger

protections regarding land ownership. Cambodian law currently permits foreigners

to own a 49% interest in land through a Cambodian company in which the foreigner

owns 49% of the shares. This right is protected by Article 44 of the Constitution.

This 49% interest could be much better protected by a good company law and contract

law, as well as better enforcement mechanisms through in-country arbitration and


Another measure that could significantly protect foreign investment involving land

would be to allow foreigners to own buildings on land which is held under a long

term lease. The Investment Law would currently permit this type of ownership, but

there has been no move to authorize such ownership at the Cambodian Investment Board

or land offices.

Another important method for protecting a foreign investment involving real property

would be to set up a transparent and comprehensive system for the registration and

enforcement of real property security. Foreigners could then take a security interest

in land that is clearly enforceable in Cambodia, thereby protecting their investments

involving real property.

One of the easiest ways to encourage investment through land ownership is not readily

available in Cambodia. Some countries, such as Thailand, prohibit foreign ownership

of land in general, but allow foreign ownership for certain major investment projects

on a case by case basis. Cambodia's constitution would prohibit this.

All of these measures would go a long way toward encouraging foreign investment.

However, given that enacting and implementing such measures may be time consuming

and politically difficult, allowing foreigners to purchase citizenship through investment

or donations may be the only possible alternative to entice foreign investment by

granting greater land ownership rights.

Finally, if we assume that selling Cambodian citizenship is desirable, how can naturalization

be regulated under the draft law to avoid undesirable investors and donors. Because

the law is very general, its implementation will determine the quality and quantity

of foreigners allowed to take advantage of the special exceptions.

One concern of the government probably will be to discourage investment solely in

land (i.e. speculation). Including the value of the land as part of the required

$500,000 of investment capital will make it much easier for foreigners to satisfy

the nationality law and become citizens. If this is permitted, a foreigner's purchase

of a plot of land for $500,000 will make the foreigner eligible to become a citizen

of Cambodia, and thereby become the registered owner of the land.

Strictly enforcing and verifying that the $500,000 of investment capital is spent

on an existing investment project, would also restrict eligibility for naturalization.

Until now, there has been a big difference between the amount of investment capital

pledged by the investor, and the amount of capital truly invested.

A rigorous implementation of the language requirement would also restrict those eligible

to become citizens, regardless of the size of the investment. Of course, under the

draft law, any foreigner wishing to avoid the language requirements, can donate,

rather than invest, $400,000 to the government.

Other important regulatory issues include: Will the investment capital be registered

capital of the investment company, or general investment capital? Can such capital

be raised through offshore and/or local loans? If, for example, the investment project

has five investors in a project with $2.5 million capital, are all five persons eligible

for citizenship? What happens when a shareholder in an investment project with over

$500,000 capital sells his or her equity after having been granted citizenship?

Critics worry that the law will attract the wrong type of investors or donors. It

is true that most major investments are undertaken by large offshore companies, where

there is no individual investor who can become a citizen of Cambodia. Thus, the law

is likely to attract investment from individuals, rather than corporations. However,

as discussed above, speculative investment in land alone can be discouraged under

the law.

Critics also fear that wealthy criminals will be attracted by the lenient citizenship

rules. This risk could be reduced by expanding Art 8(b) of the draft law to require

a standard background check of the individual in their home country and with Interpol.

Few international criminals would risk this heightened scrutiny by applying for Cambodian

citizenship if the law were vigorously and consistently applied.

Finally, when engaging in such debates, it should be remembered that there is nothing

inherently immoral or corrupt about foreign ownership of land. Most developed countries

allow foreign ownership with few restrictions. The main reason for such restrictions

in developing countries is to save land for citizens, who may not have the same financial

means as foreigners.

David Doran is the resident managing partner of Dirksen Flipse Doran & Le's

Phnom Penh office, and has been writing on Cambodian legal issues since 1992.


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