Cambodia: Securing compensation for ANZ-backed land grab

Phnom Penh Sugar Corporation and ANZ Bank

Overview

When a powerful Cambodian sugar company illegally seized and bulldozed the farms and residential land of more than 1,100 families to make way for a sprawling plantation and refinery, the communities organized to push back, and enlisted Inclusive Development International's help. After we discovered that the project was financed by Australia’s ANZ bank, which had failed to do its human rights due diligence on the loan, we helped the families file a formal complaint and campaign for redress. In a world first, the bank agreed to provide compensation and also launched a new human rights grievance mechanism, setting an important precedent for the commercial banking industry.

CASE FILE

Location: Thpong and Oral districts of Kampong Speu province
Project Sugarcane plantation and refinery
Company: Phnom Penh Sugar Company
Key concerns:

 

·      More than 1,500 families forcibly displaced from their farms

·      More than 100 families forcibly evicted from their homes

·      Destruction of crops and livelihoods

·      Harsh and dangerous working conditions

·      Child labor

·      Destruction of protected forests

·      Violation of Cambodian laws

Key investors and financiers: ANZ Bank
Our partners: Equitable Cambodia, OECD Watch, BankTrack, Oxfam Australia, Uniting Church of Australia
Outcomes: ANZ divested itself from the revenue it earned from the loan and provided those funds to the affected families to help them get back on their feet. The bank also launched a new Grievance Mechanism Framework for communities harmed by its financed projects.

More than six years in the making, the landmark settlement that Inclusive Development International and Equitable Cambodia secured from ANZ bank on behalf of Cambodian communities set an important human rights precedent for the global banking industry.

For the first time ever, a commercial bank effectively paid compensation for the actions of one of its corporate clients after acknowledging that its human rights due diligence had been inadequate.

ANZ had provided a loan to the Phnom Penh Sugar Company for a controversial sugarcane project established through the illegal seizure of homes and land, forceful evictions, destruction of legally protected forests, and with the help of dubious government approvals and concessions.

After we filed a formal complaint with the Australian National Contact Point for Responsible Business Conduct, ANZ’s acts and omissions were found to be inconsistent with the bank’s own polices and the ethical business guidelines of the Organization for Economic Cooperation and Development (OECD).

A little over a year after the Australian National Contact Point issued its final statement on the case, ANZ agreed to our long-standing demand that it divest itself of the revenue it earned unjustly from the Phnom Penh Sugar deal and provide those funds to the affected families to help them get back on their feet.

We then worked with Equitable Cambodia and community representatives to distribute these funds to 1,096 affected families in Kampong Speu.

Inclusive Development International also served as part of an external advisory group, providing guidance to ANZ on the development of its new human rights complaint mechanism, the first of its kind. In November 2021, ANZ launched the new Grievance Mechanism Framework, making it the first large commercial bank in the world to adopt a human rights policy that gives communities harmed by its financed projects a real path to justice.1ANZ’s Grievance Mechanism Framework is the first framework for human rights complaints among large commercial banks to include a commitment to reporting outcomes. Previously BankTrack’s Human Rights Benchmark, published in November 2019, identified just one bank, National Australia Bank, with a complaints channel in place for human rights related grievances that is open to anyone whose rights are impacted by the bank’s finance; however this channel does not include a commitment to reporting outcomes. See banktrack.org/hrbenchmark.

Our Actions

In October 2014, Inclusive Development International and Equitable Cambodia filed a complaint against ANZ to the Australian National Contact Point for Responsible Business Conduct, an Australian government body that promotes the OECD Guidelines for Multinational Enterprises and works to resolve claims of corporate misconduct.

This was after we found out, via two confidential social and environmental assessment reports leaked to us in January of that year, that ANZ Royal Bank (a controlled entity of the Australia and New Zealand Banking Group Ltd., or ANZ) had provided significant financing to Phnom Penh Sugar Company, which owned and operated the controversial sugar plantation and refinery in the Cambodian province of Kampong Speu.

