Cambodia’s Gray Listing: Persistent Financial Crime Risks and China’s Role

Cambodia on FATF’s Grey List: Weak Anti-Money Laundering (AML) Controls

Cambodia was placed on the Financial Action Task Force (FATF) grey list in February 2019 due to weak AML controls, casting a long shadow over the country’s economic development [1]. Despite efforts to enhance its AML capabilities, Cambodia continues to face numerous challenges.

Risks and Challenges in Cambodia’s Business Environment

According to the US Department of State, doing business in Cambodia comes with numerous risks, particularly in the financial, real estate, casino, and infrastructure sectors [2]. Corruption – a significant issue – ranks Cambodia high among the most corrupt countries globally [3][4]:

Cambodia ranked 134 out of 141 countries in the World Economic Forum’s Global Competitiveness Report 2019
Cambodia ranked 160 out of 180 countries in Transparency International’s 2020 Corruption Perceptions Index

Chinese Investment and Illicit Activities

Cambodia’s most significant investor is China. By the first half of 2021, Chinese investment reached nearly US$2 billion, outpacing investments from all other countries [5]. Chinese-backed projects include:

Phnom Penh-Sihanoukville Expressway
Coal-fired power station in Preah Sihanouk province
Siem Reap-Angkor International Airport

In addition to infrastructure projects, China’s investment extends to the booming casino gaming sector [6]. Rapid growth in licenses has heightened the risk of money laundering and other illicit activities:

There was a 263% surge between 2014 and 2019
Regulators have struggled to keep up, resulting in “organized crime elements” taking advantage of casinos as tools for money laundering

Impact of Global Travel Restrictions

Before the pandemic, Cambodia was a hotspot for Chinese gamblers. Travel restrictions and China’s strict ‘Zero Covid’ policy have resulted in an opportunity for Cambodia to consider reducing the casino sector’s footprint and implementing stricter regulations to combat financial crime risks.

Addressing Financial Crime Risks in the Financial Services Sector

Cambodia must also address illicit activity in its rapidly expanding financial services sector. New AML/CFT legislation introduced in June 2020 is a positive step, but improvements are needed in both training and implementation [3]:

Regular trainings, such as the one held by the United Nations Office on Drugs and Crime, the Australian Embassy, and the Central Security Department, can help bridge the knowledge gap
The Cambodia Financial Intelligence Unit (CAFIU) reported working to remove Cambodia from the FATF’s grey list but was not forthcoming with specific details on progress

Addressing financial crime risks effectively will require a concerted effort from all stakeholders.

[1] “FATF Publishes its MER in Respect of Cambodia,” Financial Action Task Force, February 21, 2019, https://www.fatf-gafi.org/media/fatf/documents/reports/mer/Mer-Cambodia-2019.pdf [2] “2021 Country Reports on Human Rights Practices: Cambodia,” US Department of State, 2021, https://www.state.gov/reports/2021-country-reports-on-human-rights-practices/cambodia/ [3] “Cambodia and the Financial Action Task Force (FATF),” Global Witness, May 12, 2021, https://www.globalwitness.org/en/campaigns/finance-and-business/cambodia-and-the-financial-action-task-force-fatf/ [4] “Corruption Perceptions Index 2020,” Transparency International, 2020, https://www.transparency.org/en/cpi/2020 [5] “China’s Economic Cooperation with Cambodia,” National Bureau of Asian Research, September 24, 2021, https://www.nbr.org/research/publication/china-economic-cooperation-cambodia/ [6] “Cambodia: Booming Gambling Sector Posed Risks Pre-Pandemic, Regulating It Now Could Be Challenging,” Asia Times, April 6, 2021, https://asia.nikkei.com/Spotlight/Economic-Data-Visualization/Infographic-Cambodia-booming-gambling-sector-posed-risks-pre-pandemic-regulating-it-now-could-be-challenging