Clash of political and business titans in Cambodia

When Cambodian authorities swooped on a popular nightclub in central Phnom Penh on February 23, arresting more than 300 people on drug possession charges, the raid set in motion a political firestorm few foresaw at the time.

Weeks later, authorities arrested and detained on drug-related charges the nightclub’s owner, Kith Thieng, a prominent businessman and brother of arguably the country’s wealthiest and well-connected tycoon, Kith Meng.

As founder and chief executive officer of the Royal Group, Cambodia’s largest business conglomerate, Kith Meng has big interests in virtually every sector of the national economy. His wealth has been estimated in recent reports at US$1.6 billion.

Kith Meng is also a long-time adviser to Prime Minister Hun Sen and is thought to be deeply connected to his ruling Cambodian People’s Party (CPP), which has been in power consecutively since 1979.

His brother’s arrest has thus sent shockwaves through the country. It has also raised numerous speculative theories about why he may have been targeted in a country known for its permissiveness, particularly among powerful figures.

Some have speculated the arrest heralds the beginning of a corruption crackdown and that Hun Sen’s government is finally getting serious about tackling organized crime, a narrative that chimes with recent senior official statements.

Others have surmised the arrest is indicative of a power struggle breaking out into the open inside the CPP. Kith Thieng’s arrest is believed to have been personally ordered by Hun Sen, who reportedly instructed the police to bring the “mastermind” of the night club’s alleged illegal drug trade to justice.

“We must enforce serious punishment and seek the mastermind until the end. We have proof in hand that will only serve to aid us as we stop drug trafficking at its roots,” Hun Sen told reporters just hours before Kith Thieng was arrested.

Interior Minister Sar Kheng was quick to state that Kith Meng was not connected with the drug bust or the arrest of his brother. Kith Thieng, who serves as the Royal Group’s vice chairman and managing director, was charged by the Phnom Penh Municipal Court on March 11 and sent to the capital’s Police Judiciare prison, a detention center for wealthy inmates.

Kim Sok, a political analyst who spent 18 months in prison for defaming Hun Sen and then fled into exile to Finland last year after his release to escape another arrest warrant, has asserted in media interviews that Kith Thieng’s arrest was politically motivated.

“Since this [arrest] comes on direct order from Hun Sen, I think it relates mostly to power politics than it does to fighting drug [trafficking],” Kim Sok told Radio Free Asia, while noting that no other nightclub or known drug-dealing site were raided at the same time. “I think this is all about politics, an attempt to suppress an internal power struggle.”

He speculated that Kith Meng has rallied behind-the-scenes against the CPP government’s and Hun Sen’s perceived mismanagement of the economy, including its failure to deal with a European Union threat to drop the country from a preferential trade scheme, known as Everything But Arms (EBA), in punitive response to recent democratic backsliding.

“It is certainly plausible that Kith Thieng was sent to prison on trumped-up charges to signify Hun Sen’s anger with Kith Meng’s expressed disapproval of the state’s EBA negotiations, and as a warning for Kith Meng not to ally with Cambodia’s political opposition,” said Paul Chambers, a lecturer at Naresuan University in Thailand.

The high-profile arrest comes as a chasm appears to widen within the country’s political-business nexus between hardliners and moderates over how to respond to the EU’s trade threat. If imposed, analysts say it would devastate the crucial export-geared garment sector.

Hardliners think the CPP government should cut commercial ties to Western nations and reorient the economy towards more amiable trade and investment partners, namely China. This would allow the CPP to face down Western demands for political liberalization and restoration of the political opposition, which was dissolved by court order in 2017.

The moderates, on the other hand, believe the government should undertake reforms and loosen its political chokehold to ensure the country maintains healthy economic relations with the EU and US, currently its two main export markets.

It all stems from the EU’s decision in January to start a lengthy process that could eventuate in Cambodia’s removal from its EBA scheme, which grants Cambodian exports tariff and quota-free entry to Europe’s lucrative markets.

Nearly 40% of Cambodia’s exports in 2017, worth roughly $5.6 billion, went to Europe, while the EU remains the single largest purchaser of Cambodia’s chief garment and footwear shipments.

The US, another major market for Cambodian exports, is also weighing punitive trade sanctions in response to the opposition’s dissolution and subsequent sham elections last year that saw the CPP win every seat in the National Assembly, creating a de facto one-party state.

