Source: 2007
Released by the Bureau for International Narcotics and Law Enforcement Affairs
The number of drug-related investigations, arrests and seizures in Cambodia continued to increase in 2006. 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) such as methamphetamines and Ecstasy (MDMA) 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.
Cambodia has experienced a significant increase in recent years in the amount of ATS transiting from the Golden Triangle. The World Health Organization (WHO) estimates that as many as 150,000 methamphetamine tablets enter Cambodia each day. Many of these are consumed domestically (as many as 50,000 per day in Phnom Penh alone), though some are also thought to be re-exported to Thailand and Vietnam. In addition, Cambodian drug control authorities and foreign experts have reported the existence of ATS laboratories in northwestern and southeastern Cambodia. There have also been reports of mobile groups harvesting cinnamomum trees in Cambodia's Cardamom Mountains and extracting chemicals, which can be used as precursors for ATS production. Cocaine use by wealthy Cambodians and foreigners in Cambodia is a relatively small but worrisome new phenomenon. Cocaine consumed in Southeast Asia originates in South America, particularly Peru and Colombia, and transits via human couriers ("swallowers") on commercial air flights to regional narcotics distribution hubs in Bangkok, Hong Kong, Beijing, and Guangzhou. Recent reports indicate that Cambodia may be taking on a small but increasing role as a new trafficking route, with cocaine coming by air from Kuala Lumpur or Singapore, transiting via Phnom Penh, and arriving in Bangkok. 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, Hong Kong, and Australia. Heroin and methamphetamine enter Cambodia primarily through the northern provinces of Stung Treng and Preah Vihear, an area bordering Laos and Thailand. 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 eradication campaign, and there have been reports of continued military and/or police involvement in large-scale cultivations in remote areas. Only small amounts of Cambodian cannabis reach the United States.
Policy Initiatives. Cambodian law enforcement agencies suffer from limited resources, lack of training, and poor coordination. The NACD, which was reorganized in 1999 and again in June 2006, 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 project expired at the end of 2006 and is to be replaced by a similar, but less ambitious, capacity building project of one-year duration in 2007.
Accomplishments. The NACD is implementing Cambodia's first 5-year national plan on narcotics control (2005-2010), which focuses on demand reduction, supply reduction, drug law enforcement, and expansion of international cooperation. In 2006, the NACD trained 205 police officers, 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. The Cambodian government continued its work 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. According to NACD reports, (exclusive of synthetic drugs) 439 people (mostly Cambodians) were arrested for various drug-related offenses in the first nine months of 2006, compared to 705 in the first eleven months of 2005. The number of arrests and amount of heroin seized during the first nine months of 2006 exceed the total number of heroin-related arrests and quantity seized during all of 2005. Total seizures of heroin from January through September 2006 were 13.4 kg, compared to 11.06 kg in 2005. Police arrested 18 people in heroin-related cases in January to September 2006 (compared to 10 arrests in 2005), including six Taiwanese individuals apprehended at Phnom Penh airport with more than 10 kg of heroin hidden in their bodies and bags. While methamphetamine trafficking is believed to be on the rise, the number of methamphetamine pills confiscated in 2005 and the first nine months of 2006 remain far below 2004 levels. Police arrested 465 people in methamphetamine-related cases in January to September 2006 and seized 322,761 methamphetamine pills, and 3,722 grams of methamphetamine, and 485 small dose packets.
Corruption. The Cambodian government does not, as a matter of government policy, encourage or facilitate illicit production or distribution of drugs or controlled substances, or launder proceeds from their transactions. Nonetheless, 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 July 2006, Heng Pov, the former chief of the Anti-Drug Police, fled Cambodia and alleged that high-ranking government officials and well-connected businessmen were involved in drug trafficking but were not prosecuted due to government pressure. It is difficult to assess the credibility of these claims. At the Consultative Group (CG) meeting in December 2004, a group of donor countries jointly proposed a new benchmark for Cambodian government reform: forwarding an anticorruption law, which meets international best practices to the National Assembly. The government agreed to meet this benchmark by the next CG meeting, which was held in March 2006. Unfortunately, the government failed to meet this deadline and, as of October 2006, has still not completed the law. An informal donor working group, including the U.S., has worked closely with the government to produce a draft that meets international best practices. In addition, at each quarterly meeting of the Government-Donor Coordinating Committee, the international community has highlighted the government's still un-met commitment and outlined the international best practices to be included in the Cambodian draft corruption law. Cambodia has not signed the UN Convention against Corruption.
