Source: 2005
Released by the Bureau for International Narcotics and Law Enforcement Affairs
I. Summary
The number of drug-related investigations, arrests and seizures in Cambodia continued to increase in 2004. This reflects an alarming escalation in drug activity and perhaps some increase in law enforcement capacity. The government is concerned at the increasing use of amphetamine-type stimulants (ATS) among all socio-economic levels. The government's principal counternarcotics body, the National Authority for Combating Drugs (NACD), cooperates closely with DEA, regional counterparts, and the United Nations Office on Drugs and Crime (UNODC). Cambodia is not a party to any of the major UN drug conventions but is studying all of them and expects to become a party in 2005.
II. Status of Country
Cambodia has experienced a significant increase in recent years in the amount of amphetamine-type stimulants (ATS) transiting from the Golden Triangle. The UNODC estimates that more than 100,000 methamphetamine tablets enter Cambodia each day, some 25 percent of which are thought to be re-exported to Thailand. In addition, Cambodian authorities believe that foreign crime syndicates, working in concert with Cambodian nationals, have set up mobile laboratories within Cambodia that produce ATS for local distribution and export to Thailand. Cocaine use by wealthy Cambodians and foreigners in Cambodia is a relatively small but worrisome new phenomenon.
There is some evidence that precursor chemicals imported from Vietnam and Thailand for industrial use in Cambodia --- including methanol, sulfuric acid, toluene, and ephedrine --- are being diverted for illicit drug production. There is also evidence that sassafras extract, from a naturally occurring tree species in Cambodia, is being smuggled in large quantities from Cambodia to Vietnam, where it is further processed to create an MDMA (i.e., "Ecstasy") precursor.
Cambodia is not a producer of opiates or coca-based drugs; however, it serves as a transit route for heroin from Burma and Laos to international drug markets. In-country sources estimate that 10 to 20 kilograms of heroin are trafficked through Cambodia daily in the form of small-scale shipments. In addition, apparently reliable reports indicate that more sizeable amounts, somewhere in the region of 50 to 100 kilograms per month, transit into Vietnam on a relatively frequent basis. There are indications of involvement by military personnel in these activities. The amount of heroin seized in the United States in recent years that is traceable to Cambodia is small.
There are no reliable figures available from either the Cambodian government or the UNODC on the current amount of marijuana produced in Cambodia, although some estimates place total production at more than 1,000 tons annually, most of which is cultivated for export. Much of the production occurs in Cambodia's northwest provinces and is reputed to be "contract cultivation" with Cambodians operating with the financial help, and under the control or influence of foreign criminal syndicates. Analysis of seizures in recent years indicates that Europe is the major destination for Cambodian cannabis, with other destinations including the United States, Australia and Africa. Quantities coming to the United States are not sufficient to have a significant impact on the United States.
III. Country Actions Against Drugs in 2004
Policy Initiatives. Cambodian law enforcement agencies suffer from limited resources, lack of training, and poor coordination. The National Authority for Combating Drugs (NACD), which was reorganized in 1999, has the potential to become an effective policy and coordination unit. With the backing of the Cambodian government, the UNODC launched in April 2001 a four-year project entitled "Strengthening the Secretariat of the National Authority for Combating Drugs (NACD) and the National Drug Control Program for Cambodia". This project seeks, inter alia, to establish the NACD as a functional government body able to undertake drug control planning, coordination, and operations. The UNODC intends to continue the project beyond 2005 if funding continues.
During 2004, the UN and other donors provided the NACD with vehicles, office and audiovisual equipment, and local area computer network (LAN) servers and computers to support staff e-mail, the NACD website, and law enforcement computer-based training centers (CBT) in three key provinces. In addition, the UNODC supplied 12 provincial drug control committees and two new border liaison offices with motorcycles, radios, cameras, computers, scanners and office equipment to facilitate drug use and trafficking surveillance and on-line data collection efforts and to strengthen sub-regional cross-border law enforcement cooperation. The German government donated a computer to the NACD in 2004 and continued to provide a drug control expert to work within the NACD to help increase the organization's capacity and to develop demand reduction and treatment programs. The UNODC sponsored 4 Cambodian participants in a 2-week intensive harm-reduction training course in 2004.
Accomplishments. During 2004 the NACD began to implement Cambodia's first-ever 5-year narcotics control master plan (2004-2008) focused on demand reduction, supply reduction, drug law enforcement, and expansion of international cooperation. A draft of the master plan is awaiting review by the National Assembly. The NACD trained 36 policemen in drug identification in 2004. This training complements donor-provided training to increase local law enforcement capacity to test seized substances for use as evidence in criminal trials.
