LINES OF THOUGHT ACROSS SOUTHEAST ASIA

Southeast Asia Globe is member-supported publication featuring in-depth journalism that promotes a more informed, inclusive and sustainable future. Members work with our team to shape our editorial direction and hold us accountable.

 

Be a part of the story. Subscribe today!


Money laundering

Cambodia remains a regional money laundering centre

Transparency International finds widespread cash transactions in gambling and real estate leave the Kingdom wide open for illegal exchange

April 20, 2022
Cambodia remains a regional money laundering centre
People walk past a casino in Sihanoukville in February 2020. After a money laundering crackdown in Macau, Cambodia registered a significant increase in casino licences. Photo: Tang Chhin Sothy/AFP

Cambodia Minister of Interior Sar Kheng understands the impact that money laundering can have on his nation.

“Our country’s reputation is at stake,” Sar Kheng said in July 2020. “If [the Financial Action Task Force] consider Cambodia a money-laundering destination, it will badly impact our banking system, including the national bank and private banks.”

Two years later, money laundering continues to be rampant in Cambodia.  

The Kingdom has been under the eye of the Financial Action Task Force (FATF), a global money laundering and terrorist financing watchdog, since 2019 when Cambodia was placed on the organisation’s ‘grey list.’ 

Overseen by FATF and similar regional organisations, the grey list register includes countries undergoing increased financial monitoring. Neighbouring Myanmar also is on the grey list.

FATF, a policy body including more than 200 nations and jurisdictions, additionally has a ‘black list’ of countries in high-risk jurisdictions that have been identified as requiring “countermeasures to protect the international financial system from the money laundering, terrorist financing, and proliferation financing… risks emanating from the country.” 

As of February 2020, only two countries were on the black list: North Korea and Iran.

Apart from the ranking on FATF’s grey list, Cambodia placed 11 out of 110 on the Basel Anti-Money Laundering Index 2021, a compilation of nations considered at high risk for money laundering and terrorist financing. Myanmar placed third.

In response to the Kingdom’s FATF grey list ranking, the government made a ‘high-level political commitment’ to strengthen its anti-money laundering (AML) regime in 2020.

The country issued a new law on AML and Combating the Financing of Terrorism (CFT), known as the AML/CFT Law, in which Cambodia seeks to address and identify the risks of money laundering.

Cambodian Prime Minister Hun Sen, right, speaks with Minister of Interior Sar Kheng, who has discussed the implications of the the Financial Action Task Force placing the Kingdom on its money laundering watchlist. Photo: Tang Chhin Sothy/AFP

Money laundering is conducted by taking large sums of cash from illicit sources and breaking them into smaller, inconspicuous amounts. The funds are injected and reabsorbed into a nation’s financial system through legal transactions that subsequently wash away the illegal elements and leave legitimate profits. 

Investigating money laundering isn’t clear cut. Although the adoption of new AML laws are a step in the right direction, analysts say there are many deficiencies to be addressed in Cambodia.

A 2021 report by the Cambodia office of anti-corruption organisation Transparency International stated that not a single case of money laundering was prosecuted prior to 2016. The organisation narrowed down the most rampant money-laundering areas to casinos and real estate.

“Given its opaque nature, it is difficult to estimate the amount of money laundered through the casino and real estate sectors in Cambodia and to determine the exact ways by which money laundering is facilitated through both sectors,” said Pech Pisey, executive director of Transparency International Cambodia.

“What we do know is that, worldwide, both sectors have always been attractive targets for criminal groups and networks wishing to ‘clean’ their dirty fund,” Pisey said. “This is particularly true for the gambling and real estate industries in countries with high levels of corruption, a weak judiciary, and loose oversight of non-financial institutions.”

The Phnom Penh Post reported in 2020 that Cambodia investigated 140 money laundering cases from January to June 2020. Among those, 22 cases were sent to court and five went to trial. All of the trial cases involved Chinese nationals bringing cash through the country’s airports. 

The focus on Chinese nationals was not explained, but Pisey said the report reflects the need for thorough investigations to determine the scale and root of the crimes.

“It is fair to say that money laundering activities could not be implemented without a network of support, which may or may not include a local patronage network,” Pisey said.

A United Nations Office on Drugs and Crime (UNODC) study in 2019 suggested illicit operations previously based in Macau, a Chinese special administrative region, appeared to have shifted to Southeast Asia. The operators displayed a preference for the Mekong River region where there is less regulatory supervision and enforcement capacity. 

