Financial Crime World

Cambodia’s Economy on a Precarious Balance: Struggling with Financial Crime and China’s Investment

Cambodia, known for its ancient temples and bustling markets, faces a precarious financial position. The country’s weak Anti-Money Laundering (AML) controls led it to be added to the Financial Action Task Force’s (FATF) grey list in February 2019. Since then, Cambodia has been working to enhance its AML capabilities, but progress has been slow and obstructed.

risks and Challenges

  • In February 2019, Cambodia was added to the FATF’s grey list due to weak AML controls.
  • The US Department of State issued a warning in November 2021 regarding potential hazards in the financial, real estate, casino, and infrastructure sectors.
  • Cambodia ranks 134th out of 141 countries in the 2019 Global Competitiveness Report for corruption incidence.
  • Transparency International’s 2020 Corruption Perceptions Index ranked Cambodia as the lowest-ranked ASEAN country and 160th globally.

Motivation and Attraction for Foreign Direct Investment

Despite endemic systemic corruption, Cambodia is highly motivated to attract more high-quality foreign direct investment (FDI) due to the economic benefits. China, as the largest foreign investor, has already poured approximately US$2 billion into the kingdom in the initial half of 2021.

Investment from China: Opportunities and Risks

  • Funding vital infrastructure projects like Phnom Penh-Sihanoukville Expressway, coal-fired power station, and Siem Reap-Angkor International Airport.
  • Investment in controversial casino gaming industry.
  • 263% increase in casino licenses between 2014 and 2019, leading to escalating risks of money laundering and other illicit activities.
  • “Organized crime elements” establishing a presence via investments in gaming facilities and money laundering.

Casino Sector’s Impact on Phnom Penh

  • Curbed international travel due to the coronavirus outbreak and China’s zero-Covid policy affecting Phnom Penh’s casino sector.
  • Reducing the casino sector’s footprint and implementing financial regulation as needed.
  • creating jobs but associated risks significant for a developing country like Cambodia.
  • China’s aim to minimize problematic financial outflows, including those from Cambodian casinos.

Focus on Eradicating Illicit Activity in the Financial Services Sector

  • New AML/CFT legislation effective from June 2020, including enhancements to previous definitions, mandatory reporting entity measures, and stricter penalties for non-compliance.
  • Training for Cambodian authorities and law enforcement officials

The Cambodia Financial Intelligence Unit’s Efforts

  • The Cambodia Financial Intelligence Unit (CAFIU), responsible for countering money laundering, reportedly stated in 2020 that they were “working very hard” to eliminate Cambodia from the FATF grey list but did not provide specifics.