The EU is also concerned about a general decline in human rights and free speech conditions. A small team of EU delegates arrive in Phnom Penh this week, though a much larger and more authoritative taskforce is set to land by June, diplomatic sources say.

Hun Sen’s government has raised the prospect of negotiating with the EU and has introduced limited political reforms. At the same time, the leader has stressed that the economy can cope with fewer exports to Europe by diversifying trade towards other nations, namely China and Asian partners – even though they currently purchase only a small percentage of Cambodia’s total exports.

Garments make up 70% of Cambodia’s exports, while total exports contributed around 60% of gross domestic product (GDP) last year, according to Ministry of Commerce figures.

Independent economists reckon the government is being either overly optimistic or deluded in its trade thinking. Meanwhile, observers say the government’s actions suggest that it is focused more on how to mitigate the impact of losing EBA privileges rather than preventing their withdrawal.

Cambodia’s private sector is clearly concerned, not least because even the threat of losing EBA privileges is already hampering new investment in export-driven sectors of the economy, including in the cost-conscious garment sector.

Kith Meng, president of the Cambodia Chamber of Commerce, a position he has held since 2007, sent a letter to the European Commission along with 30 other business groups in January stating that the “threat of sanctions has become a reality and many fear that the EU may already be turning its back on Cambodia.”

The letter also called on the EU to refrain “from taking any action that will harm the interests and livelihoods of the country’s people.”

Analysts Kim Sok reckons that Kith Meng has privately impressed on the government to make political compromises with the EU, even if that means restoring the Cambodia National Rescue Party (CNRP), the banned main opposition party.

Sophal Ear, associate professor of diplomacy and world affairs at Occidental College at Los Angeles, says that Kith Meng “understands his bottom line” and is “thus advocating a softer stance on how to defuse the situation with EBA suspension less than 17 months away.” But, he adds, “it makes sense that maybe he said one too many things and his brother… is now paying the price.”

Kith Meng rarely gives media interviews. His brother, too, has become adverse to public appearances in recent years, observers note.

Yet a glimpse of the apparent tensions between Hun Sen and Kith Meng came to light in December when a 15-minute audio recording was leaked to local media of Hun Sen reportedly telling Ouk Vora, the chief executive officer of Cambodia News Channel (CNC), a television news station owned by Kith Meng, to resign.

The command came allegedly because station chief executive Ouk Vora, the nephew of Deputy Prime Minister Mem Sam An, was planning to fire dozens of staff members, including a relative of Hun Sen, for unknown reasons.

“If [Kith] Meng doesn’t fire you, he will become my enemy. What will happen to his business?” Hun Sen reportedly told Ouk Vora, according to local reports. “Right now he has my support, but he can’t choose you over me.”

Because CPP spokesman Sok Eysan soon thereafter defended Hun Sen’s right to intervene in the operations of private companies, the leaked recording is most likely genuine, analysts say.

Days after the recording was made public, an independent citizen-journalism outlet published a story saying that Hun Sen had ordered Kith Meng to be arrested because of the spat.

CBS, another of Kith Meng’s news outlets, later put out a statement denying the report, advising members of the public not to be “misled by this dark group.” It was unclear whether Kith Meng followed through on Hun Sen’s order and fired Ouk Vora when Asia Times went to press.

Nevertheless, the incident – and more pointedly Hun Sen’s comment that Kith Meng could become “my enemy” – raises important questions about the future durability of ties between the country’s long-time political leader and its top businessman.

Kith Meng’s vast and rich business empire affords him influence and power to potentially challenge the CPP government, particularly if he were to withdraw his support.

The businessman founded the Royal Group in 1990 as Cambodia was just transitioning from a command to free market economy. It was a wild and violent era when state-run companies were often sold on the cheap to those who had capital and wherewithal to run them.

Today, the Royal Group controls many of Cambodia’s most profitable firms. These include complete ownership of Cellcard, one of the country’s largest telecoms companies, and Wing, the largest money-transferring firm. The conglomerate also has a minority stake in ANZ Royal Bank, one of the country’s largest foreign-invested banks.

The Royal Group also has major stakes in the insurance and finance sectors through Royal Financial Corporation; the legal sector through Ang and Associates Lawyers; and the influential security sector via Global Security Solutions.

It also has big construction interests and a stake in the Lower Sesan II hydropower dam, which was built with Chinese partners.