Because the rule of law in Cambodia is notoriously weak, any growth of the gambling industry should certainly increase the risk of money laundering”

Pech Pisey, executive director, Transparency International Cambodia

After the money laundering crackdown in Macau, Cambodia registered a significant increase in casino licences. 

“The number skyrocketed from 57 in 2014 to 150 in January 2019,” said Fabrizio Fioroni, a regional UNODC advisor. “It might happen again that the Mekong region will be used by criminal organisations and Cambodia should quickly increase efforts to prevent further money laundering.”

“Because the rule of law in Cambodia is notoriously weak, any growth of the gambling industry should certainly increase the risk of money laundering,” Pisey said.

While casinos are not financial entities by definition, Pisey said casinos engage in financial activities comparable to financial institutions such as receiving, exchanging and transferring money and renting safety deposit boxes.

Money laundering through casinos takes many forms. In some cases, dirty money is converted into gambling chips and later cashed out. 

“The gaming industry is one of the few industries [where] cash transactions are still dominant,” said Lawrence Shen, a financial analyst and partner with C3 Gaming, a casino consultancy.

The UNODC reported casino complexes in Cambodia’s border areas and Phnom Penh are highly susceptible to bulk cash smuggling and laundering for organised crime revenue.

“Both the gaming industry and real estate industry conduct higher numbers of large money transfers than average industries,” Shen said. “These make it easier for criminals to hide illegal transactions or disguise money laundering actions as legit ones.”

Pisey explained how money laundering through real estate functions differently than gaming. Money is usually changed by manipulating property prices, filtering through cash loans and reselling the property.

“The boom in the property market in Cambodia over the past decade, in which the value of assets and volumes of cash transactions have dramatically increased,” Pisey said. “Combined with lax regulation, it has also heightened the risk of money laundering in the sector.”

Kim Heang, CEO of Khmer Real Estate, told German broadcaster Deutsche Welle in 2020 that most new luxury condominiums in Cambodia are sold to clients from China, Taiwan and Singapore. Watchdogs like FATF raise concerns about the financing of condos costing millions of dollars.

The Transparency International Cambodia report said a gap in the Kingdom’s AML measures can be attributed to a lack of government regulation concerning “beneficial ownership,” meaning control of a legal entity or arrangement such as a company.

“Identifying beneficial owners of property is not the norm. Oversight of foreign entities and persons owning land property is weak,” Pisey said. “There is also a lack of sanctions on real estate professionals and businesses for involvement in money laundering.”

Based on Transparency International Cambodia’s report, while AML requires companies to identify beneficial owners, they are not mandated to share the information with Cambodian government agencies. Moreover, there are no requirements for family members of public officials to declare assets and liabilities. If any assets are declared, official records are sealed from the public unless allegations of corruption arise.

Corruption and money laundering are closely linked. The perception of a nation carrying a high risk of money laundering can threaten its appeal to foreign investment, Transparency International Cambodia said.

The International Monetary Fund’s findings that Cambodia’s placement on FATF’s grey list could result in an average yearly decline of 7.6% in gross domestic product, which in return may burden public businesses.

“The government’s ability to combat money laundering is hampered by corruption within some law enforcement agencies, low capacity, and a weak and deeply politicised court,” Transparency International Cambodia’s report said.

Fioroni noted, “This is the prize that regular citizens will pay… because of Cambodia’s exposure to money laundering.”

Shen said the gaming and real estate industries need government approvals. In some cases, favourable decisions by authorities “could mean billions for companies.” 

“Thus, corruption could happen under the table and money laundering is sometimes an important channel in corruption,” Shen said.

Transparency International Cambodia provided recommendations to curb money laundering.

They include strengthening the operational independence and capacity of the Cambodian Financial Intelligence Unit, enhancing dissemination of financial intelligence for high-risk crimes to law enforcement, enhancing AML in non-financial sectors and increasing awareness of private sector sanction evasion and the proliferation of financing for nuclear, chemical or biological weapons.

Shen explained some major casino operators have used artificial intelligence programmes as a part of their AML strategies, including technology to identify suspicious gambling patterns, crosscheck databases and spot red flags in financial statements and transactions.

Owners and operators of legitimate firms should not be afraid of turning away “questionable business” if there is any chance the transactions contribute to illegal cash laundering, Shen said.

“No suspicion is too small and early actions could save huge legal and financial trouble down the line,” Shen said.


This article is a part of an ongoing partnership with Transparency International Cambodia meant to accentuate issues along with practical solutions concerning good governance and anti-corruption in Cambodia. Learn more about the partnership here.



Read more articles