Source: 2006
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 2005. This reflects a significant 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 policymaking and law enforcement bodies, the National Authority for Combating Drugs (NACD) and the Anti-Drug Department of the National Police, cooperate closely with DEA, regional counterparts, and the United Nations Office on Drugs and Crime (UNODC). Cambodia is a party to the 1988 UN Drug Convention.
II. Status of Country
Cambodia has experienced a significant increase in recent years in the amount of ATS transiting from the Golden Triangle. The UNODC estimates that as many as 100,000 methamphetamine tablets enter Cambodia each day. Many of these are consumed domestically, though some are also thought to be re-exported to Thailand and Vietnam. 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.
Cambodia is not a producer of opiates; however, it serves as a transit route for heroin from Burma and Laos to international drug markets such as Vietnam, mainland China, Taiwan, and Australia. Heroin and methamphetamine enter Cambodia primarily through Stung Treng, a northern province of Cambodia bordering Laos. Larger shipments of heroin, methamphetamine and marijuana exit Cambodia concealed in shipping containers, speedboats and ocean-going vessels. Smaller quantities are also smuggled through Phnom Penh International Airport concealed in small briefcases, shoes, and on the bodies of individual travelers. Cannabis cultivation continues despite a government campaign to eradicate it. There have been reports of continued military and/or police involvement in large-scale cultivations in remote areas. However, only small amounts of Cambodian cannabis reach the United States.
III. Country Actions Against Drugs in 2005
Policy Initiatives. Cambodian law enforcement agencies suffer from limited resources, lack of training, and poor coordination. The 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. Although the project is currently slated to expire at the end of 2005, it is likely to be extended through August 2006. A successor project has been proposed to target drug-related crime, including transnational organized crime.
Accomplishments. During 2005, the NACD began to implement Cambodia's first 5-year national plan on narcotics control (2005-2010), which focused on demand reduction, supply reduction, drug law enforcement, and expansion of international cooperation. The NACD trained 814 policemen, gendarmes, customs officials, seaport officials, and border liaison officials in drug identification and law enforcement. This training complements donor-provided training to increase local law enforcement capacity to test seized substances for use as evidence in criminal trials. In February 2005, the National Assembly ratified the 1961, 1971 and 1988 UN Drug Conventions. In 2005, the Cambodian government took decisive action to strengthen previously weak legal penalties for drug-related offenses. The new law drafted with help from the Anti-Drug Department of the National Police provides for a maximum penalty of $1 million fine and life imprisonment for drug traffickers, and would allow proceeds from the sale of seized assets to be used towards law enforcement and drug awareness and prevention efforts. However, some observers worry that the law is too complex for the relatively weak Cambodian judiciary to use effectively.
Law Enforcement Efforts. In the first 11 months of 2005, 705 people (mostly Cambodians) were arrested for various drug-related offenses. This is an increase over arrests during this same period in 2004, which numbered 474. Total seizures of heroin in 2005 were 11.06 kilograms and 9 small dose packets, a five-fold increase over 2004 seizures, which totaled 2.15 kilograms. Police arrested 10 people in heroin-related cases in 2005, including a Singaporean man with 3 kilograms of heroin strapped to his legs at Phnom Penh International Airport.
While methamphetamine trafficking is believed to have increased in 2005, the number of methamphetamine pills confiscated was just one-third of 2004 levels. Police arrested 670 people in methamphetamine-related cases in 2005 and seized 293,245 methamphetamine pills. In May, police in Kampot province arrested two Stung Treng-based traffickers intending to smuggle over 100,000 amphetamine pills into Vietnam. In December, police arrested four men carrying 46,000 methamphetamine pills in Banteay Meanchey province as part of a Thai-based trafficking ring.
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.
An informal donor working group, including the US, is working closely with the government to produce a revised draft anticorruption law that meets international best practices. Observers expect that the National Assembly will pass this law in 2006. Cambodia is not a party to the UN Convention Against Corruption.
Agreements and Treaties. Cambodia is a party to the 1988 UN Drug Convention and the 1971 UN Convention on Psychotropic Substances, and has signed, but has not yet ratified the 1961 UN Single Convention and its 1972 Protocol, but is expected to do so in 2006. Cambodia is a party to the UN Convention Against Transnational Organized Crime and its protocols against migrant smuggling and illegal manufacturing and trafficking in firearms.
