Cambodia

Cambodia is one of the poorest countries in the world but its economy is improving fast. Since 2004, garments, construction, agriculture, and tourism have driven Cambodia's growth. GDP climbed more than 6% per year between 2010 and 2012. The garment industry currently employs more about 398,000 people and accounts for about 70% of Cambodia's total exports. In 2005, exploitable oil deposits were found beneath Cambodia's territorial waters, representing a potential revenue stream for the government, if commercial extraction becomes feasible. Mining also is attracting some investor interest and the government has touted opportunities for mining bauxite, gold, iron and gems. The tourism industry has continued to grow rapidly with foreign arrivals exceeding 2 million per year since 2007 and reaching over 3 million visitors in 2012. Cambodia, nevertheless, remains one of the poorest countries in Asia and long-term economic development remains a daunting challenge, inhibited by endemic corruption, limited educational opportunities, high income inequality, and poor job prospects. Approximately 4 million people live on less than $1.25 per day and 37% of Cambodian children under the age of 5 suffer from chronic malnutrition.

Although underdeveloped, Cambodia remains vulnerable to money laundering due to its weak anti-money laundering regime, a cash-based economy with an active informal banking system, porous borders with attendant smuggling, and widespread official corruption.

Cambodia has a significant black market for smuggled goods, including drugs and imported substances for local production of methamphetamine. Both licit and illicit transactions, regardless of size, are frequently done outside of formal financial institutions  and are difficult to monitor. Cash proceeds from crime are readily channeled into land, housing, luxury goods, and other forms of property without passing through the formal banking sector.  Casinos along the borders with Thailand and Vietnam also are another potential avenue to convert illicit cash.

The National Bank of Cambodia (NBC) has made some strides in recent years by beginning to regulate the small official banking sector, but other non-bank financial institutions, such as casinos, remain outside its jurisdiction although the Ministry of Interior has legal responsibility for oversight of the casinos and providing security, it exerts little supervision over them.

The NBC has oversight responsibility for the banking sector and, with relatively small numbers of transactions and deposits in the system, believes it exercises comprehensive oversight. There are no reports to indicate that banking institutions themselves are knowingly engaged in money laundering.[1]

The major non-bank financial institutions in Cambodia are the casinos, where foreigners are allowed to gamble but most Cambodians are not. The regulation of casinos falls under the jurisdiction of the Ministry of Interior, although the Ministry of Economy and Finance issues casino licences. The Interior Ministry stations a few officials at each casino on a 24-hour basis. It does not appear that Interior Ministry staff at the casinos exercise any actual supervision over casino operations, beyond making sure that the Ministry receives its share of casino payouts that ensures security for the casinos.

Cambodia’s law enforcement bodies are chronically under resourced and lack even basic relevant training. This is in addition to serious corruption.[2] 

In 1996, Cambodia criminalized money laundering related to narcotics trafficking through the Law on Drug Control. In 1999, the government also passed the Law on Banking and Financial Institutions. These two laws provide the legal basis for the NBC to regulate the financial sector. The NBC also uses the authority of these laws to issue and enforce new regulations. The most recent regulation, dated October 21, 2002, is specifically aimed at money laundering. The decree established standardized procedures for the identification of money laundering at banking and financial institutions. In October 2003, the NBC issued a circular to assist banks in identifying suspicious transactions. In addition to the NBC, the Ministries of Economy and Finance, Interior, Foreign Affairs, and Justice also are involved in anti-money laundering matters. The 1996 and 1999 laws include provisions for customer identification, suspicious transaction reporting, and the creation of an Anti-Money Laundering Commission (AMLC) under the Prime Minister’s Office. The composition and functions of the AMLC have not yet been fully promulgated by additional decrees. A Sub-Decree on the composition and duties of AMLC has been drafted but is unlikely to be passed until passage of the new anti-money laundering legislation. The NBC currently performs many of the AMLC’s intended functions.

In June 2004, Cambodia joined the Asia/Pacific Group on Money Laundering (APG), a Financial Action Task Force (FATF) regional body. The APG has 30 members, including the U.S. Among its activities, the APG conducts mutual evaluations of members’ anti-money laundering and terrorism financing efforts. The APG planned to conduct an evaluation of Cambodia in 2005 but the Cambodian government requested that the APG delay its evaluation until after the passage of the draft Law on Anti-Money Laundering. The government also plans to work with the APG members to establish a Financial Intelligence Unit (FIU). According to the draft law, the FIU will be placed under the control of the NBC with a permanent secretariat working under the authority of a board composed of the senior representatives from Ministries of Economy and Finance, Justice, and Interior. In order to decide where to locate the FIU, an “unofficial” Anti-Money Laundering Committee was formed recently, consisting of the NBC and the Ministries of Commerce, Foreign Affairs, Finance and Justice. The Committee held its first session in December 2004.

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[1] The NBC regularly audits individual banks to ensure compliance with laws and regulations. There is a standing requirement for banks to declare transactions over $10,000. The NBC says its audits reveal that this requirement is generally followed. A more likely route for larger scale money laundering in Cambodia is through informal banking activities or business activities. Neither the NBC nor any other Cambodian entity is responsible for identifying or regulating these informal financial networks or activities. With increased political stability and the gradual return of normalcy in Cambodia after decades of war and instability, bank deposits have continued to rise and the financial sector shows some signs of deepening as domestic business activity continue to increase in the handful of urban areas. Nevertheless, foreign direct investment in the general economy remains limited, and is on a downward trend, largely due to the high risks of doing business in Cambodia, including an incomplete legal framework, inadequate legal enforcement, and official corruption.

[2] The long history of internal disputes mean that the country has endemic corruption problems, which are further exacerbated by low levels of pay for civil servants, a weak judicial system, and a perception that justice can be “bought”. However such corruption and money laundering are merely two difficulties in a country that is poor, fragile and developing. One of the most difficult issues is that this state of affairs makes the country particularly vulnerable to organized crime groups, especially bearing in mind the country’s position as a transit country for heroin from the Golden Triangle.