Cambodia's anti-money laundering agency is unable to investigate or penalise financial institutions that break the law, leaving the country open to exploitation by organised crime, according to a senior official in the unit.
The Financial Action Task Force (FATF) – the top international anti-money laundering and counterterrorism financing body – ceased its monitoring of Cambodia in February, even though the Financial Intelligence Unit (CAFIU), the state agency tasked with investigating and prosecuting financial crimes, was so under-staffed and under-resourced it had not investigated a single financial institution since its founding in 2008.
In early 2014, Cambodia was downgraded to FATF’s “dark-grey list” for lacking an asset-freezing instrument or a currency declaration system. The downgrade left the Kingdom just one step away from being blacklisted as a high-risk jurisdiction.
The government passed a sub-decree only a month later, which amended the 2007 Anti-Money Laundering Law to meet FATF’s requirements, leading the body to remove Cambodia from the list.
However, despite the progress on paper, CAFIU adviser Phan Ho told Daniel Glaser, assistant secretary for terrorist financing at the US Treasury Department, that while the unit was “working very hard to enforce” the law it “had only 10 people to inspect 38 banks and 37 [micro-finance institutions]”.
As a result, the CAFIU “had never fined, sanctioned or penalised any financial institution in Cambodia”, Ho said, according to a classified US State Department cable obtained by the Post.
A major cause for concern was the gambling industry, as Ho admitted that the CAFIU had not received a single suspicious transaction report from any of Cambodia’s casinos, most of which are foreign-owned.
Casinos have been legally required to report suspicious transactions to the CAFIU, a division of the National Bank of Cambodia, since the law came into effect. Not doing so can result in steep fines and even the company’s dissolution if serious negligence occurred.
Ho, of the CAFIU, this week declined to comment on the work of the agency. Several members of the National Coordination Committee on Anti-Money-Laundering and Combating the Financing of Terrorism, including Prime Minister Hun Sen’s son-in-law, Dy Vichea, could not be reached.
Aun Porn Moniroth, the minister of economy and finance, assured Glaser that Cambodia would “spare no efforts to improve the [anti-money laundering] system”, but admitted that “legal loopholes” remained a “serious obstacle to further progress in financial sector regulation”.
Porn Moniroth blamed the shortfalls on dramatic economic growth over the past decade, combined with a lack of resources and a historical reliance on cash-based transactions.
The unregulated financial sector, coupled with a tightening of restrictions in Myanmar and China in recent years, has also increased the likelihood that North Korea will look to Cambodia to access the formal financial sector, circumventing sanctions to fund its nuclear and ballistic-missile programs, the State Department cable reads.
Opposition MP Son Chhay, vice chair of the National Assembly’s finance and audit commission, said “Cambodia has become a heaven for this kind of activity”.
“We’re losing something like $300 million a year. Money is not just flowing in, it’s flowing out,” he said. “The government does not have a commitment to this issue. They seem to believe that money laundering supports the economy. We don’t have the political will or commitment to address the issue.”
Chhay added that while banks appear to be in better shape, the lack of a law regulating casinos had left the door open to organised crime, including drug- and people-trafficking groups.
Lorien Pilling, the director of UK-based Global Betting and Gaming Consultants, said that it was unheard-of for a regulator not to receive any reports of suspicious transactions.
“The nature of the casino business – cash-based and with a high frequency of transactions – means that it is more likely than some other business sectors to see suspicious activity with regard to crimes like money laundering,” he said.
Casinos in Cambodia are required to report transactions of $10,000 or more, as well as others deemed “suspicious” under the rules.
“Given that the majority of Cambodia’s casino visitors are foreign nationals, a rigorous approach to suspicious transactions is all the more important. In any market, it is vital for casinos to know their customers and to prevent gaming floors from being used to launder the proceeds of crime,” Pilling added.
Most of Cambodia’s more than three dozen casinos are clustered near the borders with Thailand and Vietnam. The US in 2009 reported that the majority of these establishments use Vietnamese and Thai bank accounts to obscure the flow of money.
Several leading casinos either declined to comment on their reporting practices or did not respond to repeated requests for comment. NagaCorp Ltd, owner of the mammoth NagaWorld casino in Phnom Penh, commissioned an independent review of its own internal anti-money laundering practices late last year, the results of which are due to be published in its annual report in early 2016.
The management of NagaWorld, which reported profits of $101 million for the first six months of the year, did not respond to requests for comment.
In Channy, the CEO of Acleda Bank, said that he could not comment on the gambling industry, although he told Glaser back in 2014 that fraud and lottery schemes were also “major illicit finance risks to the banking system”.
In an interview this week, he said that many banks were kept in check by their partner institutions in other countries where there is stricter enforcement of anti-money laundering laws.
“You could say that all banks comply. If you don’t comply, you will lose your business. If you don’t comply, it may be that your partner will reject you. Not only the bank in Cambodia will have a problem, the banks in the US will also be in trouble.”
The US Treasury Department said in a statement that FATF had decided that the necessary laws and regulations were passed making Cambodia “technically compliant” with its pledges. It said that some “outreach” to casinos had been done by the CAFIU, but encouraged the government to “ensure that the law is being enforced”.
The government formed a new inter-ministerial working group on money laundering last month ahead of an assessment by the Asia/Pacific Group on Money Laundering due late next year.
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