Cultivation/Production. During 2005, 218 square meters of cannabis plantations were destroyed; 102.5 kilograms of dry cannabis were seized; and 13 people were arrested.
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. Enforcement of the border region with Laos on the Mekong River, which is permeated with islands and mangroves, is nearly impossible due to lack of boats and fuel among law enforcement forces. 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. Airports in Phnom Penh and Siem Reap suffer from lax customs and immigration controls. Some illegal narcotics are believed to transit these airports en route to foreign destinations. Cambodia has several high-quality, improved-surface roads originating in Phenom Phen which have a limited reach toward remote interior regions of the country. The People's Republic of China has demonstrated its interest in increasing political influence and trade opportunities in Cambodia and all of South East Asia. To that end, the Chinese have spent millions of dollars towards this commitment and are currently constructing excellent new roads and bridges connecting the border regions with the main cities and rural areas in Cambodia. Once these roads are completed, high-speed transportation routes will facilitate even greater movement of drugs and supplies across the country.
Domestic Programs (Demand Reduction). 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. A UNODC treatment and rehabilitation project is expected to start providing services to addicts and increasing the capacity of health and human services to deal effectively with drug treatment issues in early 2006. This project will work with centers in Phnom Penh and in the provinces of Battambang, Koh Kong and Banteay Meanchey. Several local NGOs, including Friends, Punloeu Komar Kampuchea, Cambodian Children and Handicap Development (CCHDO), Goutte d' Eau, Cambodian Children Against Starvation Association (CCASVA) and Street Children Assistance for Development Program (SCADP), have taken active roles in helping to rehabilitate drug victims across the country.
IV. U.S. Policy Initiatives and Programs
Policy Initiatives. For the first time in Cambodia in over three decades, there has been relative political stability since the formation of coalition governments following national elections in 1998 and 2003. However, freedom of expression declined notably during 2005. An opposition party parliamentarian was sentenced to seven years in prison on questionable charges of fraud and forming an illegal army. A journalist and a trade union leader were arrested on charges of defamation and incitement for criticizing a controversial border treaty with Vietnam. Several other political activists fled the country after warrants were issued for their arrest.
Cambodia is also 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. One unique challenge which Cambodia faces is the loss of many of its best trained professionals in the Khmer Rouge Killing Fields incidents during, and after the Second Indo-China War. Performance in the area of law enforcement and administration of justice must be viewed in the context of Cambodia's profound underdevelopment. Even with the active support of the international community there will be continuing gaps in performance for the foreseeable future.
Bilateral Cooperation. U.S.-Cambodia bilateral counternarcotics cooperation is hampered by restrictions on 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 Bangkok-based DEA personnel, and Cambodian authorities cooperate actively with DEA, including the areas of joint operations and operational intelligence sharing. In September 2005, Bangkok-based DEA personnel conducted basic intelligence analysis training for law enforcement officials. DOD conducted Joint Interagency Task Force-West (JIATF-West) training missions in Battambang in August and October and in Stung Treng province in September. The three-week programs increased the ability of Cambodian police, military, and immigration officials to interdict transnational threats, including narcotics.
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. Instruction for mid-level Cambodia law enforcement officers at the International Law Enforcement Academy in Bangkok (ILEA) and for military, police, and immigration officers by JIATF-West has partially addressed Cambodia's dire training needs. However, after training these officers return to an environment of scarce resources and pervasive corruption.
As part of the JIATF-West program, Cambodian officials can be trained in land and maritime navigation and boat maintenance, but equipment to perform these tasks is often shoddy or completely lacking. The U.S. is unable to help provide this important equipment due to restrictions on U.S. military assistance related to Cambodia's trafficking in persons rating. However, 2006 will see an expansion in DEA training activities, as, for the first time in more than a decade, State Department counternarcotics funding will be available for training run via DEA headquarters. Training in basic investigation techniques is scheduled for January 2006 and a course on airport interdiction is planned for March 2006. The United States will try to assist Cambodia as Cambodia strives for better law enforcement performance and administration of justice.