In December 2004, a National Assembly special review committee discussed the 1961, 1971 and 1988 UN Drug Conventions. It is expected that the three conventions will be ratified in the coming year.
Law Enforcement Efforts. In the first 11 months of 2004, 474 people (mostly Cambodians) were arrested for various drug-related offenses. This is an increase over arrests during this same period in 2003, which numbered 305. Police arrested 2 people in heroin-related cases in 2004, including a notorious head of an international heroin ring with Triad (Organized Chinese Criminal) connections. This was the most significant counternarcotics operation in which Cambodian authorities have ever participated. Another key case involved the arrest of 3 international MDMA ("Ecstasy") traffickers and the seizure of 4,500 MDMA tablets in August 2004.
Total seizures of heroin in 2004 were 2.15 kilograms, a considerable decrease over 2003 seizures, which totaled more than 46 kilograms. Most of the confiscated heroin was discovered in postal shipments. Six people were arrested in ketamine-related cases in 2004 and 25,000 bottles of ketamine were seized. Police also confiscated 2,600 kilograms of sulfuric acid (used as precursor chemical) in a 2004 case. Police arrested 372 people in methamphetamine-related cases in 2004 and seized over 860,000 methamphetamine pills. This is a significant increase over 2003 seizures, which totaled 210,000 pills. Police confiscated over 600,000 methamphetamine pills trafficked from Laos during a single bust in early 2004. This cache was more than 10 times larger than any previous seizure in Cambodia.
Cambodian legal penalties for drug-related offenses are extremely weak, allowing for maximum penalties of just $5,000 or a somewhat theoretical 10 years imprisonment. The NACD has drafted an amendment to the drug law that would stiffen punishment for drug traffickers. The draft legislation, which is expected to be promulgated in the coming year, provides for a maximum penalty of $1 million fine and life imprisonment, and would allow proceeds from the sale of seized assets to be used towards law enforcement and drug awareness and prevention efforts.
Corruption. Corruption remains pervasive in Cambodia, making Cambodia highly vulnerable to penetration by drug traffickers and foreign crime syndicates. Senior Cambodian government officials assert that they want to combat trafficking and production, however, corruption, abysmally low salaries for civil servants, and an acute shortage of trained personnel severely limit sustained advances in effective law enforcement. The judicial system is weak, and there have been numerous cases of defendants in important criminal cases having charges against them dropped after paying relatively small fines. In 2004 there were preliminary discussions within the Cambodian government and international community on ratifying the UN convention on corruption sometime in 2005, drafting a domestic anticorruption law, and establishing an anticorruption commission.
Agreements and Treaties. Cambodia has signed but not ratified the 1961 UN Single Convention and its Protocol. It has not signed the 1971 UN Convention on Psychotropic Substances or the 1988 UN Drug Convention. In December 2004 the National Assembly began to review all three UN Drug Conventions. It is expected that the conventions will be ratified in the coming year.
Cambodia has no extradition or mutual legal assistance treaty with the United States, but the Cambodian government has cooperated with U.S. law enforcement agencies regularly in the past by rendering or deporting persons wanted in the United States for crimes upon request and presentation of an appropriate warrant. The U.S. Embassy in Phnom Penh has been assured that such cooperation will continue.
Cultivation/Production. During 2004, over 14 hectares of cannabis plantations were destroyed. Eleven people were arrested for ATS production and drug-making equipment was seized.
Drug Flow/Transit. Cambodia shares porous borders with Thailand, Laos, and Vietnam and lies near the major trafficking routes for Southeast Asian heroin. The UNODC has reported that drugs enter Cambodia via the northern border. Some heroin and marijuana are believed to enter and exit Cambodia via locations along the gulf --- including the deep water port of Sihanoukville --- as well as the river port of Phnom Penh. The country's main international airport, Pochentong International Airport in Phnom Penh, and the regional airport in Siem Riep, suffer from lax customs and immigration controls. Some illegal narcotics are believed to transit these airports en route to foreign destinations.
