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From car parts, to electronics, to pharmaceuticals and fashion, counterfeit goods can readily be found on sale in Cambodia. Just how readily has rarely, if ever, been accurately determined. Enforcement actions are uncommon, official statistics on seizures are difficult to come by, and there have been no published surveys on the scope of intellectual property infringement.

Until now.

Our firm recently surveyed several retail locations in Phnom Penh, and recorded the brands on sale. The results show just how pervasive the problem is. Of the stalls surveyed, more than half sold at least one counterfeit. Gucci, Louis Vuitton, Nike, Abercrombie, and just about any other global brand can be had for a fraction of the original’s price. The following table shows the top marks across the four categories surveyed:

The full results, as well as an analysis of the anti-counterfeiting laws, can be found in the full report.

It’s a bad idea to operate an NGO, or even engage in activities normally performed by an NGO, without properly registering the legal entity. Fines, harassment, legal liability, and ultimately closure of the project are all possibilities for those who ignore the law. Needless to say, registering with the authorities must be at the top of the to-do-list for anyone looking to start an NGO in Cambodia.

A draft Law on NGOs and Associations has been in the works for some time now, and is rumored to be enacted by the end of this year. In the meantime, the status and procedures for registration of NGOs are governed by a handful of different laws and regulations.

The registration process differs for International NGOs and Local NGOs. An International NGO is essentially the local branch of a foreign organization – owned and directed by headquarters back in the home country. A Local NGO, on the other hand, is run predominantly by Cambodian citizens. While foreigners can be involved in the management and functioning of a Local NGO, the key figures – including the chairman, administrative officer and treasurer – must be Cambodian citizens.

International NGOs are registered through the Ministry of Foreign Affairs and International Cooperation (MFAIC), in conjunction with the ministries relevant to the NGO’s sector (Health, Environment, Social Affairs, etc.).

The MFAIC will require the following documents:

  • Cover letter addressed to the MFAIC;
  • Documents of registration for the NGO’s parent organization in the foreign country.
  • Project plan and budget approved by the NGO’s board;
  • A proxy letter from the Chairman of the Board appointing a local representative and giving them authority to sign a Memorandum of Understanding with the Cambodian government.
  • A list of the foreign and local staff, stating their nationality, passport number, title, address in Cambodia, and their employment contracts;
  • Office address in Cambodia, attached with a lease agreement for the office;
  • A promise to provide a bank statement to MFAIC after signing of the Memorandum of Understanding.
  • Passport and photos of the representative of the NGO
  • Supporting letter from the relevant Ministry.

A Local NGO is registered through the Ministry of Interior (MOI), and unlike an International NGO, does not require additional approval from another Ministry. The MOI will require:

  • Application form;
  • NGO’s Memorandum and Article of Association (MAA), issued by MoI;
  • Plan of NGO’s structure, signed by director, issued by MoI;
  • Map of the NGO’s address, certified by the local Sangkat;
  • Photos of office’s facade.
  • Copies of the office’s lease agreement;
  • Biographies of Cambodian director, administrator and financial officer with photos and copied ID cards;
  • Approval letter issued by the local municipality.

Once all the documents are submitted, and unless the application presents unusual difficulties, it typically takes a few months to fully register. So long as they fully understand the correct procedures and official fees from the outset, there’s no reason an NGO couldn’t complete these steps themselves. However, experienced and trustworthy legal advisors can earn their fees by knowing exactly what steps to take, and which are unnecessary red-tape.

Divorce is most often a sad and unfortunate event in one’s life. So it’s often difficult for spouses-to-be to imagine even before their wedding day  that their marriage might end in divorce. Nevertheless, many couples choose to enter into a premarital, or prenuptial, agreement. Without one, the couple is in effect agreeing to the default rules provided by the marriage and property laws. These default rules can work fine for many couples, but sometimes modifications are a sensible idea.

Premarital agreements exist in a gray area of Cambodian law. They are neither specifically recognized nor specifically prohibited. Should it come to a divorce proceeding, a court would be more likely to follow the terms of a premarital agreement if it was entered into freely and fairly, and the financial terms are fair to both spouses, given their respective finances.

