After Trafficking Downgrade, Focus Shifts to Money Laundering Monitoring Deadline

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Cambodia has long been flagged for money laundering activity, raising concerns among commentators that rising illicit flows of money could lead to potential repercussions, much like the country’s poor showing in a recent trafficking report.

Last week, the U.S. government downgraded Cambodia on its global “Trafficking in Persons” report, putting the country at “Tier 3,” the lowest rank in the evaluation. The report cites both the recent trafficking of foreigners into Cambodia to work at scam operations and longstanding abuses faced by Cambodian workers in the country and overseas.

Cambodia could face repercussions arising from the report, including the potential reduction of aid from the U.S., but these actions are not mandatory and are a political decision in the hands of the U.S. president. 

Pech Pisey, director of Transparency International Cambodia, said the development has hit Cambodia’s reputation, adding that the number of criminal enterprises in Cambodia could rise if preventive measures were not put into place. 

“When our country is involved, it will automatically be that we can be a land at risk of being involved in money laundering, which is a big problem for the flow of money transfers into Cambodia.”

Yong Kim Eng, president of the People’s Center for Peace and Development, warned that Cambodia may face additional obstacles from financial institutions unless the government punished corrupt officials. 

“We have to try and strengthen the court system strongly and clearly punish those involved [in money laundering] and dare to punish them without tolerance,” he said. 

Interior Minister Sar Kheng lambasted the report last week, at first questioning why Cambodia had fallen in the rankings when it was already cooperating with the U.S. and other civil society organizations on human trafficking, while simultaneously asking that this assistance nevertheless continue. 

“Please confirm that we still have willingness [to cooperate] and we will tighten this work. I will work with my colleagues to thoroughly check that, [but] what issue still remains? And why did it become like this?” he said.

Cambodia has been flagged for years about money laundering activity by several international groups, and is facing an important deadline in October set by a global money laundering watchdog.

The UN Office on Drugs and Crime has pointed out several sectors where money laundering thrives in Cambodia: illegal logging, casinos, drug production and corruption among officials.

The U.S. government has placed sanctions on individuals in Cambodia —like logging tycoon Try Pheap where they have pointed to his network of money laundering linked to deforestation activities in Cambodia’s protected areas.

UNODC has also noted that Cambodia’s casinos — built in a country where Cambodians are banned from gambling — offer an “extremely attractive option for money launderers,” and that intermediaries like junket operators are unregulated in Cambodia. In a 2015 workshop, UNODC highlighted the casinos in Poipet, noting that an estimated $12 million crosses the Thai-Cambodia border daily, even though both countries’ nationals are banned from gambling. 

Cambodia was placed on a watchlist in 2019 by the Financial Action Task Force, a global group that monitors money laundering and terrorism financing. The organization said that Cambodia had made an action plan to combat money laundering, but the plan has since expired and the country hasn’t made an effort to freeze and confiscate criminal assets and profits. 

While Cambodia had improved in some of its regulations and monitoring in an update last year, the agency noticed that Cambodia had taken no action to assess risk or regulate potential money laundering in “virtual assets,” such as cryptocurrencies and businesses that accept them. The progress report also noted that Cambodia’s ability to cooperate with other jurisdictions in investigating money laundering has been “patchy.”

Investigations into Cambodia’s nebulous scam industry appear to show that its operators benefit from these weaknesses: scam workers say they have been using well-known cryptocurrency exchanges to deceive people into investing through links that they secretly rigged.

The FATF said it will issue a decision on Cambodia’s performance in October. Only two countries — North Korea and Iran — are on the FATF blacklist, and if Cambodia were downgraded on this list, it could also face sanctions from member nations, which include the U.S., China, several E.U. countries, Japan and South Korea.

Ros Phearun, deputy director of the Finance Ministry’s casino department, said Cambodia had met the FATF’s requirements, despite the June warning.

“We have met all criteria of FATF recommendations and [immediate outcomes], particularly [in the] commercial gambling sector,” he said, adding that money laundering monitoring is integrated into the new gambling management law.

Phearun also said they would “cooperate with relevant agencies” on regulating the use of cryptocurrency in casinos, but he didn’t specify what actions were being taken.

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