The chairwoman and majority shareholder of a Phnom Penh specialised bank has been indicted in Canada for allegedly laundering tens of millions of dollars in drug money, highlighting concerns about the Kingdom’s financial regulatory capacity.
Cambodian-born Lech Leng Ky, chairwoman and majority shareholder of Peng Heng SME Ltd – a specialised bank that has operated in Phnom Penh for the past decade – is on trial in Montreal with her husband, Chun Sy Veng.
They are charged with allegedly running what Canadian prosecutors have described as “a sophisticated money-laundering system”, Canadian daily The Globe and Mail reported last week. The pair has a long history in the Cambodian banking sector, having previously run a bank that was closed down by the government in 1995 amid allegations of money laundering.
Despite this fact, Peng Heng SME Ltd received a licence from the National Bank of Cambodia in 2001.
The Globe and Mail said prosecutors in Montreal alleged that Lech opened Peng Heng SME in Phnom Penh with money borrowed from Daniel Muir, a drug trafficker who was murdered in Montreal in February 2004.
Nguon Sokha, director general and spokeswoman at the National Bank of Cambodia, said NBC officials were trying to reach representatives at Peng Heng.
“We are aware of the issues that you have mentioned about the Peng Heng bank and our supervisor is now looking into this issue [and] to what extent it is a problem,” said Nguon Sokha.
General manager of Peng Heng SME, Pech Vannthoeun, said that Peng Heng provided loans to small and medium enterprises and confirmed Lech Leng Ky’s involvement in the bank.
“[Lech Leng Ky] is still a 70-percent shareholder,” said Pech Vannthoeun. “She is still chairperson.”
A specialised bank is a financial institution with a lower capital requirement than a commercial bank and which does not take deposits. As of 2009, there were five such licensed institutions in Cambodia.
Pech Vannthoeun declined to comment on the Montreal case, saying that Lech Leng Ky visited Peng Heng once “a long time ago” but was not involved in the bank’s day-to-day operations.
“[Lech Leng Ky] is not in Cambodia,” said Pech Vannthoeun. “I just report to another shareholder so I haven’t [been] involved with her.”
Prosecutors in Canada have alleged Lech Leng Ky and Chun Sy Veng were running a money-laundering system through two companies in Montreal – Peng Heng Or Gold Inc and A&A Services Monétaires Inc – when they were approached by Muir in the early 2000s, according to The Globe and Mail.
Muir reportedly entrusted about C$100 million (US$103 million) to Lech Leng Ky, and Lech Leng Ky and Chun Sy Veng moved the money overseas by “wiring bank drafts to Cambodia” and purchasing “more than [C]$10 million in diamonds … that were then sent to Hong Kong, Thailand and Cambodia”.
The pair was about to fly to Cambodia in October 2002 when agents at Montreal’s airport found US$600,000 in $100 bills in Chun Sy Veng’s luggage, and they were eventually arrested in January 2005 after returning from a trip to Cambodia.
In 1995, Chun Sy Veng was the chairperson and Lech Leng Ky owned a 20 percent stake in the Credit Bank of Cambodia, which had its assets seized and licence revoked by the central bank on May 6 1995, less than one year after the bank opened for business in Phnom Penh. Lech Leng Ky resurfaced in the banking sector following Peng Heng SME Ltd’s receipt of a licence from the National Bank of Cambodia in 2001.
Article 18 of the 1999 Law on Banking and Financial Institutions states that no one can be a member of a board of directors or supervisory board of a bank if they have been involved in the management of a bank whose licence has been withdrawn after disciplinary action.
“I think [Credit Bank of Cambodia] violated our banking law on 15 points including lack of reporting … and not having enough capital or equity,” said Sam Rainsy Party lawmaker Tioulong Saumura, who at the time was serving as deputy governor of the central bank.
Credit Bank of Cambodia closed after Canadian securities firm Marleau Lemire said that CBC owed them US$1.5 million after the bank “failed to meet a margin call on the Chicago futures market”, according to the Far Eastern Economic Review.
FEER revealed Lech Leng Ky had been indicted in Canada in October 1994 on two counts of money laundering and had her assets frozen and that then central bank governor, Thor Peng Leath, had been implicated in CBC’s operations.
Tioulong Saumura said she was warned about Lech Leng Ky and Chun Sy Veng in advance of CBC’s closure by the Canadian ambassador to the Kingdom.
“[The ambassador] said that Canada may need assistance or cooperation from Cambodia, from the central bank, and it was him who told me that …[Lech Leng Ky and Chun Sy Veng] had been prosecuted …on grounds of money laundering,” said Tioulong Saumura.
Nguon Sokha said the NBC weighs a variety of factors when making licensing decisions.
“[We look at] the minimal capital but we also look at the shareholders, the capacity and competency of the management,” said Nguon Sokha, declining to comment specifically on Peng Heng’s licence.
A report issued last month by the United States State Department said that the Kingdom’s dollarised economy and the “limited capacity of the National Bank of Cambodia to oversee the fast growing financial and banking industries” create a climate that is highly conducive to money laundering.
Despite the passage of anti-money laundering legislation in 2007, the report also states that investigative and prosecutorial infrastructure in Cambodia is weak, with no money laundering prosecutions or convictions since 2007.
Mey Vann, director of the financial industry department at the Ministry of Economy and Finance and member of the NBC Financial Intelligence Unit’s anti-money laundering committee, said the government would work with Canadian authorities to verify the allegations against Lech Leng Ky and Chun Sy Veng.
Tioulong Saumura said that in most other countries, Peng Heng would never have been issued a banking licence.
“We have had a number of banking licences given like sweets,” said Tioulong Saumura. “You can’t hope that the population is going to trust a bank which is led by somebody who is prosecuted for a financial crime.”