Money laundering a costly problem for Cambodia

Written by Kapronasia || October 19 2020

Cambodia has a costly money-laundering problem, both in fiscal and reputational terms. Effective October 1, the EU's revised list of third countries at high risk of money laundering came into effect. Cambodia was one of three newly listed East Asian countries along with Myanmar and Mongolia. Cambodia is also on FATF's money-laundering gray list. Being seen as a high money-laundering risk nation could complicate Cambodia's efforts to woo foreign investment amid the prolonged pandemic-induced downturn. The Cambodian economy is set to contract 4 to 5% this year.

Perhaps more than any other factor, lax regulation of Cambodia's booming gaming industry has fomented money laundering in the Kingdom. Cambodia currently has 193 casinos, but its National Assembly only approved a draft law on commercial gaming management in October. The draft law will implement controls to stymie money laundering and terrorism financing as well as monitor casinos, establish gambling zones and set forth minimum investment thresholds for a new casino.

While acknowledging the Kingdom is moving forward in its fight against financial crime, some analysts are circumspect about the bill's likely efficacy. Sophal Ear, a professor of diplomacy and world affairs at California’s Occidental College, told Casino.org that Cambodia being put on FATF's grey list likely spurred its leaders to take action.

"Clearly, something had to be done to bring Cambodia — at least from a regulatory standpoint — into compliance,” Ear said. “But, as with everything in Cambodia, the devil is in the details, and Cambodia has no compunction about passing a law and totally ignoring it when convenient.”

To be sure, Cambodia has impetus to strengthen its AML/CFT controls. Failure to do so could reduce the Kingdom's ability to attract high-quality FDI, especially in the tech sector. Tech startups have the ability to boost Cambodia's knowledge economy and put the country on the map as an innovation hub. Cambodia has a nascent fintech scene, for instance, but remains better known for low-cost manufacturing and casino gambling aimed at the Chinese market.

Cambodia attracted more than US$3.5 billion in FDI last year, up 12% year-on-year, according to the National Bank of Cambodia. China was far and away the largest foreign investor in the Kingdom, accounting for 43% of the total while South Korea was a distant second at 11%.

Meanwhile, in mid-October Reuters reported that the FBI plans to establish an office at Cambodia’s national police headquarters to help track down U.S. criminals. In a statement, the U.S. Embassy in Phnom Penh did not comment on the office, but said the FBI and Cambodian National Police's task force set up to fight money laundering and other financial crime, as well as crimes against children, is now operational.