At the time that ANZ gave the green light for the deal, Phnom Penh Sugar and its sister company Kampong Speu Sugar Co. Ltd. were embroiled in a conflict with more than 1100 families in 21 villages, whom the companies had forcibly evicted from their farming land in Kampong Speu province to make way for a sprawling sugar plantation.  The company used the police and military, including a former Khmer Rouge battalion to carry out the land grab, destroying crops, which the local families relied upon for subsistence, and clearing forests in a protected wildlife sanctuary.

At the time, Cambodia was a hotbed of forced displacement of local smallholder farmers from their productive land to make way for large-scale industrial plantations. For most of these farming communities who were thrust into poverty, holding the companies behind these land grabs accountable and obtaining remedy would prove elusive – and most, not seeing a viable and accessible path to justice, did not have the means to try.

 

For years, this appeared to be the case for the families displaced by the Phnom Penh Sugar plantation, which is owned by one of Cambodia’s most notorious tycoons, Ly Yong Phat. Phat is also a senator and major benefactor of the ruling party, and is widely regarded as untouchable.

But in January 2014, two confidential social and environmental assessment reports leaked to Inclusive Development International revealed that ANZ Royal Bank (at the time, a controlled entity of ANZ) provided significant financing to the sugar company. The information opened a pathway for the communities to pursue redress.

We worked to ensure that the news of ANZ’s loan to this high profile forced eviction made headlines in Australia.

We also requested a meeting with the bank, where community representatives were for the first time able to sit opposite bank managers and describe the harms they had suffered, and which the bank had profited from. The bank made some efforts to push its client to redress the harms – though we did not believe that it used its full leverage – and soon afterwards, ANZ announced that the company had repaid its loan early and the business relationship had ended.

But the communities weren’t about to give up the fight, so neither were we.

In October 2014, along with our partner Equitable Cambodia, we lodged the complaint against ANZ to Australia’s National Contact Point on behalf of the affected families, detailing the widespread violations of human rights they had endured, including forced evictions, military-backed land seizures, destruction of crops and property, arbitrary arrests and intimidation of villagers and the widespread use of child labor on the Phnom Penh Sugar plantation.

We argued that ANZ breached its responsibilities under the OECD Guidelines and the UN Guiding Principles on Business and Human Rights by contributing to these abuses through its actions and omissions and failing to take reasonable measures to prevent or remediate them. ANZ had commissioned the consulting firm International Environmental Management Co to prepare a “Phase 1 Environmental and Socio-economic Site Assessment” when it was considering financing Phnom Penh Sugar. The assessment report, dated November 23, 2010, failed to mention the high-profile conflict that the company was having with local communities displaced by its land concessions, which had been reported extensively in the local English-language press in Cambodia throughout 2010. Nonetheless, the assessment did note a number of social and environmental concerns, such as encroachment of the land concession into the protected Phnom Aural Wildlife Sanctuary. Of particular significance was its recommendation to “conduct a detailed impact assessment in the project area according to the assessment guidelines provided by the Equator Principles and IFC Performance Standards.” This recommendation was rated “high” in terms of “urgency to address impact.”

In 2011, ANZ proceeded with a corporate loan to Phnom Penh Sugar without ensuring that such assessment would be conducted, or that social and environmental risks identified would be mitigated. This significant omission, and the decision to proceed with financing of Phnom Penh Sugar despite the well-documented concerns, was at odds with ANZ’s own human rights standards and its responsibilities under the UN Guiding Principles on Business and Human Rights.

As a result, we argued in the complaint to Australia’s National Contact Point,  ANZ had contributed directly to Phnom Penh Sugar’s unjust activities and profited from those activities, so it had a responsibility to provide reparations to those affected, irrespective of the fact that it had cut its ties to the company.

Complaints of this kind against banks were novel at the time and there was little global precedent for the Australian National Contact Point to look to. Moreover, the Australian office was understaffed, flawed in its structure, and ill-equipped to handle the complaint. As a result, the process was slow and badly handled until 2017 when the National Contact Point was overhauled, finally making it possible to hold Australian corporations accountable for their human rights impacts overseas. With a new structure that gave the office greater impartiality, and new personnel with appropriate qualifications, in June 2018 the National Contact Point finally released a decision in the case.

