How can Cambodia fix its financial crime problem?

Written by Kapronasia || February 28 2022

Lax anti-money laundering (AML) controls resulted in Cambodia being placed on FATF’s grey list once again in February 2019. Since then, Cambodia has been trying to improve its AML capabilities but running into one obstacle after another. In Nov. 2021, the United States Department of State cautioned businesses about the risks of doing business in the kingdom in a new report, citing risks for the financial, real estate, casino, and infrastructure sectors.

The State Department’s report noted that in its Global Competitiveness Report 2019, the World Economic Forum ranked Cambodia 134 out of 141 countries for incidence of corruption.  Transparency International’s 2020 Corruption Perceptions Index ranked Cambodia 160 of 180 countries globally, the lowest among ASEAN countries.

Deep-seated systemic corruption is not something that can improve overnight, but at the same time, Cambodia is highly motivated to increase its attractiveness as a destination for high quality foreign direct investment, given the many benefits for the broader economy. To date, the largest foreign investor in the kingdom has been China. Beijing invested about US$2 billion in Cambodia in the first half of 2021, according to Chinese Ambassador Wang Wentian, more than any other country. Major Chinese-invested projects include the Phnom Penh-Sihanoukville Expressway, a coal-fired power station in Preah Sihanouk province and the Siem Reap-Angkor International Airport.

Yet in addition to funding important infrastructure projects, China is also a top investor in less utilitarian sectors in Cambodia, such as the kingdom’s shady casino gaming sector. The surge in casino licenses – a 263% increase between 2014 and 2019 – has increased the risk of money laundering and other illicit activity. Regulators have not been able to keep up with the fast pace of growth (though the Cambodian government banned online gambling in 2020). As a result, the casinos have attracted “organized crime elements” that invest in the gaming facilities and use them to launder money.

Before the coronavirus pandemic grounded international travel, Cambodia was a top destination for Chinese gamblers. Yet given the pandemic’s effect on international travel and China’s zero Covid policy, Cambodia should consider further reducing the footprint of the casino gaming sector while implementing regulations to curb financial crime risk as needed. While gaming may create jobs, the risks are manifold, and as a developing country Cambodia has limited capabilities to manage them. Further, China is keen to reduce problematic financial outflows such as the type that used to make their way to Cambodian casinos with regularity before the pandemic.

Meanwhile, Phnom Penh should focus on stamping out illicit activity in its growing financial services sector, which offers many more benefits to the overall economy and people’s livelihood than casino gaming. New AML/CFT legislation that came into effect in June 2020 is a good first step. Compared to a similar 2007 law, this more recent one has more specific definitions, a requirement for reporting entities to introduce enhanced due diligence measures, and higher penalties for non-compliance.

Training is also paramount. Cambodian authorities must better understand how to identify and mitigate financial crime risk. To that end, Cambodian law enforcement officials will benefit from regularly attending trainings such as the workshop held on January 31 by the United Nations Office on Drugs and Crime, the Australian Embassy in Phnom Penh and the Central Security Department.

The Cambodian financial sector itself also must strengthen its ability to combat illicit money flows. It is unclear how much progress is being made in that area. The Cambodia Financial Intelligence Unit (CAFIU), the National Bank unit responsible for combating money laundering, told Cambodia’s VOD in 2020 that it had been “working very hard” to delist the country from FATF’s grey list but did not offer many specifics.