Chinese authorities are coming down hard on online gambling. Similar events are starting to happen in Cambodia, raising questions as to how all of this will end

It is 1:30pm, Sotheary (not her real name) is sitting on the wooden floor of her house, facing a mirror propped against the wall as she combs her hair, letting it slide over her shoulders.

She finishes her make-up with some blusher, slaps on a liberal amount of red lipstick, and checks herself in the mirror one last time.

“The make-up has to be heavy, so we look good on camera,” she quips, grabbing her handbag on her way out.

The 26-year-old is off on her motorcycle, manoeuvring through a warren of potholed dirt paths to the main road of Sihanoukville’s city centre, promptly arriving at her workplace, a beach hotel where she enters through the back door, evading attention.

Five floors above, a supervisor looks at her watch, keeping a hawk eye over the quiet operation before her. Spread across the dark-coloured carpet are casino tables with overhead video cameras pointed at female dealers, or croupiers as they are known, dressed in black corsets, bosoms pushed up.

All the time smiling, the croupiers deftly deal cards in a game of baccarat, black jack or Texas hold’em to players on the other end who convey instructions and place bets via functions on the establishment's website.

This was last year. Two months ago, Sotheary lost her job as her employer refused to renew her contract along with a few others because their “customers were always winning”.

“I am still looking for another job but most of the casinos are closed. Being a croupier is the only job I know how to do well,” said the mother of one, who remains unemployed.

As Covid-19 marches on, casinos in Cambodia remain shut in compliance with the pandemic restrictions. However, it has become common knowledge that online gambling, whose websites feature a myriad of live casino games as well as slot machines, roulette, sports betting, lottery and poker, persisted in the shadows despite a government ban on operations that came into force on January 1 last year.

Recent news reports of crackdowns on the activity in nondescript premises in Phnom Penh including one in Daun Penh district and a massive raid by the Military Police at a condominium tower in Boeung Keng Kang I commune –with the arrests of over 100 foreign nationals, and grim details of alleged human trafficking and abuses – only confirmed suspicions of its veiled continuity all these years.

For Sotheary and many casino workers, who had lost their jobs on the heels of the ban, and later with the closure of casinos at the height of the pandemic, were thankful that online operators were still hiring.

“But they only look for good-looking people,” she said, adding that she was offered work by a Cambodian recruiter, acting as an agent for the operator, via a social messaging app in April last year.

Preah Sihanouk Provincial Hall spokesman Kheang Phearum told The Post that online gambling operators at the time were riding out the tenure on their licences.

In March this year, Macau-based Asian Gaming Brief (AGB) wrote an editorial quoting industry expert Ben Lee, managing director of iGamix Management & Consulting Ltd, who expressed shock over the sector’s activity in Sihanoukville.

“We just [completed] a site survey in Cambodia for a client [in February] … the fact that online gambling is coming back is a surprise,” Lee told AGB, pointing out there was “significant video streaming going on and there is still an army of telemarketers”.

In a text message to The Post, he alleged that the area around the Golden Lion Circle, an iconic roundabout in the centre of coastal city Sihanoukville, was rife with such activities.

However, a site visit last December as well as news reports later confirmed that similar opearations were also present in China City, a mixed development project on Otres Beach.

A snapshot of Nagacorp Ltd’s casino earnings for the first half of 2021.

Learning about this during the survey, Lee noted that online games were being hosted from the top floors of some of the “shuttered casinos and hotels”, away from the public’s eyes.

It is a notion backed by Sharon Singleton, managing director of AGB, an online intelligence service that provides market information on gaming issues. She alleged that many of the casinos in Sihanoukville were “little more than a front for the online gambling industry, with operators live-streaming table games to clients elsewhere, predominantly in China”.

In fact, a manager of WM Hotel and Casino who was interviewed last year said: “On the exterior, the buildings might look empty, abandoned or locked up but inside these buildings, including established casinos, online gambling is going on.

The persistence of online gambling in Cambodia has no correlation with the pandemic-driven closure of the casinos, Lee asserted.

Its continued existence is down to the lucrative earnings that operators make from players. Even more so in the last 12 months, after the global online gambling market grew to $64.13 billion in 2020, as reported by Research and Markets.

According to ResearchandMarkets.com, the value is expected to expand to $72.02 billion this year while London-based tech research and advisory firm Technavio estimated the size of the market to balloon to $114.2 billion by 2024.

“About 36 per cent of that growth will likely originate from Asia Pacific,” Technavio said last year.

