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Economy

Cambodia and Laos casinos targeted for drug-trade money laundering

Investigators in Southeast Asia follow money trail from booming meth market

Thai police seized 459 kilograms of crystal methamphetamine in July that they suspect originated from Myanmar. Myanmar's eastern Shan state has emerged as the global hub for producing synthetic drugs.   © AP

BANGKOK -- Anti-narcotic investigators are searching for signs of money laundering in the casinos that have spread across Sihanoukville, a Cambodian coastal city that has become a magnet for Chinese high-rollers, amid the booming methamphetamine market in Southeast Asia.

The United Nations Office on Drugs and Crime estimates the region's meth market -- Southeast Asia is the world's epicenter of the synthetic drug -- to be valued at $ 61.4 billion annually, more than double the Cambodian economy of $24 billion.

"The casinos in Sihanoukville are now worth looking into, as you have currency exchanges in all of them, and there are currency wire services just next to the gambling tables," an international investigator told the Nikkei Asian Review. "All the punters are Chinese and they gamble with thick stacks of 100 dollar bills."

Under Prime Minister Hun Sen, Cambodia's pro-China strongman, the once sleepy resort town of Sihanoukville has been rapidly transformed in recent years through Chinese-led development projects. New apartments, hotels and casinos have given the town its new look.

The Financial Action Task Force, an intergovernmental global money-laundering watchdog, this year placed Cambodia on its "gray list," affirming concerns about the unregulated world of the country's gambling dens. The designation comes as Cambodia witnesses a surge in gambling, with the UNODC estimating that nearly 150 of the 234 casinos across Southeast Asia are based in Cambodia.

The Kings Romans Casino in Laos. The Chinese-owned casino, near the border with Thailand, has been flagged for engaging in drug trafficking and money laundering by the U.S. Department of the Treasury. (AFP/Jiji)

Transnational criminal networks driving the meth trade are taking advantage of Cambodia's porous borders and it being run with a U.S. dollar economy -- dollars are readily used for all transactions over the Cambodian riel, the local currency.

"Suitcases full of cash are brought across the Thai-Cambodian and Vietnam-Cambodian borders regularly, and exchanging them for dollars does not raise eyebrows," a Western diplomatic source told Nikkei. "The unregulated casinos are ideal venues to launder this cash."

The UNODC said as much -- though without naming a country -- in a recent report. "Methamphetamine trafficking is the most lucrative business for transnational organized crime groups in the region," it said in the report titled "Transnational Organized Crime in Southeast Asia: Evolution, Growth and Impact."

"The illicit proceeds are laundered through various channels, in particular the growing network of casinos in the region," it said.

The focus on Sihanoukville's casinos, which are removed from Cambodia's land borders, marks a shift in the terrain that had been previous targets of anti-narcotics investigators: thriving casinos, hotels and businesses along the borders across mainland Southeast Asia. These fronts to launder money were within the Golden Triangle, the rugged terrain linked for decades to the heroin trade. The area encompasses parts of eastern Myanmar, northern Thailand and western Laos.

The sprawling Kings Romans Casino in Laos, close to the Thai border, has been flagged for engaging in drug trafficking and money laundering by the U.S. Department of the Treasury. Zhao Wei, chairman of the Kings Romans Group, has dismissed the charges as "groundless."

Meanwhile, Thailand's Department of Special Investigation has targeted properties owned by Malaysia's MBI Group in southern Thailand close to the Malaysian border for laundering money for drug-trafficking networks. Thai police investigators have raided a hotel owned by the group -- one of several hotels, apartments, resorts and animal farms it owns -- and seized over 83 million baht ($2.7 million) in foreign currency.

The once sleepy Cambodian resort town of Sihanoukville has been rapidly transformed in recent years -- including with the Sihanoukville Special Economy Zone -- through Chinese-led development projects. (Photo by Akira Kodaka)

Observers regard the proliferation of money laundering fronts as a spinoff from the success of the transnational drug networks to increase meth production. Their supply and trafficking illustrates the power of the drug business, according to Jeremy Douglas, regional representative of UNODC. "The past decade has seen an increase in methamphetamines."

Such a spike in supplying the global market comes even as anti-narcotics teams swoop down on traffickers transporting synthetic drugs through Southeast Asia to meet domestic demand and markets beyond, spanning South Korea and Japan to Australia and New Zealand. Thailand seized more than 515 million methamphetamine tablets in 2018, which amounted to the "combined seizure of the drug reported from all countries in the region in any preceding year," the UNODC's report said. In 2013, by contrast, just over 100 million tablets had been seized in Thailand.

The meth supply chain has even sustained a crackdown by China of its domestic, clandestine meth laboratories in its southern provinces. The anti-meth campaign in China peaked in 2015, when 526 laboratories making the drug were dismantled, the UNODC said. "[The Chinese] government reports that the number of laboratories dropped by nearly 60% between 2015 and 2017."

But Beijing's crackdown prompted Chinese drug lords to move their meth labs over the border to Myanmar's Shan state. The new labs attracted trained Chinese and Taiwanese chemists skilled at producing the drugs. In its wake also came a steady supply of the precursor chemicals from China, such as ephedrine and pseudoephedrine.

According to Phill Hynes, head of political risk and analysis at Intelligent Security Solutions, a Hong Kong-based security consultancy, the Chinese crackdown forced the narcotics networks operating in Guangzhou Province to move underground, affecting the regional networks. But it also "made them more sophisticated," he said.

As a result, Myanmar's eastern Shan state, a lawless border region that has been torn apart by decades of ethnic conflict and where drug lords, militias and the country's military have competing stakes, has emerged as the global hub for producing synthetic drugs.

"The methamphetamine business has become so large and profitable that it now dwarfs the formal economy of Shan state, and is at the center of its political economy," Brussels-based think tank International Crisis Group said in a report released earlier this year.

"The trade is becoming increasingly professionalized, dominated by transnational criminal syndicates operating at huge scale," the report, titled "Fire and Ice: Conflict and Drugs in Myanmar's Shan State," said. "Crystal meth is now packed in branded tea packets, both to facilitate concealment and to give it a specific product identity."

Richard Horsey, a co-author of the International Crisis Group report, reckons it is unlikely that Shan state's notoriety as the world's meth factory could be snuffed out through a "purely law enforcement approach" to the illegal drug trade.

"For several reasons -- proximity to precursor supplies, safe areas for clandestine labs and good transportation infrastructure between the two -- Shan state is currently the production zone of choice."

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