Will Cambodia Remain on the FATF Grey List?

The Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, currently places 23 countries, including Cambodia, on its grey list. The list, which is officially called “jurisdictions under increased monitoring”, consists of countries identified by FATF as having “strategic deficiencies” to counter money laundering, terrorist financing, and proliferation financing.

The latest list published in June saw the delisting of Malta but Cambodia remained on the list. Ahead of the June deliberations, the Phnom Penh Post reported the country expected to be removed from the increased monitoring list as it’s officially called.

But FATF decided otherwise pointing to deficiencies in “the freezing and confiscation of criminal proceeds, instrumentalities, and property of equivalent value”. The watchdog adds that Cambodia’s action plan expired in January 2021 and all deficiencies need to be addressed to be delisted. Currently, only one deficiency remains.

Consequences of greylisting include likely increased due diligence of financial institutions on transactions from a listed jurisdiction as well as possible limitations on access to external financing, so it’s no surprise Cambodia wants to get off the list.

The country is aiming to address the remaining issue before the on-site assessment in January by increasing asset freezing and seizing. The Minister of Justice recently instructed courts to “expedite” cases to freeze and seize the assets of criminals, the Phnom Penh Post reports.

Despite the significant improvements, civil society organisations warn against celebrating too soon. In January, Pech Pisey Executive Director at Transparency International Cambodia reportedly said that the country is seen as “a place with a high-risk for money laundering and a place where dirty money without a clear source flows to”.

Landscape of illicit finance

Ongoing illicit activities reported in the country include drug and human trafficking. On 27 July, the Minister of Interior, Sar Kheng met with Vietnamese Deputy Foreign Minister, Pham Quang Hieu to discuss the sticky problems of drugs and human trafficking.

The same month, non-governmental organisations (NGOs) rang the alarm as “Chinese drug lords” established “footholds” in Cambodia spreading from its notorious lawless casino city Sihanoukville.

With gambling banned for Cambodians, Sihanoukville has turned into a territory for Chinese visitors to frequent casinos with Prime Minister Hun Sen eager to welcome Chinese investments along the Belt and Road corridor. Currently, a total of 193 licensed casinos operate in Cambodia attracting tourists and generating revenue for the kingdom.

The casino city also attracts illicit activities. Vice Media reported an increase in forced labour and human trafficking ending up in “industrial scale scam centres” in Southeast Asia including Sihanoukville. Victims are forced to engage in romance scams to extract money from victims, under the threat of rape, violence and forced labour conditions.

Besides NGOs, governments are also pointing to very real illicit finance practices across Cambodia. On 10 November 10 2021 a joint advisory was issued by the U.S. Departments of State, Treasury, and Commerce warning U.S. companies operating in Cambodia to be aware of illicit finance risks.

The advisory mentions risk factors in “finance, real estate, casino and infrastructure sectors” as well as “trafficking in persons, wildlife, and narcotics”. It also sanctioned two government officials for corruption under the Global Magnitsky sanction regime.

Transit hub

Over the last few years, Cambodia has witnessed significant instances of other illicit activities as well from counterfeit products, to scam centres, forced labour, and hard currency smuggling.

Two Chinese suspects, Wang Shiping and Wang Lichao, were accused of arriving in Cambodia from Hong Kong with more than US$3.5 million in cash. The duo claimed to want to invest the money in real estate and hotels but lacked “paper evidence” on the origin of the cash. They were charged with money laundering for the use of “terror financing.”

Worryingly, this is not the only instance of Cambodian officials apprehending individuals illegally transporting hard cash. On 9 July 2019, three Hong Kong men were seized at the Phnom Penh international airport for carrying nearly US$1 million without declaring the import. Two days earlier at the Siem Reap international airport, two Korean residents, Yoon Won-gi and Song Hyun-hoo, were found with US$2.2 million.

More recently in July, a 34-year-old Nigerian man and his Cambodian brother-in-law, Yen Oudom Soriya were accused of scamming Singaporeans and Cambodians out of approximately US$400,000.

Perhaps the most tragic example of illicit activities is “Cambodia’s long history of fraudulent intercountry adoptions” causing “deep and continued suffering,” says Naly Pilorge, the Outreach Director of LICADHO, an human rights group working with affected mothers.

In 2004, an American named Lauryn Galindo was imprisoned for 18 months, as he was committing money laundering by facilitating the adoption of around 800 Cambodian children in the 1990s and 2000s by falsifying their birth documents.

Because of the “murky circumstances“, international adoptions were banned from 2009 until 2014. Last year, LICADHO confirmed that adoptions were happening again while the organisation says the country “still lacks a sufficient child protection system, judicial system and anti-corruption measures to guarantee that adoptions will proceed legally and ethically”.

Considering the ongoing illicit activities and risks in some sectors, even if Cambodia moves toward meeting the FATF requirements, there is still a long way to go to combat illicit activities even if the country would be removed from the grey list. Besides, the country was delisted previously in 2015 before being relisted in 2019 due to significant deficiencies. Let’s not repeat that history in another five years.

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Article by Fatima Abuzar.
Editing by Anrike Visser.