Domestic Programs (Demand Reduction). The number of Cambodians using illicit drugs, including ATS and heroin, has increased steadily since the mid-1990's. Despite awareness-raising efforts, the Cambodian populace has an extremely limited understanding of the associated risks. A rapid assessment of illicit drug use in Cambodia conducted by the WHO, UNAIDS and CDC in 2004, indicates a high level of drug abuse, particularly in Cambodia's capital, Phnom Penh, and a growing problem in the Cambodian countryside. Researchers found that users regularly shared needles, tended to engage in unsafe sexual behavior, and sometimes sold their blood for money to purchase narcotics, thereby increasing the public health risk of HIV and other blood borne illnesses. Nearly 40 percent of the respondents were unaware of the risks of HIV transmission through illicit drug use.
With the assistance of the UNODC, UNICEF, the World Health Organization (WHO), CDC, the Japanese International Cooperation Agency (JICA) and NGOs, the NACD is attempting to boost awareness about drug abuse among Cambodians --- especially Cambodian youth --- through the use of pamphlets, posters, and public service announcements. The NACD and the National Aids Authority have established a working group to focus on harm reduction strategies.
The government has sought outside assistance for programs on drug treatment and rehabilitation centers for drug addicts and vocational training centers for severe addicts. Several national and international NGOs operate in Cambodia with mandates that directly or indirectly relate to drug control issues, including harm reduction and demand reduction. A Japanese-funded treatment and rehabilitation project is being developed to establish centers in Phnom Penh, Battambang and Poipet to provide services to addicts and to help develop the capacity of health and human services to deal effectively with drug treatment issues. The project will link Cambodia with international treatment groups, including the National Institute for Drug Abuse (NIDA).
IV. U.S. Policy Initiatives and Programs
Cambodia is a fragile, flawed democracy. For the first time in over three decades, there has been relative political stability since the formation of coalition governments following national elections in 1998 and 2003. However, Cambodia is plagued by many of the institutional weaknesses common to the world's most vulnerable developing countries. The challenges for Cambodia include: nurturing the growth of democratic institutions and the protection of human rights; providing humanitarian assistance and promoting sound economic growth policies to alleviate the debilitating poverty that engenders corruption; and building human and institutional capacity in law enforcement sectors to enable the government to deal more effectively with narcotics traffickers.
Bilateral Cooperation. U.S.-Cambodia bilateral counternarcotics cooperation is hampered by restrictions on official U.S. assistance to the central government of Cambodia that have remained in place since the political disturbances of 1997. Cambodia regularly hosts visits from DEA personnel based in Bangkok, and Cambodian authorities cooperate actively with DEA. U.S. officials raise narcotics-related issues regularly with Cambodian counterparts at all levels, up to and including the Prime Minister. DEA provided basic narcotics training to Cambodian counternarcotics police in December 2004. During this same month, DOD conducted the first in a series of Joint Interagency Task Force --- West (JIATF --- West) training missions. The three-week mission trained personnel from the Cambodian police, military, and the Immigration Department. The training was conducted in Koh Kong province and was designed to increase the capacity of Cambodian security forces that are charged with controlling the Thai-Cambodian border. In 2004, the U.S. provided support for a UNODC project to conduct a national survey to collect baseline data on illicit drug use and the associated HIV/AIDS risk. This is the first such study to be conducted in Cambodia and will provide key information needed to develop an effective counternarcotics/HIV Treatment/Prevention strategy for the country.
The Road Ahead. Cambodia is making progress toward more effective institutional law enforcement against illegal narcotics trafficking; however, its capacity to implement an effective, systematic approach to counternarcotics operations remains low. The NACD faces many challenges, including exceedingly low salaries, corruption, lack of authority to recruit its own staff, and heavy dependence on foreign agencies. Efforts to develop effective counternarcotics strategies are further limited by the lack of comprehensive data on the extent and nature of illicit drug use in Cambodia.
Instruction for mid-level Cambodia law enforcement officers at the International Law Enforcement Academy in Bangkok (ILEA) has partially addressed Cambodia's dire training needs. The ILEA training has produced a small but growing cadre of Cambodian officials who are becoming familiar with modern police techniques including drug identification, coordination of operations and intelligence gathering.
However, after training they return to an environment of scarce resources and pervasive corruption. This situation will require a long period of sustained investment to change the culture.
Cambodia is not an important regional financial center. Nevertheless, Cambodia remains vulnerable to money laundering. It has a very weak anti-money laundering regime, a cash-based economy with an active hawala system, porous borders with attendant smuggling, and widespread official corruption. The National Bank of Cambodia (NBC) has made some strides in recent years by beginning to regulate the small banking sector, but other non-bank financial institutions, such as casinos, remain outside its jurisdiction. The Ministry of Interior has legal responsibility for oversight of the casinos, but beyond receiving a cut of the proceeds and providing security, it exerts little supervision over them. The GOC continues to work on draft legislation that would criminalize money laundering and the financing of terrorism, but the law is not expected to pass before late 2005. In the meantime, the NBC has a compendium of legally binding regulations (Prakas) that it plans to issue in 2005 that will prohibit money laundering and terrorism financing.