It found that ANZ’s actions were inconsistent with its own human rights policies and the standards set by the OECD. In a rare rebuke of a commercial bank, the National Contact Point said the human rights risks of doing business with the sugar company “would likely have been readily apparent” to ANZ. The Australian government body called on the bank to strengthen its due diligence systems and instigate “methods to promote and demonstrate internal compliance with its own stated corporate standards with respect to human rights.” It also recommended that ANZ establish a grievance resolution mechanism “as a way of demonstrating that its actions are consistent with community expectations around the accountability of multinational enterprises in this area.”

The National Contact Point did not go as far as we believe it should have, and was silent on the question of what, if anything ANZ should do, to contribute to the remediation of the harms suffered by the Cambodian community. Moreover, despite being one of the only forums for corporate accountability for human rights abuses globally, National Contact Point decisions are not enforceable.  We had achieved an important victory, but for the Cambodian families the battle was far from won.

With partners in Australia and around the world, our advocacy picked up pace. We got to work talking to journalists, putting questions to ANZ’s CEO at its Annual General Meeting, and asking members of the Australian parliament to intervene. The communities told their story in major Australian news outlets.

Together we called upon ANZ to divest itself of the revenue it earned unjustly from the loan and provide those funds to the affected families to help them get back on their feet.

In public forums and behind the scenes, we urged ANZ’s CEO to do the right thing.  And to his credit, he did.

In October 2018, ANZ’s CEO Shayne Elliott told a parliamentary committee that they were indeed considering compensating the hundreds of families that suffered as a result of its investment. Inclusive Development International, Equitable Cambodia and ANZ had ongoing contact following this statement, which eventually led to a request for Australia’s National Contact Point to facilitate a new dialogue between the parties through its good offices process.

In February 2020, ANZ, Inclusive Development International and Equitable Cambodia reached a landmark agreement, which included commitments from ANZ to 1) contribute the gross profit it earned from the loan to help alleviate the hardships faced by the affected communities and support their efforts toward rehabilitation, and 2) review and strengthen its human rights policies, including its customer social and environmental screening processes, and specific grievance mechanism accessible to affected communities.

We then worked with Equitable Cambodia and community representatives to devise and carry out an inclusive process to distribute the settlement funds to affected families, identifying and certifying 1,096 families eligible for the funds and taking steps to ensure that they received an equitable share.  A portion of the settlement was set aside to fund local development projects, designed by the communities themselves.

We also served as part of the external advisory group providing guidance to ANZ on the development of its hew human rights grievance mechanism, which was launched in November 2021 after 18 months of consultations. This was an important step toward accountability in the banking sector and put the pressure on other large banks to follow suit.

Outcomes and Lessons Learned

This win not only helped address the hardship experienced by the impacted communities in Kampong Speu, but it has also helped to solidify the emerging global norm that when a bank contributes to adverse human rights impacts through its lending activities, it has a responsibility to contribute to remedy.

Acknowledging that its due diligence on the project funded by its loan was inadequate, ANZ agreed to provide displaced families with a financial package equivalent to the profit the bank had earned from its loan. While this did not undo the years of suffering those families endured or resolve the longstanding land dispute with Phnom Penh Sugar, it was a significant help, and the funds were successfully disbursed through an inclusive process overseen by Inclusive Development International and Equitable Cambodia.

ANZ’s launch of a new human rights grievance mechanism, which we applauded despite some flaws, also set an important precedent for the industry, putting pressure on its peer banks worldwide to strengthen their human rights due diligence. The Framework, which set out how ANZ would respond to complaints from community groups that consider their rights impacted by the bank’s finance (including contributing directly to remediation of harms where appropriate) serves as an important, if imperfect, model.

This was also only the third known time in the 20-year history of the OECD’s National Contact Point system that a complaint process resulted in a concrete financial remedy for complainants. This outcome, which the Australian National Contact Point made possible through its responsiveness to the communities’ complaint, demonstrated that the system can deliver a measure of justice for communities if they use their tools strategically.

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