The drug law, passed in December 1996, contains several provisions to combat money
laundering. An informal survey of lawyers, bankers, and businesspeople reveals widely
varying opinions about the likely effectiveness of these provisions. Robert Lang
THE drug law, recently passed by the National Assembly, contains anti-money laundering
provisions that many observers hope will fight international drug trafficking.
The law will go into effect after King Sihanouk officially promulgates it. The Post
obtained an English translation of the law and asked a dozen lawyers and business
people to respond to the law's anti-money laundering provisions.
Based on the French model, Cambodia's new anti-money laundering provisions place
the responsibility for monitoring suspected cash transactions on banks. The banks
determine which transactions are suspicious and report them to the government.
This approach differs from anti-money laundering laws in the United States, for example,
where banks must report all cash transactions above $20,000 to the government.
Those surveyed were unanimous in believing that Cambodia should combat money laundering.
They disagreed, however, on the effectiveness of the provisions, the extent the law
will distort the existing legal system and the current monitoring structure, as well
as their faith in the government to enforce it in a fair and just manner.
Certain Cash Transactions Prohibited
Article 18 in the law declares that "any settlement of payment in cash which
exceeds the amount as determined by the competent institution shall be prohibited."
Those surveyed voiced two concerns about this article. First, "Who is the 'competent
institution'?" one asked. An earlier draft had specified that the Ministry of
Finance would determine the illegal amount, but the law that was passed is intentionally
more vague, prompting observers to question the government's motives for the alteration.
Second, critics said that given the extent of cash in the Kingdom, Article 18 is
inappropriate and potentially damaging to the economy.
"Cambodia has a cash econ-omy," explained one banker. "There are no
alternatives to cash. Checks and other cash substitutes are non-existent. It is not
unusual for people to deal in several hundred thousand dollars in cash. [By declaring
an amount illegal] this law will criminalize the normal activities of banks, money
changers, and companies."
"The business community, especially foreign investors, should be worried,"
another banker said.
"There is no such thing as credit," said another executive. "[With
the anti-laundering provisions in effect] if you're a car dealer, do you sell or
Several executives, however, expressed optimism that this provision could strengthen
the banking industry by promoting the use of checks, letters of credit, and inter-bank
If the illegal amount is set too low, economic activity will slow and banks will
be overwhelmed with paperwork; too high and the provision will be ineffective in
the fight against money laundering.
One banker "normally" sees cash transactions of $200,000, primarily for
property transactions. A $1 million cash transaction is "large," he said,
while cash transactions above $2 million are rare. Another banker said $500,000 cash
transactions are "common" for medium-sized companies.
"If the [illegal] amount is set above $1 million, I would feel comfortable [with
this article]," one banker said.
The anti-laundering provisions require that financial institutions record cash transactions
above a certain amount and the identity of customers making them. The institution
must report "suspected" transactions to the National Bank of Cambodia.
These provisions will hamper the development of the banking industry, said several
worried executives. "Many Cambodian people don't trust banks," said one
banker. "If we ask a lot of personal questions, they will not bother to come
to banks anymore, and this will hurt the banking industry."
"We usually ask customers to give their identity documents," said another
executive. "But the articles [about reporting] will hurt the banking business
because bankers must then act as policemen. If bankers are also policemen, no businessmen
will come to the bank."
Several executives disagreed. "I'm not concerned," said Patrick Key, Manager
of Operations of SBC Bank. "We know who our customers are and we know their
track record. We know exactly what they are doing."
"This [article] is not onerous," commented one observer. He pointed out
that the reporting requirements will create a paper trail which is crucial to combat
drug trafficking. "This law opens up the transactions of businessmen to scrutiny
- not an unjustifiable level of scrutiny.
"For people dealing in cash, not paying taxes, and they don't want others to
know it, it's going to be a pain. [Bankers and companies] must justify cash transactions
over a certain amount, and if it is legitimate, this shouldn't be a problem."