Cambodia,s banking sector is small, with thirteen general commercial banks and four specialized commercial banks. There is some evidence of financial deepening but overall lending and banking activity remains limited. Recently, one of Australia,s largest banks, ANZ Banking Group Ltd, decided to enter the Cambodian market through a joint venture. Otherwise, the banking sector is largely dominated by a handful of Cambodian-owned banks such as Canadia, Mekong, and the government-owned Foreign Trade Bank.
The National Bank of Cambodia (NBC) has oversight responsibility for the banking sector and, with relatively small numbers of transactions and deposits in the system, believes it exercises comprehensive oversight. There are no reports to indicate that banking institutions themselves are knowingly engaged in money laundering, but some money laundering in relatively small amounts does occur in the banking system, typically involving the proceeds of smuggling, narcotics-trafficking, or corruption. The NBC regularly audits individual banks to ensure compliance with laws and regulations. There is a standing requirement for banks to declare transactions over $10,000. The NBC says its audits reveal that this requirement is generally followed. There is evidence that at least one major bank has not performed proper due diligence to prevent potential money laundering through its accounts. Having become aware of unusual transfers into some of its accounts from overseas, the bank did not question the source or structuring of the money transfers and may have unwittingly facilitated a money laundering operation. For its part, the NBC did not uncover the nature or source of the money transfers through its audits of this bank. A more likely route for money laundering in Cambodia is through underground banking or unregulated non-banking financial institutions. Neither the NBC nor any other Cambodian entity is responsible for identifying or regulating these informal and underground banking networks.
With political stability and the gradual return of normalcy in Cambodia after decades of war and instability, bank deposits have continued to rise and the financial sector shows some signs of deepening as domestic business activity continues to increase in the handful of urban areas. Nevertheless, foreign direct investment in the general economy remains limited and is on a downward trend, largely due to the high risks of doing business in Cambodia, including an incomplete legal framework, inadequate legal enforcement, and official corruption.
There is no apparent increase in the extent of financial crime over the past year. There is a significant black market in Cambodia for smuggled goods, including drugs, but little evidence that smuggling is funded primarily by drug proceeds. Heroin is smuggled through Cambodia to other countries. Most of the smuggling that takes place is intended to circumvent official duties and taxes and involves items such as fuel, alcohol and cigarettes.
Some government officials and their private sector associates have a significant amount of control over the smuggling trade and thus its proceeds. Cambodia has a cash-based and dollar-based economy, and the smuggling trade is usually conducted in dollars, which facilitates money laundering. Such proceeds are rarely transferred through the banking system or other financial institutions. Instead, they are readily converted into land, housing, luxury goods or other forms of property. It is also relatively easy to hand-carry cash into and out of Cambodia. In addition, neither money laundering (except in connection with drug trafficking) nor terrorism financing is a specific criminal offense in Cambodia at this time.
The NBC does not have the authority to apply anti-money laundering controls to non-banking financial institutions such as casinos or other intermediaries, such as lawyers or accountants.
The major non-banking financial institutions in Cambodia are the casinos, where foreigners are allowed to gamble but most Cambodians are not. The regulation of casinos falls under the jurisdiction of the Ministry of Interior, although the Ministry of Economy and Finance issues casino licenses. The Interior Ministry stations a few officials at each casino. It does not appear that Interior Ministry staff at the casinos exercise any supervision over casino operations, beyond making sure that the Ministry receives its share of casino payouts. There are roughly a dozen casinos in Cambodia, with several more under construction. Most are located along Cambodia,s borders with Thailand or Vietnam. There is one casino located in Phnom Penh that has somehow escaped the regulation that all casinos be at least 200 kilometers from Phnom Penh. It would appear that the casinos operate relatively unregulated and with no real supervision.
Most casino patrons hand-carry their money across the border. For high-dollar patrons, the casinos have accounts with major banks, usually in Thailand. In practice, the patron wires a large amount of money to one of these accounts in Thailand. After a quick phone call to verify the transfer, the casino in Cambodia issues the appropriate amount in chips. The casinos do no due diligence as to the source of the money, regardless of whether it is hand-carried into Cambodia or wired into a Thai bank.
