VZCZCXRO8676
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #0489/01 0881023
ZNR UUUUU ZZH
P 291023Z MAR 07
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 8258
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY 0679

UNCLAS SECTION 01 OF 02 PHNOM PENH 000489 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, EAP/RSP--STUART ALLEN, 
EB/ESC/TFS--KATHERINE LEAHY AND LEANNE CANNON, S/CT--PATTY 
HILL AND ANNE GALER, INL/AAE--CHARLES BOULDIN 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: EFIN SNAR KCRM CB
SUBJECT: CAMBODIAN MONEY LAUNDERING VULNERABILITIES 
HIGHLIGHTED BY EXTERNAL AUDIT 
 
 
¶1.  (SBU) SUMMARY.  An external assessment team recently 
rated Cambodia as falling far short of international 
financial regulatory standards and described government 
officials as being in a "state of denial" about the potential 
for money laundering.  Poor coordination among Cambodian 
government agencies and donors, distrust of the police, and 
lack of political will all hamper efforts to prevent money 
laundering.  Casinos, banks, and real estate transactions are 
not effectively policed, although many international banks 
effectively implement stringent company policies on financial 
regulation.  Cambodia is the only ASEAN country without an 
anti-money laundering law, and prospects for passage of a law 
in the near term are uncertain.  SUMMARY. 
 
¶2.   (SBU) The Asia-Pacific Group (APG), a regional financial 
standards body similar to the G8's Financial Action Task 
Force, and the World Bank (WB) recently completed a joint 
assessment of Cambodia's financial regulatory system.  While 
results will not be announced publicly until after the 
plenary session this summer, two team members, Lindsey Chan 
of the APG and Andrew Clayton of the Hong Kong Police, gave 
Poleconoff an informal readout of the assessment. 
Separately, National Bank of Cambodia Deputy Governor Neav 
Chanthana also provided her impression of the process and 
results. 
 
"A State of Denial" about Potential for Financial Crimes 
--------------------------------------------- ----------- 
 
¶3.  (SBU) Overall Cambodia falls far short of APG standards. 
Out of 40 areas assessed, Cambodia was largely compliant in 
2, partially compliant in 6, and non-compliant in 30, 
according to Neav Chanthana.  (Note:  Two areas were deemed 
to be inapplicable.  End Note.)  While Chan and Clayton felt 
certain that this could not have come as a shock to the 
Cambodian government, Neav Chantana expressed surprise that 
the country did so poorly in the assessment and that only 
effectively implemented legislation--not draft or unenforced 
laws--could have a positive impact on the assessment. 
 
¶4.  (SBU) Clayton and Chan expressed overall frustration with 
Cambodia's weak attempts to police its financial sector, 
saying that the Cambodian government was in a "state of 
denial" about the potential for money laundering in Cambodia 
and that the National Bank didn't sufficiently understand or 
take ownership of the problem.  They noted that a sound 
anti-money laundering regime requires excellent 
intra-governmental cooperation, but ministries who are 
supposedly cooperating in the Financial Intelligence Unit do 
not appear to be working well together.  Moreover, neither 
the National Bank of Cambodia nor individual private banks 
trust the police.  Government officials conveniently blame 
their lack of action on the lack of an anti-money laundering 
bill, but in fact they could be doing much more to 
effectively regulate the financial sector in the absence of 
such a law.  For example, an existing law requires that banks 
perform "know your customer" checks and record transactions 
over a threshold to be defined by the Ministry of Economics 
and Finance (MoEF).  However, the MoEF has never defined this 
threshold and as a result no transactions have to be 
reported. 
 
Potential Money Laundering Avenues Unchecked 
-------------------------------------------- 
 
¶5.  (SBU) The government is largely ineffective at policing 
potential avenues for money laundering, Chan and Clayton 
stated.  The MoEF's casino management section told the APG/WB 
team that they can not effectively police Cambodia's casinos 
because nearly all are located along Cambodia's borders and 
they do not have funding to travel.  Many of the 
international banks appear to be doing a relatively good job 
of policing themselves, but most limit their interaction with 
law enforcement; choosing, for example, to close an account 
and refuse to make a suspicious transaction rather than 
alerting the police to the attempted activity.  In contrast 
to lax enforcement in other areas, Chan and Clayton noted 
relatively good monitoring of international NGOs, which can 
potentially serve as instruments of money laundering. 
 
¶6. (SBU) Real estate transactions are essentially unregulated 
and represent an accessible route for would-be money 
launderers, according to the APG/WB assessment.  Despite a 
new real estate licensing law, few realtors are licensed. 
There is no objective assessment of property values and 60% 
 
PHNOM PENH 00000489  002 OF 002 
 
 
of all real estate transactions are done in cash, even those 
involving hundreds of thousands of dollars or more, making it 
easy for someone to claim to have bought a property for USD 
100,000 and sold it for USD 1 million.  Moreover, many 
landowners choose not to register their land in Cambodia, as 
unregistered land is common and registration requires the 
payment of a 4% registration tax. 
 
¶7.  (SBU) Chan and Clayton also noted that lack of donor 
coordination and follow up hampers the effectiveness of 
foreign assistance designed to build Cambodia's capacity to 
prevent and detect money laundering.  Different donors have 
drawn on different legal traditions in assisting with the 
drafting of financial and criminal laws, leading to laws that 
sometimes conflict or fail to fully address the issue. 
Moreover, donors are quick to send Cambodian government 
officials to conferences and training sessions about 
financial regulations--the head of the Banking Supervision 
Department of the National Bank travels one week a month, 
they noted--but there is little on the ground follow up or 
pressure from donors on participants to apply what they have 
learned. 
 
Prospects for an Anti-Money Laundering Bill Unclear 
--------------------------------------------- ------ 
 
¶8.  (SBU) Cambodia is the only country in ASEAN without a 
money laundering bill; prospects for passage of a 
long-delayed draft bill are unclear.  Clayton and Chan 
believe that if the legislation is not passed by May 15--the 
deadline for any change in Cambodia's financial regulation to 
be reflected in the APG assessment--it is unlikely that there 
will be significant pressure to pass the legislation until 
the next APG assessment several years from now.  In contrast, 
National Bank Deputy Governor Neav Chantana professed 
optimism.  She reported that the National Bank Governor had 
met with the relevant National Assembly committee last week 
to explain the importance of passing the bill promptly, and 
Neav Chantana predicted that the bill would soon be submitted 
to the plenary session and passed.  (Note:  Cambodia's 
narcotics law already outlaws money laundering related to 
drug trafficking.  The draft anti-money laundering law merely 
defines money laundering rather than criminalizing it. 
Cambodian government officials told the APG/WB team that 
outlawing other types of money laundering would have to be 
done via changes to the criminal code.  End Note.) 
 
Comment 
------- 
 
¶9.  (SBU) The APG/WB assessment tracks with what banking 
sector contacts routinely tell us:  while many in the 
financial sector are honest, Cambodia's financial regulatory 
system is full of holes that could easily be exploited. 
Reputable international banks--which are bound by strict 
rules from their parent companies and, in some cases, 
financial disclosure statements required by stock exchanges 
where they are listed--are probably the least vulnerable of 
the actors in Cambodia's financial services sector.  However, 
areas like casinos and real estate, which are not scrutinized 
by a well-respected parent company, are likely routes for 
would-be money launderers.  It is unfortunate that the 
assessment team did not investigate or meet with officials 
from the Khmer/Canadian-owned Canadia Bank, one of Cambodia's 
largest banks and widely alleged to have lax financial 
monitoring systems.  END COMMENT. 
MUSSOMELI