Illicit money

Dirty cash: The struggle to eradicate money laundering from Cambodia

Last week Cambodia introduced new laws to tackle money laundering following an EU ruling placing the country at “high-risk” for illicit cash flows. But experts say it will take extensive efforts and real political will to end the entrenched practice in the Kingdom

July 6, 2020
Dirty cash: The struggle to eradicate money laundering from Cambodia
Cambodian bankers count money in Phnom Penh on 25 May. Photo: EPA-EFE/Kith Serey

When in May the EU classified Cambodia as being extremely susceptible to money laundering, it was an unwelcome development for an economy already teetering from effects of the Covid-19 pandemic.  

Coming 15 months after the Kingdom was re-listed on the “grey list” of the Financial Action Task Force (FATF) in February 2019 – labelling Cambodia “highly vulnerable to money laundering” and lacking political will to tackle it – it cemented Cambodia’s status as a hotspot for illicit flows of money and placed it under the scrutinising eye of financial service providers worldwide. 

But last week, Cambodia took its first concrete steps to put an end to the practice with reports of new laws promulgated by King Norodom Sihamoni carrying punishments of up to five years in prison, while those convicted of financing terrorists could be jailed for up to 20 years.

Experts, however, were unsurprised by May’s listing, and have expressed that it will take extensive efforts and political will beyond these new laws to uncouple the country from the scourge of money laundering. 

Ou Virak, founder and president of Phnom Penh-based think tank Future Forum, emphasised to the Globe how deeply entrenched money laundering is in Cambodia.

“Cambodia is one of the most corrupt countries in Southeast Asia – you just have to look at the lack of governance on this issue,” he said. In January this year, Cambodia was once again ranked as Southeast Asia’s most corrupt country, ranking 162nd globally on the 2019 Transparency International Corruption Perceptions Index.

“If you look back at the last four years and the influx of casinos and cash, there’s a lot of shadowy economic activity going on,” he added.

Casinos in the country – frequented by national and foreign high-rollers alike – have long been under the spotlight as vehicles for illicit flows of cash, with the FATF saying in October last year that the Kingdom’s casino sector posed a serious risk to anti-money laundering and counter-terrorism financing efforts. To date, over 160 casino licences have been granted by Cambodian authorities, most of which given to operating, or planned, establishments within Preah Sihanouk province, a hot-bed for Chinese gambling dollars in the seaside town of Sihanoukville.

The EU’s “high-risk” assessment on May 7 cited Cambodia’s deficient attempts to quash money laundering, as well as poor efforts to counter terrorism financing. The assessment looks at the criminalisation of money laundering and terrorist financing inside the country, due diligence measures, reporting of suspicious transactions and the existence of dissuasive, proportionate and effective sanctions – among others. 

With Cambodia’s economy taking a hit thanks to the global economic downturn in recent months, this recent classification has only added further uncertainty. And while no sanctions will be imposed, an asterisk will now accompany the country, potentially unsettling investors to the country. 

Last week’s laws, comprising nine chapters and 47 articles, appear to be the Kingdom’s most comprehensive bid to date to curb the practice, ensuring that banks, financial entities, businesses and casinos better regulate their monetary activities and store detailed information about clients and transactions. 

A step in the right direction perhaps, but anti-money laundering leader at Deloitte Southeast Asia Radish Singh echoed Virak’s sentiment, saying Cambodia had consistently failed to tackle the problem and played host to money laundering for too long.

“The listing follows the FATF’s action to place Cambodia on its own money laundering list in 2019 – the EU has followed suit, which is not surprising,” explained Singh. “The issue with Cambodia is that it continues to demonstrate strategic deficiencies.”

Money laundering in the country can be traced to different sources and financial crimes in Cambodia, she continued. 

“The country has long been susceptible to various financial crimes such as fraud, corruption, trafficking and smuggling,” said Singh. “Recently, the National Bank of Cambodia acknowledged money laundering risks emanating from the Covid-19 pandemic, which has further burdened its system in combating illicit activities.”

A murky business, just how high money laundering goes in the Kingdom remains uncertain. But a Reuters report from October last year unveiled that Cambodian elites, including Prime Minister Hun Sen’s immediate family and government officials, hold tens-of-millions in assets in European Union nation Cyprus as part of a scheme exchanging cash for citizenship. An investment plan initiated in 2013 to boost an ailing Cypriot economy, a 2-million-euro ($2.2 million) investment is able to purchase a “golden passport”, and therefore visa-free travel throughout the EU.

Pech Pisey, executive director of anti-corruption organisation Transparency International Cambodia, also highlighted two recent cases that illustrate the scale of the problem within Cambodian borders.

“Cambodian authorities have acknowledged the existence of money laundering attempts in the country,” said Pech. “In 2019, the authorities seized $4 million in cash at Phnom Penh International Airport while in the same period, approximately $10 million of dirty money was detected flowing through banks.”

The placement of Cambodia on the EU list – on to which 11 other countries, including Myanmar, were also added – will have an impact on the Kingdom’s economic prospects as its international standing takes a hit, he added. “It means a lot for Cambodia,” said Pech. “It will likely damage the reputation of the country, as the EU is a big player in the world order.”

This reputational impact will have an effect on Cambodia’s ability to operate economically, with citizens and corporations operating outside the country treated as high-risk, while transactions originating from, or going to, Cambodia will be subject to increased scrutiny.

“Weak [money laundering prevention] frameworks,” said Singh, “Can also make it difficult for the country to obtain technical and financial assistance from bodies like the IMF and World Bank.”

One of the main reasons that the country was placed in the list was due to the fact that no money-laundering case had even been prosecuted in Cambodia

Cambodia will not just feel the effects of the EU classification, however. Money laundering itself is destabilising and has a detrimental impact on the wider national economy. “Money laundering is devastating for any country,” said Pech. “It cripples economies, distorts international finances and harms citizens because state resources are being stolen for certain enrichment; tax to the government is not paid and the country’s resources are drained.”

Cambodia needs to construct a path away from money laundering, and may do well to cast an eye over the border to its neighbour, Laos. The country was previously classified as “high-risk” by the EU, but after the Laos government enhanced its financial transparency and prevention on money laundering it was removed from the list at the May ruling. 

“It managed to strengthen its penal code, enter into agreements with neighbouring countries to share information as well as establish new mechanisms for co-operation between its security forces, judiciary and the banking sector,” Singh explained.

Like Laos before it, reversal is possible for Cambodia, but it will require commitment from the government. While ruling Cambodian People’s Party lawmaker Serey Kosal recently cited measures like a December ban on all online gambling as an initiative taken to curb money laundering, Pech said a lack of legal action is a telling sign.

“One of the most important things that the government can do is the enforcement of regulations,” Pech said. “One of the main reasons that the country was placed in the list was due to the fact that no money-laundering case had even been prosecuted in Cambodia.”

With the pandemic momentarily putting normal business on hold, Covid-19 has provided respite for the government to start pursuing remedies. With the list of high-risk countries not coming into effect until October 1, with all the increased scrutiny that entails, Cambodia still has time to put a plan in place to address its deficiencies, starting with the recently enacted laws. 

“We have witnessed that the government respond by drafting and adopting the law on Anti-Money Laundering and Combating the Financing of Terrorism,” said Pech. “If the law is properly enforced, it would be a step to reverse the trend. However, we are not sure how far the government’s actions will go and whether they’re going to be enough to convince the EU to delist the country in the future.”

Read more articles