China’s Big Gamble: How Illicit Trade Followed Legitimate Asian Investment

Mark Conrad reports on how the vibrant Mekong region has been threatened by the organized crime tailing China’s wealth.

Published: Aug 29, 2023  |  

Investigative journalist and writer

Sixteen years ago, my then girlfriend (now wife!) and I quit our dull jobs, jumped on a motorbike, and spent months touring along the Mekong River running through exhilarating Cambodia and beautiful Laos.

En route, we took a detour to the Cambodian port town of Sihanoukville: Then a sleepy, slightly shabby, beach resort full of noodle bars, drinking dens, and the odd pickpocket. Back then, locals expressed fears that Russian oligarchic cash, spreading into southeast Asia from Moscow, would reach the local economy and transform the area.

But the Cambodians needn’t have worried about Russia. Because China got there first.

This was Christmas 2007. And what the Cambodians on the Gulf of Thailand knew but overlooked was that the ascent of China, a sleeping giant for decades, to a global superpower was well advanced—a fact easily observed from a motorbike because of the waves of Chinese investment and economic aid surging towards Cambodia’s small coast via Hanoi (in Vietnam), Luang Prabang, Vientiane, and Phnom Penh.

Much of China’s investment in its neighboring states has been positive. I have little time for misplaced Sinophobia and “the West” must accept that some of what China does is positive, even if its political structures remain autocratic. China’s investment in Cambodia, for example, accounts for 50% of the smaller state’s foreign investment and has created thousands of much-needed jobs in a country still recovering from Pol Pot’s genocidal despotism.

But as China’s wealth has seeped across borders in Southeast Asia, so too has the illicit trade that often accompanies large sums of legitimate cash. In Sihanoukville in particular, a considerable amount of illicit activity now oscillates around—and through—the booming casinos established in recent years.

Nothing wrong with licensed casinos if your culture allows you to gamble, of course. But some have always attracted crime and criminality. One of many classic ways to launder illicit money has been to take cash to a casino, buy a bunch of playing chips, have a few spins at the roulette wheel, and—win or lose—cash your chips at the end of the night by asking for a cheque from the casino, thereby washing the dirty cash via a licensed or “legitimate” business. It’s a ruse many, but not all, casinos have tackled.

And as an excellent report by the Global Initiative Against Transnational Organised Crime (GI-TOC) highlights, the recent explosion of the gambling industry in the Asia-Pacific region means that many casinos have become magnets for illicit activity.

All rather predictable, huh? But what is interesting is that some casinos, and their local neighbourhoods, in the Asia-pacific region have become hubs not just of money laundering, but a much wider range of illicit activity: Including China’s lucrative underground banking networks; illicit trade in wildlife; prostitution, and human and drug trafficking. Many casinos, for example, offer storage box facilities, which you can imagine attract a certain type of customer (as well as legitimate trade).

The casinos in the wider Mekong region are also often housed close to “special economic zones” (SEZs) subject to light-touch regulatory and business rules to boost trade. By default or design, this creates a convenient distance between the organized criminals who target specific casinos or zones and the prying eyes of law enforcement, regulators or customs officials.

As a GI-TOC study on the subject states: “Special economic zones are also a common feature of how casinos are able to operate in South East Asia, and other crimes that often go unchecked converge in these zones.”

The same study describes Sihanoukville as “a sprawling casino hub” and “a good example of the kinds of risk posed by the casino sector in the region”.

While the Council for the Development of Cambodia points out that none of the country’s casinos are housed directly inside a special economic zone, there is an SEZ on the outskirts of Sihanoukville jointly developed by private firms from Cambodia and China and now the hub for trade (and storage) coming in and out of the city’s new airport and older port.

“Once the casinos began to open, there was a surge in drug trafficking. Demand from the Chinese tourist market drove up poaching and wildlife trafficking. Imports of ivory and rhino horn were seized at Sihanoukville port. Chinese-run prostitution and sex trafficking rings proliferated. The city became notorious for kidnappings, theft, and murder,” GI-TOC reports.

Child labor within the casinos is described as “commonplace” and the exploitation of migrant workers in Sihanoukville has soared. “The relative lawlessness of Cambodia makes Chinese migrants easy targets for violent crime and extortion by Chinese organized crime groups,” the study concludes.

It is a sorry state, and exactly the scenario that many local and legitimate business owners in Sihanoukville feared back in 2007—albeit they mistakenly believed Russian money would be the catalyst for change.

In all fairness to Cambodia’s government, it has attempted to shut down some illicit activity. So, too, has the government in Beijing (which blocked China’s access to fraudulent online gambling sites operating from Cambodia). But it’s hard to gauge the long-term success of these measures.

Yet Sihanoukville is not alone in facing the challenges posed by the boom in illicit activity that has followed China’s extreme, often legitimate, wealth. Tourist hubs across the Asia-Pacific region are affected. And here there is some hope.

According to GI-TOC, Beijing has expressed serious interest in cleaning up the overseas image of China’s corporations and the less-salubrious end of its “tourism”—especially in strategically important “Belt and Road Initiative” locations such as Sihanoukville. Consequently, the think-tank states “a window of opportunity exists” to boost “existing and robust Sino-Cambodian counter-crime efforts”. China and its partners should seize that opportunity.

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