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 informal banking 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 official 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 and providing security, it exerts little supervision over them. The Cambodian government continues to work on draft legislation that would criminalize money laundering and the financing of terrorism, but the law is not expected to pass until 2006.
Cambodia's banking sector is small but expanding, with fifteen general commercial banks, and four specialized commercial banks and numerous microfinance institutions. However, 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 with one of the largest local business conglomerates, the Royal Group of Companies. Otherwise, the banking sector is largely dominated by a handful of Cambodian-owned banks such as Canadia, Mekong, and ACLEDA, the government-owned Foreign Trade Bank.
The 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. 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. A more likely route for larger scale money laundering in Cambodia is through informal banking activities or business activities. Neither the NBC nor any other Cambodian entity is responsible for identifying or regulating these informal financial networks or activities.
With increased 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 no 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 yet have the authority to apply anti-money laundering controls to non-bank financial institutions such as casinos or other intermediaries, such as lawyers or accountants. However, this authority is included in draft anti-money laundering legislation.
The major non-bank 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 on a 24-hour basis. It does not appear that Interior Ministry staff at the casinos exercise any actual supervision over casino operations, beyond making sure that the Ministry receives its share of casino payouts that ensures security for the casinos.
There are currently 19 licensed casinos in Cambodia, with a few more either under construction or applying for a license. Most are located along Cambodia's borders with Thailand or Vietnam. There is one large casino and other smaller gambling establishments located in Phnom Penh that have avoided the regulation that all casinos be at least 200 kilometers from the capital city.
Reportedly, most casino patrons simply hand-carry their money across borders. For patrons placing large bets, 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. Regardless of whether funds are hand-carried into Cambodia or wired into a Thai bank, the casinos do not practice due diligence.
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. A Sub-Decree on the composition and duties of AMLC has been drafted but is unlikely to be passed until passage of the new anti-money laundering legislation. 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 ratified the 1988 UN Drug Convention in 2005. It has signed the UN International Convention for the Suppression of the Financing of Terrorism. 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 UNSCR 1267 Sanction Committee's consolidated list. 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), a Financial Action Task Force (FATF) regional body. The APG has 30 members, including the U.S. Among its activities, the APG conducts mutual evaluations of members' anti-money laundering and terrorism financing efforts. The APG planned to conduct an evaluation of Cambodia in 2005 but the Cambodian government requested that the APG delay its evaluation until after the passage of the draft Law on Anti-Money Laundering. The government also plans to work with the APG members to establish a Financial Intelligence Unit (FIU). According to the draft law, the FIU will be placed under the control of the NBC with a permanent secretariat working under the authority of a board composed of the senior representatives from Ministries of Economy and Finance, Justice, and Interior. 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, including the NBC and the Ministries of Economy and Finance, Interior, and Justice, the National Anti-Drug Committee was formed on November 26, 2003 to draft anti-money laundering legislation that meets international standards. 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. The IMF is assisting the NBC in issuing regulations to strengthen the existing anti-money laundering framework while the draft legislation is considered. Absent passage of the draft legislation in 2005, the NBC plans to issue a series of regulations that have the force of law (Praksas) and that will criminalize money laundering and terrorism financing, as well as update existing financial rules and regulations.
Pending legislation on industrial zones would create several free trade zones along Cambodia's borders. Some observers have raised concerns about the potential for money laundering in the free trade zones, and it is unclear if the pending legislation will address this issue. In May 2005, Prime Minister Hun Sen cited money laundering as a major concern during his remarks at the Ministerial Meeting of Signatory Countries on 1993 MOU on Drug Control Cooperation.
Continuing work on the draft anti-money laundering legislation and becoming a party to the 1988 UN Drug Convention are positive steps. Cambodia should pass the draft anti-money laundering and counterterrorist financing legislation as soon as possible. Cambodia should also ratify the UN Convention Against Transnational Organized Crime. However, the larger questions remain regarding the government's ability to implement and enforce the measures once they are in place. Cambodia should also engage fully with the Asia/Pacific Group on Money Laundering and take full advantage of its upcoming mutual evaluation and training programs offered by international donors.