Agreements and Treaties. Cambodia is a party to the 1988 UN Drug Convention, the 1971 UN Convention on Psychotropic Substances, and the 1961 UN Single Convention as amended by the 1972 Protocol. 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. Cannabis cultivation continues despite a government eradication campaign. During the first nine months of 2006, 144 square meters of cannabis plantations were destroyed and eight people linked to these plantations were arrested. This eradication campaign has either reached a plateau of success or is being pursued less vigorously than in past years (for example, while 218 square meters were reported destroyed during 2005, 14,000 square meters were reported destroyed during 2004, and 6,000 square meters were reported destroyed in during 2003).
Drug Flow/Transit. Cambodia shares porous borders with Thailand, Laos, and Vietnam and lies near the major trafficking routes for Southeast Asian heroin. Drugs enter Cambodia by both primary and secondary roads and rivers across the northern border. Many narcotics transit through Cambodia via road or river networks and enter Thailand and Vietnam. 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. At the same time, recent improvement in National Road 7 and other roads is increasing the ease with which traffickers can use Cambodia's rapidly developing road network--a trend likely to continue as further road and bridge projects are implemented. Large quantities of heroin and cannabis, along with small amounts of ATS, are believed to 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 transit these airports en route to foreign destinations. In May 2006, police and customs officials arrested three Taiwanese nationals, two of whom were carrying a total of more than 7 kg of heroin, which they intended to smuggle to Taiwan on commercial flights. In September 2006, the Anti-Drug Police arrested four South Americans who had swallowed a total of more than 4 kg of cocaine and smuggled it into Cambodia on commercial flights.
Domestic Programs (Demand Reduction). A nine-month report of the NACD, covering the period from January to September 2006, states the total number of drug users and addicts was 6,500, a figure provided by the Royal Government of Cambodia's (RGC) Anti-Drug Department. NGOs and other specialists working on this issue argue that the number of drug users in Cambodia is probably far higher and is growing each year. A study conducted by the Joint United Nations Program on HIV/AIDS (UNAIDS) in 2005 estimated that at the end of 2004, there were 20,000 amphetamine users, 2,500 heroin users, and 1,750 intravenous drug users in Cambodia. With the assistance of the UNODC, UNICEF, 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, funded by Japan and initiated in October 2006, provides services to addicts and works to increase the capacity of health and human services to deal effectively with drug treatment issues. This project will work at four sites in three provinces, most likely in Phnom Penh, Battambang, and Banteay Meanchey. Several local NGOs, including Mith Samlanh, 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.
Policy Initiatives. For the first time in over three decades, there is relative political stability in Cambodia. 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. One unique challenge, which Cambodia faces, is the loss of many of its best trained professionals in the Khmer Rouge period (1975-1979), as well as during the subsequent Vietnamese occupation. 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. restrictions on assistance to the central government of Cambodia, in place from the political disturbances of 1997 until the present reporting period, hampered U.S.-Cambodia bilateral counternarcotics cooperation. However, U.S.-Cambodia bilateral counternarcotics cooperation should improve in FY07 as a result of the lifting of certain restrictions on military assistance to Cambodia. Cambodia regularly hosts visits from Bangkok-based DEA personnel, and Cambodian authorities cooperate actively with DEA, including in the areas of joint operations and operational intelligence sharing. In January and March 2006, immigration, customs, and police officials attended Basic Counternarcotics and Airport Interdiction courses funded by the State Department and taught by DEA Special Agents. DOD conducted Joint Interagency Task Force-West (JIATF-West) training missions in Koh Kong in February 2006, and in Stung Treng province in June 2006. The three-week programs increased the ability of Cambodian police, military, and immigration officials to interdict transnational threats, including narcotics. In 2006, JIATF-West and DEA partnered to incorporate DEA trainers into the JIATF-West training missions, bringing together military interdiction and law enforcement skills into a coherent package. Through a USAID cooperative agreement, Khmer HIV/AIDS NGO Alliance (KHANA) is supporting more than 80 local organizations engaged in HIV/AIDS prevention throughout the country. In 2006, some of these organizations included drug-related HIV/AIDS transmission issues in their programs. Outreach efforts targeted at intravenous drug users will continue, as such drug use is the quickest and most efficient means of HIV transmission.