Despite this uncertainty, a premarital agreement may still be of value to a couple for a variety of reasons:

  • It can serve to manage expectations. Particularly where one spouse has  – or is perceived to have – much greater assets than the other, both spouses could be entering into marriage with unrealistic expectations
  • Spouses can protect or share their assets through identification of separate and joint assets.
  • It can define alimony or child support payments in case of divorce, as well as any support payments to a spouse’s family during the marriage.
  • It can help to simplify the process of divorce, should it occur.

Furthermore, it can be very helpful for each spouse to list their separate assets at the time of marriage. Cambodia has a joint property system for marital property, similar to that of many countries. Any income and property earned during the marriage is considered joint property, whereas everything earned prior to marriage or through gift or inheritance, is the spouse’s separate property. A pre-marital agreement can therefore also be a useful tool whereby each party acknowledges the status of their assets at the time of the marriage.

One important implication of this rules is that any property obtained during marriage with separate property will remain separate property. So for instance, if a spouse uses money in a bank account earned prior to marriage to buy a house during marriage, the house will remain separate property. Likewise, the interests and profits from separate property remain separate.

Should the couple eventually divorce, the premarital agreement can serve as a foundation on which to negotiate. While there is a chance the premarital agreement may not be enforced, it could still serve as a common basis for reconciliation and the division of assets.

The World Bank just released its annual Investing Across Borders report, and the section on Cambodia makes for interesting reading. Overall, I’d say Cambodia comes out looking pretty good – an extremely open economy, decent access to land, albeit a slow process for opening a company.

The authors looked to four areas affecting foreign investment:

  • Restrictions on foreigner ownership across sectors: Cambodia scores a perfect 100 on every sector except electricity transmission and ports.
  • Ease and speed of setting up a foreign-owned business: 45 out of 100 on their index, versus a regional average of 57.
  • Acquisition of industrial land: No ownership rights for foreigners, but lease rights are very strong. Also, land can be leased much quicker than the regional or global average
  • Arbitration of commercial disputes: The report gives decent scores for the arbitration law, but it’s waiting for the National Arbitration Center to launch before it’s actually implemented.

One measure that could have been included is of rule of law, or effectiveness of the court system. That’s often the top concern of investors I’ve met with, as they’re skittish about putting money in a place which is perceived by many to have weak legal investment protection. I guess the arbitration measure is meant to capture this, but arbitration is only one means to resolving a dispute.

Further, Cambodia currently has NO commercial arbitration at all (see the post below). The report seems to score Cambodia based on the text of the as-yet unimplemented Law on Commercial Arbitration. A fictitious exercise if you ask me.

So you find out that you have a rich uncle, who has sadly passed away, and has left you a large tract of land, in Cambodia. Given the recent real estate boom in the Kingdom, this would surely be welcome news (minus the news of your uncle).

Or is it?

As you begin researching Cambodian law governing testamentary gifts (wills), succession, and land, you soon realize that, as a foreigner, you are not permitted to own land in Cambodia.

So what will happen to the land that your uncle so thoughtfully left to you? According to the newly drafted Civil Code, which is set to take effect later this year, a foreigner who has been named a successor or co-successor to an estate, either by relations or will, has three months to sell the land, with the proceeds becoming the succession property. It will be important to observe the three-month timeframe to sell the land; otherwise the land will pass to the next available heir in succession who holds Cambodian nationality.

There are, of course, ways to sell the land and still maintain some control of it, namely selling it to a corporation of which you hold 49% and a Cambodian national holding 51%. However, if you don’t want to keep the land, be sure to sell it as quickly as possible, or risk forfeiting the gift from your favorite uncle.

The long-awaited National Arbitration Center, for settling commercial disputes, is finally taking shape. According to recent statements by government ministers, the NAC is scheduled to open by the end of this year.