In 1996, Cambodia criminalized money laundering related to narcotics-trafficking through the Law on Drug Control. In 1999, the government also passed the Law on Banking and Financial Institutions. These two laws provide the legal basis for the NBC to regulate the financial sector. The NBC also uses the authority of these laws to issue and enforce new regulations. The most recent regulation, dated October 21, 2002, is specifically aimed at money laundering. The decree established standardized procedures for the identification of money laundering at banking and financial institutions. In October 2003, the NBC issued a circular to assist banks in identifying suspicious transactions. In addition to the NBC, the Ministries of Economy and Finance, Interior, Foreign Affairs and Justice also are involved in anti-money laundering matters.
The 1996 and 1999 laws include provisions for customer identification, suspicious transaction reporting, and the creation of an Anti-Money Laundering Commission (AMLC) under the Prime Minister,s Office. The composition and functions of the AMLC have not yet been fully promulgated by additional decrees, and the NBC currently performs many of the AMLC,s intended functions. The 1999 Law on Banking and Financial Institutions imposed new capital requirements on financial institutions, increasing them from $5 million to $13.5 million. Commercial banks must also maintain 20 percent of their capital on deposit with the NBC as reserves.
Cambodia is not a party to the 1988 UN Drug Convention. On November 11, 2001, Cambodia signed both the UN Convention against Transnational Organized Crime and the UN International Convention for the Suppression of the Financing of Terrorism. It has yet to ratify the former; it has acceded to the latter. Cambodia has assisted neighboring countries with money laundering investigations. While Cambodia is drafting legislation that would specifically address terrorism financing, it currently does not have any laws that do so. It does circulate to financial institutions the list of individuals and entities included on the UN 1267 Sanctions Committee,s consolidated list. The NBC reviews the banks for compliance in maintaining this list and reporting any related activity. To date, there have been no reports of designated terrorist financiers using the Cambodian banking sector. Should sanctioned individuals or entities be discovered using a financial institution in Cambodia, the NBC has the legal authority to freeze the assets but not to seize them.
In June 2004, Cambodia joined the Asia/Pacific Group on Money Laundering (APG) as an observer. The APG has 30 members, including the U.S., and it is run as a FATF-style regional body. Among its other activities, the APG conducts mutual evaluations of members, anti-money laundering and terrorism financing efforts. The APG plans to conduct an evaluation of Cambodia in 2005. Hopefully, that evaluation will facilitate the passage of AML/CFT laws and regulations. The GOC also plans to work with the APG members to establish a Financial Intelligence Unit (FIU). In order to decide where to locate the FIU, an "unofficial" Anti-Money Laundering Committee was formed recently, consisting of the NBC and the Ministries of Commerce, Foreign Affairs, Finance and Justice. The Committee held its first session in December 2004.
A Working Group of the National Anti-Drug Committee was formed on November 26, 2003 to draft legislation that meets international standards. The Working Group includes the NBC and the Ministries of Interior, Justice, Economy and Finance, and Foreign Affairs. In 2004, the Working Group continued its work on draft legislation to update Cambodia,s AML/CFT laws and procedures. However, there were no substantive accomplishments in terms of strengthening Cambodia,s legal or institutional framework for combating financial crimes. There were no arrests for money laundering in 2004.
Among other priority actions, the Working Group,s draft legislation and action plan to fight money laundering and the financing of terrorism envisions the following: criminalizing money laundering and the financing of terrorism; ratification of all relevant UN conventions; regulating and controlling NGOs; reducing the use of cash and encouraging the use of the formal banking system for financial transactions; enhancing the effectiveness of bank supervision; ensuring the use of national ID cards as official documents for customer identification; and regulating casinos and the gambling industry.
The draft legislation also addresses preventive obligations related to customer due diligence, record keeping, internal controls, reporting of suspicious transactions and setting up an FIU to receive, analyze and disseminate information and to supervise compliance with all relevant laws and regulations. Absent passage of the draft legislation in 2005, the NBC plans to issue a series of regulations that have the force of law (Prakas) and that will criminalize money laundering and terrorism financing, as well as update existing financial rules and regulations.
Cambodia should pass the draft anti-money laundering and counterterrorist financing legislation as soon as possible. Cambodia should also engage fully with the Asia/Pacific Group on Money Laundering and take full advantage of its upcoming mutual evaluation to enact whatever additional policies and procedures are necessary to meet international standards. Cambodia should ratify the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime. The larger question remains the government,s ability and will to enforce these measures once they are in place.