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. As noted above ("Bilateral Cooperation"), the USG in FY07 lifted certain restrictions on military assistance to Cambodia. The RGC is establishing a foreign military sales case for $670,000 of excess defense articles. The acquisition of basic soldier and unit equipment (such as uniforms, boots, first aid pouches, compasses, cots, and tents) for the Army border battalions will facilitate an increased ability to conduct patrols along the borders. The JIATF-West training events in FY07 will consist of two events in Stung Treng province and one event in the Battambang/Banteay Meanchey area, and will again include DEA trainers in addition to military personnel. JIATF-West has also embarked on a training infrastructure renovation project, which will renovate several law enforcement and military facilities in Sisophon town and the provinces of Preah Vihear and Stung Treng. Renovation will serve both to facilitate future JIATF-West training and also to build the capacity of Cambodian law enforcement and military authorities. In addition, the U.S.-based drug treatment organization Daytop International will conduct three training sessions for Cambodian government, non-government, and private sector drug prevention and treatment professionals. These training sessions, which will be funded by the State Department and will last approximately two weeks each, are scheduled to start in December 2006. USAID is collaborating with WHO and NGO partners to collect data on numbers and behaviors of intravenous drug users and is supporting intravenous drug use and HIV outreach services in Phnom Penh and Siem Reap as a first step in addressing the growing problem of illicit drug use. The U.S. will also encourage the Cambodian Government to sign and ratify the UN Convention against Corruption and begin to implement its commitments.
Cambodia is neither an important regional financial center nor an offshore financial center. While there have been no verified reports of money laundering in Cambodia, it serves as a transit route for heroin from Burma and Laos to international drug markets such as Vietnam, mainland China, Taiwan, and Australia. Its very weak anti-money laundering regime, a cash-based economy with an active informal banking system, porous borders with attendant smuggling, casinos, and widespread official corruption also contribute to money laundering in Cambodia.
The National Bank of Cambodia (NBC) has made some strides in recent years by beginning to regulate the small official banking sector, but other nonbank financial institutions, such as casinos, remain outside its jurisdiction. While the Ministry of Interior has legal responsibility for oversight of the casinos and providing security, it exerts little supervision. In July 2006, the Council of Ministers approved draft legislation that would criminalize money laundering and the financing of terrorism and forwarded the bill to the National Assembly for ratification. However, the National Assembly had not taken action as of mid-November 2006.
Cambodia's banking sector is small but expanding, with fifteen general commercial banks, five commercial banks, and numerous microfinance institutions. However, overall lending and banking activity remains limited as most Cambodians keep their assets outside the banking system. Economists note that while a typical country would have a bank deposit to GDP ratio of roughly 60 percent, Cambodia's ratio is only 16 percent--low even by developing economy standards. Cambodia's banking system is highly consolidated, with two banks--Canadia Bank and Foreign Trade Bank (FTB)--accounting for more than 40 percent of all bank deposits. Moreover, during the October 2005 privatization of the Foreign Trade Bank, Canadia gained a 46 percent share in FTB, further strengthening Canadia's large role in the financial services sector.
The NBC has regulatory responsibility for the banking sector. The NBC regularly audits individual banks (that have a small numbers of transactions and deposits) to ensure compliance with laws and regulations. There is a standing requirement for banks to declare transactions over 42,000,000 riel (approximately $10,000). The NBC says its audits reveal that this requirement is generally followed.