Back home, the market value of the segment has halved, indicating a smaller playing field since the ban, where gross gaming revenue (GGR) stood at around $2 billion compared to some $5 billion three years ago, Lee said.

What makes Cambodia an attractive location for such operators could be related to reasons both acrimonious and compelling. This, despite the legalisation of online gambling in the Philippines.

However, Lee offered that Philippines has a reputation for “slaughtering the proverbial golden goose”.

“Their ambitious taxes but most importantly their hidden taxes, ranging between 20 and 50 per cent, have always been a deterrent to long-term foreign investment,” he commented.

Steve Vickers, CEO of Hong Kong-based Steve Vickers and Associates Ltd, shared that while the Cambodian authorities no doubt seek to curtail illegal gaming, their capacity is limited and the reach and power of organised crime is extensive.

“For its part, the Chinese government is seeking to limit offshore gaming, in the Philippines and in Cambodia, amongst other destinations, but will face a challenge in terms of enforcement, particularly in overseas locations.

“It is that regulatory arbitrage which has allowed for the expansion of the gaming industry in Cambodia and the Philippines,” said Vickers, who once headed Hong Kong police department’s Criminal Intelligence Bureau. His firm is a specialist political and corporate risk consultancy.

The increase in police crackdowns against these rackets within China has been palpable. The government has drawn up laws to curb capital outflows and issued warnings to blacklist countries that are targets for Chinese gamblers. Observers reportedly said that Cambodia could be one of them, though the list has not been made public yet.

The Chinese Ministry of Public Security reports that some one trillion yuan ($155 billion) in gambling funds are funnelled out of the country every year, a trend it calls a “threat to national security”.

Following its prosecution of 3,500 cases of illegal cross-border gambling last year, the closure of nearly 2,000 illegal payment platforms, and cancellation of some 145 passports of individuals suspected of being involved in cross-border gambling cases, the ministry has vowed to further intensify efforts to end such activities.

In December 2020, China passed an amendment to the criminal code outlawing the organisation or solicitation of cross-border gambling, both in-person and online, punishable by up to 10 years’ imprisonment, said Martin Purbrick, chairman of the Asian Racing Federation Council (AFRC) on Anti-Illegal Betting and Related Financial Crime in Hong Kong.

“Chinese customers are a key market for illegal betting operators. The illegal betting market in China is significant, and a concern for the authorities,” said Purbrick, a former special branch officer with the Royal Hong Kong Police, involved in counter-terrorism intelligence.

Two years ago, 25,000 people were arrested in China for illegal gambling-related offences, a figure which increased to 110,000 people in 2020.

“Illegal betting raids were noted in every province across China, as well as transnationally, disrupting online betting hubs in the Philippines and Cambodia, and driving illegal betting activity further afield, as well as further underground,” Purbrick said.

Loss of gambling revenue

On the face of it, the casino sector in Cambodia has been under pressure as the number of junkets, or trips consisting of high-rollers, plunged on the back of diminished flights.

As of end-December 2019, there were 193 registered casinos but the pandemic cut out a chunk, as only 101 operators had applied to renew their licence by mid-March this year.

In Sihanoukville, where nearly two-thirds of Cambodia’s casinos are housed, foreign direct investment (FDI) surged to some $1 billion in 2018, as logged by the provincial Department of Land Management, Urban Planning and Construction, a majority of that being Chinese construction financing luxury hotels, residential towers and office buildings.

It changed the landscape of a previously coastal backwater into a casino metropolis that lured investors and tourists, including high-rollers.

Just before the implementation of a sub-decree that outlawed online gambling, it was a norm in casinos, ringing in millions from a captive audience worldwide, mostly in China.

Junkets complemented these earnings, where agents hired tables from casinos for a fee to host VIP games for physical players, both gambling holidaymakers or career gamblers.

In addition, 50,000 to 60,000 young Chinese professional players living in Sihanoukville supported this gambling sub-segment, an article by beltandroad.news stated last year.

Up till then, Cambodia was raking in a plump tax revenue from the sector, peaking at $85 million at the height of the industry’s growth in 2019, with one third from online gambling.

Following the ban, after which nearly 450,000 Chinese nationals left by the end of 2019, as well as the coronavirus blight, tax revenue fell more than half to $40 million in 2020.

Things got even worse in the first half of 2021, as the revenue nosedived by 90 per cent year-on-year, said Ministry of Economy and Finance (MEF) deputy director for financial industry Ros Phearun.