Distorting the Legal System and the Central Bank
The anti-laundering provisions should have been placed in a banking law - not a separate
drug law - according to several observers. The result distorts the legal system and
the monitoring functions of the central bank, they said.
They note that the provisions pertain only to drug trafficking. This means that cash
transactions involved with drugs are illegal, while those involving other illicit
activities, such as kidnappings, logging, and prostitution, are permitted.
In addition, the anti-laundering provisions will fundamentally alter the monitoring
powers and capabilities of the National Bank of Cambodia (NBC). "The central
bank can't monitor banks now," exclaimed one executive. "It won't know
what to do when, and if, banks report all their cash transactions."
NBC turned down repeated requests for interviews so its view of the anti-laundering
provisions are unknown. Several observers doubt-ed that it had any input into drafting
Bankers in the Big House?
Provisions outlining penalties for money laundering are "extremely vague and
poorly worded," several lawyers complained. Article 39 states that money launderers
will be punished with 10-20 year sentences and 10-50 million riel fines.
This could also apply to bankers who - intentionally or unwittingly - are involved
in laundering, they said.
The threat of imprisonment left some bankers undaunted. "I agree with the sentence,"
said one. "Bankers should pay more attention to money flow. But this law is
imprecise and people might set you up by bringing in large cash transactions."
Enforcement: the Pivotal Point
The possibility that the government could arbitrarily enforce the anti-laundering
provisions, thereby exacerbating corruption, particularly alarmed critics.
"This law provides an open invitation to shake down anyone," complained
one observer. "The actors, offenses, and penalties are too broadly defined.
This law allows whoever the enforcing agency is to arrest a banker - or anyone -
because they didn't pay enough bribes or because they support a different political
"I'm not confident that the government will enforce this law in a just way,"
said one banker. "The law is not defined clearly, so how do we know they will
have a rational judgement?"
More specifically, several of those surveyed expressed concern about Article 24 which
establishes a "Commission of Anti-laundering of money . . . under the power
of the Prime Minister(s)."
Lawyers interpret this to mean that the prosecutor will ask the commission whether
or not to proceed with an investigation. Although a future sub-decree will determine
the composition and powers of this commission, this article gives the Prime Ministers
control over whether these cases are pursued in court or whether information is disseminated,
"Even the UN [United Nations Drug Control Program, a primary proponent of the
drug law] opposed this provision," said one observer. "But the government
insisted on it, which shows where their real interest lies. Will the commission pursue
a case against a friend of somebody important? I doubt it."
"The commission should have been independent," another observer agreed.
"Otherwise, certain people will be off-limits [to an investigation]."
Some industry executives expressed faith in the government. "The government
must have some level of discretion," one observer argued. "This law does
not give them more power than they already have."
What effect on money laundering?
Critics argue that the drug law will not diminish money laundering. "This law
does not address enforcement," said one lawyer. "Without enforcement, the
drug trade will remain unaffected. The [UNDCP] will probably give the central bank
money to improve its monitoring capabilities, but it could have done this several
years ago without writing this law."
Another believed that since the broadly worded provisions will promote corruption,
the government will only crack down on poor people or people with "the wrong"
political affiliations. Consequently, the people involved in "substantial"
money laundering will be untouched.
The amount that the 'competent institution' sets as illegal will be critical in combating
money laundering. An amount too low will constrict economic activity, while an amount
too high will be ineffective.
Others argued that the law might not be ideal, but at least it's a step in the right
direction. "Cambodian banks have a bad reputation abroad," one banker noted.
"This law is a start to make it better."
One observer provided a more straight forward prediction about the likelihood that
the law will reduce money laundering. "Everything in this country is decided
by one person, and if [Second Prime Minister] Hun Sen is serious [about cracking
down on money laundering], then this law will be effective. Without his direct order,
[the enforcement authorities] will ignore this law."