Resolving a dispute through the court system can be a long and expensive process. The World Bank estimates it takes on average 401 days at a cost of 103% of the value of a debt in order to enforce a commercial contract. The NAC will offer parties to a commercial contract an alternative venue, which hopefully will be swifter and more efficient.

In preparation, the Cambodian government passed a Law on Commercial Arbitration in 2006 based on UN guidelines and a further sub-decree last July to establish its structure. The NAC will be supported by the International Finance Corporation, a member of the World Bank Group, for its first three years. During that time it will be run by the Ministry of Commerce, but the goal is to establish the reputation and capacity of the NAC so that it can be spun off as an independent, non-profit, entity.

A recent news article about the training of NAC staff can be found here, and the text of the Arbitration Law here.

Camko City - Future Home of the Cambodian Stock Exchange

The last three years have seen a surge of anticipation for a fully functioning stock exchange in Cambodia. Expected to be established in CamKo City, hopefully by the end of the year, the Cambodian Stock Exchange (CSX) will be a joint-venture between the Korean Exchange and Cambodia’s Ministry of Economy and Finance (MEF).

Proponents of the exchange point out the potential benefits of raising much needed capital and thereby facilitating growth in local companies. A less publicized benefit of a well functioning stock exchange in Cambodia may be that it will encourage a more rational allocation of resources, given the current propensity of Cambodian investors to park their money in land for long periods of time.

Until March 1st, the Stock Exchange Commission of Cambodia (SECC) accepted license applications from firms seeking to participate in the future stock exchange. According to press reports, twenty-two national and international firms applied. A qualifying firm must comply with rigorous standards. The legislation states that along with having a sound corporate structure, firms seeking a securities license must have a minimum capital between USD 96,000 to 9.52 million. Prospective firms must also pay a license fee ranging from roughly USD 100,000 to 10 million. The minimum capital requirements and license fees vary depending on the type of securities license sought.

The SECC is currently reviewing its twenty-two license applications and is expected to reveal very soon which firms qualified for and will receive licenses. With only three state owned companies announced to list on the stock market—Sihanouk Autonomous Port, Phnom Penh Water Supply Authority, and Telecom Cambodia—experts believe that the SECC should grant licenses to fewer than half of the applicant firms, or risk oversaturation of the fledgling stock market.

Although the SECC’s receipt of so many securities license applications was a relative success in the journey to open the CSX, numerous obstructions in the path still exist. Such obstacles include the unfinished CSX premises, of which construction has yet to commence and disagreement over which currency to use. Some argue that the CSX should be used as a vehicle for promoting the local Riel while their opponents point out the value of sticking to the more stable US Dollar.

Another considerable obstacle is the lack of private companies interested in listing or able to list on the CSX. Although one private company, Cambodia Air Traffic Services, has publicly expressed interest in listing, many companies distrust the proposition of going public through the CSX. It is probable that many companies are adopting a wait and see approach while other companies simply cannot meet the revenue and transparency/accounting standards necessary to list. Further, the three state-owned companies that have already announced their intention to list have yet to court investors and the SECC has yet to issue the legislation necessary to transform the companies into public entities.

Despite the fact that there is still a lack of necessary legislation to enable the CSX in some areas, the advent of the stock exchange has already prompted the creation of other key legislation. For instance, 2009 saw a much needed fillip to Cambodian corporate governance legislation with a strengthening of standards of internal auditing for public enterprises and the creation of an Internal Auditing Department through the Ministry of National Defense. Most recently, the SECC released a Prakas stipulating corporate governance requirements for companies to list on the CSX.

Even with these legislative in-roads, and the SECC’s success in receiving abundant securities license applications, experts still predict that the CSX will not open until the second quarter of 2011 or even until 2015.

Whatever the case with the eventual start date, it is better to have the commencement of the exchange delayed until it is truly ready to ensure some measure of investor confidence rather than open early because of some arbitrary deadline.

Update: Government minister says the exchange won’t open until next year, at the earliest. Story here.

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The work of a handful of attorneys at BNG Legal, this blog's mission is to keep the world up-to-date on legal issues in the Kingdom of Cambodia.

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