Independent corruption watchdogs, as well as a 2017 report by Cambodia’s National Police, alleges that contracts obtained by the Royal Group to clear land for the dam allowed it to engage in widespread illegal logging. The Royal Group has steadfastly denied the claims. Police later retracted their report, saying it was an “unintentional” mistake.

Diplomats have made other tough allegations. A US diplomatic cable from 2007, leaked by WikiLeaks, described King Meng as a “ruthless gangster” who is “notorious for using his bodyguards to coerce others into brokering deals.”

The cable also noted that “several sources believe that the CPP has tried to strengthen its relationship with Kith Meng because it wants CTN’s ability to broadcast to a large number of Cambodians living abroad,” referring to Kith Meng’s major television network, the Cambodian Television Network.

Analysts say that Hun Sen and the CPP forged closer ties with Kith Meng soon thereafter. He has been an economic adviser to Hun Sen for a number of years, and is among various tycoons who regularly contribute to the ruling party, including through donations to its charitable activities.

One example: Kith Meng currently sits on the board of the Cambodian Red Cross, an organization run by Hun Sen’s wife, Bun Rany, and is sometimes seen as a propaganda tool for the CPP, especially when it hand-out donations to the poor.

His media empire, meanwhile, heavily influences Cambodian public opinion.

According to a 2015 report by Reporters Without Borders, a media freedom watchdog, and the Cambodian Center for Independent Media, a local independent outlet, Kith Meng and three other individuals – including Hun Sen’s daughter, Hun Mana – collectively control 83% of Cambodia’s media. That concentration of ownership, analysts say, is likely even higher today.

The Cambodian Broadcasting Service (CBS), a subsidiary of the Royal Group, controls some of the country’s largest television channels, including CTN and its international broadcasting partners; CNC, the country’s first 24-hour news channel; and MyTV, a youth-oriented channel.

The Royal Group also has sway over the local print media as one of the country’s top and richest newspaper advertisers, meaning that his company can potentially influence editorial policy by pulling on purse-strings.

The detained Kith Thieng, although the junior partner in the Royal Group, is no commercial lightweight.

Just two weeks before the raid on his nightclub, he had presided over a groundbreaking ceremony for the Royal One twin building, a $230 million investment that is set to become Cambodia’s tallest building at 62 storys when it is opens in the capital in 2023.

The project is a joint-venture between Royal One, a subsidiary of Royal Group, and Huashi Group, a state-owned Chinese real estate and construction company.

Yet despite Kith Meng’s close ties to the ruling party – a necessity for any major businessperson that relies on concessions in Cambodia – some commentators estimate he is more independent minded than other tycoons.

According to Sophal Ear, it is common knowledge “that Kith Meng, among the [country’s tycoons] is not rabidly anti-opposition. The guy grew-up in Australia. He knows what freedom and democracy are about,” he said, referring to Kith Meng’s dual Cambodian and Australian nationality.

Indeed, Kith Meng has previously served as a mediator in conflicts between political camps. The leaked US diplomatic cable said that Kith Meng “claims credit for negotiating the three-way deal among the parties to engineer Sam Rainsy’s return to Cambodia in early 2006,” a reference to Sam Rainsy, a leading opposition politician who is currently again in self-exile in France.

“Any businessman worth their salt has no permanent patrons, only their bottom lines, and if things go south with the current regime, they will want their business interests protected, which means keeping a lifeline with the opposition,” said Sophal Ear. “Some do it more than others; Kith Meng among them.”

Informed speculation suggests that because of Kith Meng’s supposed displeasure with how the government is managing the economy and the EBA crisis, he might be rekindling his past relations with the political opposition, though others doubt it.

In email correspondence with Asia Times, Sam Rainsy played down any ties with the tycoon.

“I haven’t had any contact with Kith Meng for more than ten years. He used to be a kind of bridge between Hun Sen and me during my previous exiles in the 2000s. But he has never supported the opposition,” the exiled opposition leader told Asia Times.

The real reason behind Kith Thieng’s arrest may not be known for some time. If his government accusers are genuine, he was involved in a drug-trafficking enterprise and is a big fish casualty in the CPP’s bid to tackle endemic corruption and drug dealing.

If independent analysts have it right, then Kith Thieng is more likely a casualty of a far-bigger and potentially destabilizing tussle that, depending on how events play out, could determine the country’s political and economic trajectory in the months ahead.