While there are no reports to indicate that banking institutions themselves are knowingly engaged in money laundering, government audits would likely not be a sufficient deterrent to money laundering through most Cambodian banks. However, questions from correspondent banks about large transfers and Cambodia's relatively high 0.15 percent tax on financial transactions might discourage money laundering within the formal banking sector 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 such as casinos. The vulnerability of Cambodia's financial sector is further exacerbated because of the intersection of the casino and banking interests with four companies having whole or partial shares in both banks and casinos, With increased political stability and the gradual return of normalcy in Cambodia after decades of war and instability, bank deposits have risen by 12-15 percent per year since 2000 and the financial sector shows some signs of deepening as domestic business activity continues to increase in the handful of urban areas. Foreign direct investment, while limited, is increasing after several years of contraction.
Reportedly, 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 reportedly no evidence that smuggling is funded primarily by drug proceeds, including the importing and local production of the methamphetamine (ATS). 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 its proceeds. Cambodia has a cash-based and dollar-based economy, and the smuggling trade is usually conducted in dollars. 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.
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 nonbank 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 nonbank financial institutions in Cambodia are the casinos, where foreigners are allowed to gamble but 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 financial operations.
There are currently more than 20 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 in Phnom Penh that has avoided the regulation that all casinos be at least 200 kilometers from the capital city. Casino patrons placing small bets simply hand-carry their money across borders, while others use either bank transfers or junket operators. There is no effective oversight of cash movement into or out of Cambodia. Cambodian casinos have accounts with major Thai or Vietnamese banks and patrons can wire large amounts of money to one of these foreign accounts. After a quick phone call to verify the transfer, the Cambodian casino issues the appropriate amount in chips. Casinos also work with junket operators who, despite their name, only facilitate money transfers and do not serve as travel or tour operators. Players deposit money with a junket operator in Vietnam or Thailand, the casino verifies the deposit and issues chips to the player-- typically up to double the amount of the deposit. After the gambling session ends, the junket operator then has 15 days to pay the casino for any losses. Because the junket operator is responsible for collecting from the patrons, casinos see little need to investigate the patron's ability to cover his/her potential debt or the source of his/her wealth.
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 and in fulfilling "Know Your Customer" best practices, though no suspicious transactions have yet been reported to the NBC. 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.
In 2005, Cambodia became a party to the 1988 UN Drug Convention, the UN Convention Against Transnational Organized Crime, and the UN Convention for the Suppression of the Financing of Terrorism. No existing laws currently address terrorism financing, although it is specifically addressed in the draft law on money laundering. The NBC does circulate to financial institutions the list of individuals and entities included on the UNSCR 1267 Sanction Committee's consolidated list, and 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 conducts mutual evaluations of members' anti- money laundering and terrorism financing efforts. An APG evaluation of Cambodia originally scheduled for 2005 has been delayed at the government's request until early 2007 to permit passage of the draft Law on the Prevention of Money Laundering and Financing of Terrorism before the evaluation. According to the draft law, a new financial intelligence unit (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.
A Working Group, including the NBC and the Ministries of Economy and Finance, Interior, and Justice, the National Authority for Combating Drugs was formed on November 26, 2003 to draft anti- money laundering legislation that meets international standards. 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 (including in free trade zones); 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. While the draft anti- money laundering legislation was being considered, the NBC planned to issue a series of regulations that have the force of law (parkas) and that will criminalize money laundering and terrorism financing, as well as update existing financial rules and regulations. However, these prakas were not issued due to concerns that they would set stricter rules than would be included in the new legislation Making progress on the long-awaited draft anti-money laundering legislation and becoming a party to the UN conventions on drugs, organized crime, and terrorism financing are positive steps. The Government of Cambodia should pass the draft anti-money laundering and counterterrorist financing legislation as soon as possible. Questions remain regarding the government's ability to implement and enforce the measures once they are in place. To this end, Cambodia should engage fully with the Asia/Pacific Group on Money Laundering and implement all recommendations of its upcoming mutual evaluation in order to develop a comprehensive viable anti-money laundering/counterterrorist financing regime that comports with international standards.