Globally, money laundering (ML) is a major driver of poverty and inequality. It erodes public trust, democracy and leads to less government revenue for essential services including health, education, and infrastructure. It also creates economic instability and social harms while enabling criminals to take advantage of legitimate actors in the private sector, hurting organisations and the community in the long-term.

This report considers the ML vulnerabilities that exist in Cambodia and Australia and the gaps in the relevant Anti-Money Laundering (AML) regimes that make Australia an ideal destination for regional foreign proceeds and illicit funds. The timing of this report coincides with Australia’s consultation on the ‘Tranche 2’ reforms, the proposed amendments that would extend obligations under the AML/CTF legislation to real estate agents, lawyers, accountants, trust and company service providers and dealers in precious metals and stones.

This research suggests that Cambodia’s cash economy, geographical position, perceived corruption, porous borders, and gaps in the effectiveness of its AML legislative regime are all factors leading to increased ML vulnerabilities. The effectiveness of Cambodia’s AML regime is limited by a largely cash-based and partially dollarised economy that is growing on the back of industries that are vulnerable from a ML perspective such as casinos, garment manufacturing and logging.

The Cambodian AML regulators have limited capacity to oversee the regulated population, particularly in relation to the fast-growing financial and banking industries that are responsible for remitting funds domestically and internationally. A deeply politicised judicial system and reports of heightened corruption also constrain effective enforcement. Sources of funds laundered in Cambodia are widespread, most notably because of the prevalence of crimes such as human trafficking and exploitation, drug trafficking, smuggling, fraud and corruption – all of which are predicate ML offences. Cambodia is also seen as a regional ML hub for Chinese, Myanmar and Thai interests who invest funds in both legitimate and illegal industry in Cambodia, including in the casino industry, where rapid expansion prior to the COVID-19 pandemic is believed to have allowed ML to proliferate.

The research shows that ‘dirty money’ flowing across transnational borders, including from Cambodia, tends to move out of poorer countries and into the economies of wealthier nations, including Australia and the United States. Australia’s current Anti-Money Laundering and Counter Terrorism Financing (AML/CTF) legislative framework, and in particular its failure to implement ‘Tranche 2’ reforms and effectively regulate Designated Non-Financial Businesses and Professions (DNFBPs) makes Australia an attractive destination for such funds moving illegally out of the Southeast Asian Region. In general terms, the current Australian legislative regime does not sufficiently deter criminals from laundering money through Australia’s real estate and the broader economy.