“The revenue this year is very limited because all the casinos are closed. It is less than one per cent of the budget,” he told The Post.

This is indicative of the losses experienced by casinos in the region which had survived on junkets, like Hong Kong-listed NagaCorp Ltd’s integrated gaming and entertainment hotel complex NagaWorld in Phnom Penh.

Stretching far and wide, the China City project near Otres Beach in Sihanoukville is still being developed. Sangeetha Amarthalingam

In its first fiscal half ended June 30, 2021, it reported a net loss of $77.2 million versus $20.6 million net profit in the corresponding period last year due to the suspension of business operations since March 2 this year, which also caused GGR to fall 67.2 per cent to $129.3 million from last year.

According to its filing with Hong Kong Exchange, most of the revenue was locked in between January 1 and February 20, 2021, thanks to a “reasonably-sized expatriate community” in Cambodia and East Asian visitors from China, South Korea and Taiwan who were in “search of entertainment”.

Similarly, Australia-listed Donaco International Ltd, which owns Star Vegas Resort and Club in border town Poipet, Cambodia, and Aristo International Hotel in Vietnam, recorded dim casino operations but managed to return to the black with $25 million net profit in its financial year ended June 30, 2021, due to proceeds from a legal settlement. But, revenue took a beating, slumping 81 per cent to A$10.3 million from a year ago.

No VPN needed

While the focus of the online gambling sites is inherently overseas, social media apps within Cambodia have allegedly enabled locals to join in, although the law explicitly states that Cambodians cannot gamble, making it a criminal offence.

Most of the websites, with Khmer language pages on social media platforms such as Facebook, Instagram and Telegram act as “invitations to treat” for new players, coaxing them to sign up while delighting customers with fancy promotions.

The domain address for these webpages change often though, and some sites failed to load and display error messages after a few months of being “active”.

This likely indicates the use of “mirror websites”, AFRC’s Purbrick said. “Mirror websites are exact replicas of a betting website with different URLs [uniform resource locators], for example xyz123.com, xyz456.com and xyz789.com. Betting operators create tens or hundreds of such mirrors hosted on the same or multiple servers in order to migrate customers from one URL to another if a particular URL is blocked by authorities.

“Such migration can be done in minutes. The existence of mirror websites therefore indicates that the operator is attempting to keep its activity away from regulatory attention,” he explained.

Ministry of Post and Telecommunications did not respond to questions.

Meanwhile, Purbrick noted that illegal betting operators could have a licence in a jurisdiction other than the location where the customer places a wager. What it means is that betting might not be legal in the country where the point of sale takes place.

“Hence, if any online betting operators in Cambodia accept bets from customers in China they are clearly breaking the law in China,” said Purbrick, who is also a consultant to the Hong Kong Jockey Club.

The illegal betting market, an offshoot of the online gaming industry which focuses on esports, is huge, reporting a global turnover of over $500 billion.

To stop this, governments of countries where online betting operators are located should recognise that a licence in one country does not mean that the operator is legally taking bets in another country, and that appropriate action should be taken to prevent it.

He cited third party payment platforms such as Skrill, Neteller, PayPal, WeChat Pay and Alipay as being “popular” and a “key means of payment for illegal online betting”.

In Cambodia, it is fairly easy for new online players to get started and there is no need for virtual private networks (VPN) to access the sites.

A check revealed that a new customer only needs to sign up and deposit some money into the bank account of a designated holder on the website or use e-wallet options in order to play. Some of the common choices provided by the websites are local commercial banks where players can also cash out their winnings.

When asked, the top heads of the financial institutions asserted their position against online gambling sites promoting their banking services to players.

“Acleda has a strict policy that never ever services any customers engaged in gambling. [It] includes employees [who] are not allowed to gamble or even visit any gambling facility,” its president and group managing director In Channy stressed.

“We have a compliance centre monitoring daily to check suspicious transactions [and] if they've breached the terms and conditions. The compliance team contacts the customers immediately to stop such transactions, like gambling. Otherwise the bank will close the accounts of the customers,” he told The Post.

Similarly, the head of another commercial bank, which has one of the largest retail payment subscribers, said his unit terminated more than 30 billers or partners soon after the government banned the activity in 2019.

Asked if some accounts possess non-distinguishable characteristics with regular accounts or act as shell accounts for transactions, he said their bank accounts have a transaction limit that has been implemented to help the bank comply with Anti-Money Laundering and Combatting the Financing of Terrorism guidelines.

