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A foreign bank facing a massive corruption probe is the primary backer of Phnom Penh’s Camko City development, prosecutors in South Korea have reportedly said, raising questions about the future of the US$2 billion project. South Korea’s Joong Ang Daily reported yesterday that prosecutors in the country had claimed that Busan Savings Bank, which faces a wide-ranging investigation that has ensnared its top executives, had set up a series of companies to fund the Camko City project. The Russei Keo district development is the planned home of the Cambodian stock exchange and is one of the largest foreign investments in the Kingdom to date. Kheng Ser, assistant to the project management team of Camko City developer World City, said yesterday that Busan Savings Bank was “not related to our project”. The Joong Ang Daily reported, however, that South Korean prosecutors believe the bank has invested US$459 million in Camko City through nine different shell companies. Park Hyeong-seon, the bank’s number-two shareholder and chairman of South Korea’s Haedong Construction, was arrested last month and is reportedly being questioned over whether he is the actual owner of the nine companies. Nam Shik-kang, chairman of the Korean Chamber of Commerce in Cambodia, said yesterday that Busan was “the main bank financing the Camko City project”, and that he did not believe the development had the funding to continue construction. “I gave my opinion to the Korean Embassy that the Korean government [should] take over this [project],” Nam said. “The problem is a funding problem. Now the bank that is funding it is under investigation. Many of its officials have been arrested. No one can care or take responsibility for this project. No company can handle it – only the Korean government.”

The Camko City project broke ground in late 2005 and was slated to be finished by 2018. Housing, a hospital and a commercial area are planned there along with the stock exchange. Eng Phal, an engineer with Camko City contractor Hanil Engineering and Construction, said yesterday, however, that construction at the site had been suspended since October because World City had not paid Hanil in full for its work. Busan Savings Bank’s operations were frozen by the South Korean government in February due to a liquidity crisis. Allegations later emerged that major shareholders had used the bank’s deposits to give themselves loans to fund a variety of projects both inside and outside South Korea, and bank executives also stand accused of bribing government auditors to overlook financial irregularities. Bank chairman Park Yeon-ho and several major shareholders were arrested in April, according to the Korea Herald, and government officials including Eun Jin-soo, a former state auditor and aide to President Lee Myung-bak, have been arrested for allegedly accepting bribes to help conceal the bank’s operations. The fraud is alleged to have encompassed over US$4 billion, and depositors at the bank, South Korea’s largest savings institution, stand to lose roughly $100 million beyond what is insured by the government, the Joong Ang Daily says.

Officials at the South Korean embassy in Phnom Penh did not respond to a request for comment. Norng Piseth, chief of the real estate division at the Finance Ministry, said he was unaware of the issue. The Busan scandal has drawn the attention of officials at the National Bank of Cambodia, however. The NBC’s financial intelligence unit is now investigating Camko Bank, of which Busan Savings Bank is a major shareholder, though the probe has yet to produce any irregularities, NBC director general Nguon Sokha said yesterday. “If there is something that makes us concerned about the reputation of the banking sector, we will take action,” she said. Camko Bank is set to downgrade from a commercial bank to a specialised bank next month due to an inability to meet the National Bank of Cambodia’s $37 million capital requirement. Specialised banks differ from commercial banks in that they cannot accept deposits. Camko Bank representatives could not be reached for comment yesterday. The proposed $1 billion Siem Reap Airport and satellite city announced last year is being developed by a joint venture whose main investors are South Korea’s Lees A&A Co Ltd and Camko Airport Co Ltd, though this latter firm is not connected with Busan, the Korean Chamber of Commerce’s Nam said. South Korean firms have poured millions of dollars into construction projects in the Kingdom in the last few years, consistently ranking their country among Cambodia’s top foreign investors.

James O’Toole and Don Weinland, Phnom Penh Post, Jun. 7, 2011