“If the transaction is not abnormal and complies with all the rules and regulations of National Bank of Cambodia, and is coming from an individual account that has proper KYC [know-your-customer] documentation, it by default is a normal transaction,” he said.

Adding that all abnormal transactions are monitored daily, he shared that each account has different customer risk profiling in monitoring.

“We have customer profiling and transaction monitoring including World Check [intelligence] and other international prohibited lists ... in the past many accounts have been blocked and removed. Abnormal transactions are monitored and flagged,” he reiterated.

`Not the end for gambling’

Early this year, the Law on the Management of Integrated Resorts and Commercial Gambling was passed after sitting on the backburner for nearly 10 years.

The pace of its implementation picked up last year as Cambodia entered into EU’s list of 12 high-risk countries which posed significant threats to the bloc’s financial systems for failures to tackle money laundering and terrorism financing.

Apart from that, Cambodia has also been cited in anti-money laundering reports by the Financial Action Task Force or UN Office on Drug and Crime.

For one thing, the law aims to bring order to the gambling industry which has seen a spate of criminal activities reportedly committed by Chinese nationals, ranging from the kidnapping of alleged gamblers for ransom or not settling their gambling debts, to shootings, gang fights and murder.

It is not known if the increased police crackdowns on online gambling is a push by China but more are expected to take place, National Police spokesman Chhay Kim Khoeun indicated.

“We are not subsiding our operation against illegal online gambling, but you have to understand that it is not an easy job. Even gambling in villages is not easy to crack down because we are not only working on gambling. We have a lot of work,” he said via telephone.

However, it is part of their agenda to continue. “[Online] games – I cannot say whether they are increasing or decreasing but the anti-cybercrime department works on this every day,” Chhay added.

The Chinese embassy in Phnom Penh failed to respond to numerous attempts for comments.

Meanwhile, observers are mixed on the new law invoking a deep cleansing of the industry, aiming to rid illegal operators and lure integrated casino resorts via a competitive tax regime.

AGB’s Singleton feels it is highly unlikely that many of the casinos would survive long-term without the ability to gamble online. “[They] would undoubtedly close if the government does not relax its restrictions.”

The legislation per se is a helpful step forward to improve the image of the industry in Cambodia and will be welcomed but it is unlikely that it will completely transform the gambling scene.

Instead, some key changes international investors might like to see is the possibility of allowing Cambodians to gamble, similar to Vietnam, although the activity is closely monitored there.

“For foreign investors, it is often a red line when it comes to investment given the added risk of being solely reliant on one type of clientele, which is foreign tourists,” Singleton said.

Equally sceptical, Vickers said that while the law would help Cambodia to grow the casino industry, it might rely heavily on Chinese gamers.

“Limitations on travel related to Covid-19, and efforts by China to curtail capital outflows [could] limit the activities and [restrict] excessive gaming, thus [affecting] growth,” he said. That said, the incentives to develop the industry are strong, and should overcome challenges such as capital controls.

However, the irony is not lost on MEF’s Phearun, who conceded that the crackdown in China could “more or less” have an effect on Cambodia’s casino sector but hoped that investments in integrated resorts does not dampen.

Going forward, would the law rid Cambodia of online gambling operators? Perhaps force them to move to the Philippines?

Probably not, Singleton opined. “The Philippines brings its own set of problems and many who are operating there are finding the business conditions difficult, primarily because of increasing costs and hostility towards Chinese working in the sector.

“Some are already leaving for other jurisdictions and I believe Cambodia is one of the beneficiaries,” she said.

Can the law raise the stakes in the casino industry? Is the casino sector a sunset industry in Cambodia?

“I don’t think this spells the end of gambling in Cambodia. NagaCorp, for example, is a highly respected operator and one of the most profitable in the world, showing that with the right conditions Cambodia can be a very strong market,” Singleton said.

For now, Cambodia and its contemporaries would face difficulties in attracting new investors because of Covid-19 but it is certainly “not off the map”.

There has already been significant investment in the sector, particularly in Sihanoukville.

“While many of those casinos fit the description as fronts for online gambling, others are very high-end properties targeting the Chinese VIPs.

“As the infrastructure improves in the town and the fly-by-night operators shut down or leave, they are likely to do well,” Singleton said.

There is a strong business rationale for them being there, she said, given the high level of Chinese investment into the economic zone, which is attracting business travel and the potential for increased tourism.

“So [the answer] is no. It is far from being a sunset industry in Cambodia,” Singleton said.