Transnational crime, money laundering and illegal online betting in Southeast Asia
By John Langdale, Honorary Research Fellow, Macquarie University, Australia
This article examines illegal online betting and gambling in Southeast Asia in the context of transnational crime and money laundering in the region.Transnational crime and illegal online betting have expanded rapidly in the Mekong region of Myanmar, Laos and Cambodia, countries with high levels of corruption. The emergence of transnational criminal activities is not only destabilising these Mekong countries, but “overspill” from criminal activities is posing a major threat of growing organised crime activities to surrounding countries, particularly Thailand and Vietnam, but also to the broader Asia-Pacific region.
The United Nations Office of Drugs and Crime (UNODC) and other international agencies have been involved in anti-corruption and anti-money laundering campaigns in the Mekong countries for many years. However, it is clear that a major international effort is needed to halt the spiral of transnational crime and illegal online betting in the Mekong region. Unless this happens, it is likely that these countries will descend into narco-states[1].
A major factor underpinning the rise of the illegal online betting market in Southeast Asia has been the massive growth of transnational crime in the Mekong region. The UNODC has documented the displacement of transnational crime from China to Mekong region countries[2]. The displacement effect has reshaped the illegal drug and wildlife trafficking industries in the region, with methamphetamines production skyrocketing in Shan State in Myanmar and more illegal wildlife trafficking taking place in Southeast Asia. The displacement effect has had major flow-on effects on the demand for money laundering in the region, since a significant percentage of the proceeds of these crimes are recycled through the region’s rapidly-expanding network of physical and online casinos[3].
Rise of illegal online betting centres in the Mekong region
The rise of illegal online betting centres in the Mekong region is related to the massive Chinese demand for gambling and a rapid growth in transnational crime in the region, which has created a large demand for money laundering. The Covid-19 pandemic has limited gambling-related travel. Furthermore, many countries in the region have a “pot of gold” attitude to gambling and see physical and online casinos as a means of generating employment and taxation revenue. Finally, weak anti-money laundering (AML) regulation exists in Mekong region countries.
Chinese and other criminal groups have moved rapidly into illegal online betting activities in response to these developments. They recognised the profit opportunities of the market, not just with respect to the huge Chinese market, but also targeted opportunities in global gaming marketplace[4]. In addition, they have expanded online scamming operations, often alongside illegal online betting centres.
Diverse types of illegal online betting centres in the Mekong region countries
A range of illegal online betting operations is present in Mekong region countries. At the risk of simplifying this diversity, two broad types may be identified.
Firstly, some Special Economic Zones (SEZs) in Southeast Asia have become “one-stop shops” for transnational crime. Examples of such SEZs include the Golden Triangle SEZ, with the Kings Romans casino as the centrepiece in Bokeo Province, Laos. In addition, Yatai New City (Shwe Kokko) in Kayin State, Myanmar and Sihanoukville in Cambodia.
Different views exist about the relative benefits of SEZs in Southeast Asia. Proponents argue that they provide a springboard for regional economic development, because there are fewer government restrictions on development. Others argue that they function as incubators for crime, particularly those associated with illegal betting activities . It is difficult for governments to act in these zones because of special exemptions from regulation, and frequently illicit entrepreneurs will move operations by the time the governments are able to act.
The “one-stop shop” SEZ model also has the advantage of controlling security, since weak Mekong region governments cede security arrangements, either because of corruption, or because the SEZ is controlled by alleged “warlords” such as in Myanmar for Yatai New City (Shwe Kokko). The internalisation of security in SEZs reduces access for law enforcement agencies and outside scrutiny of repressive labour practices is minimal. Few outsiders have information on illicit activities taking place in SEZs.
The most notorious SEZ is the Golden Triangle SEZ in Laos, controlled by the Zhao Wei criminal group . Ostensibly, the SEZ provides the Golden Triangle region with economic growth, but it is a “one-stop shop” for transnational crime. The SEZ has a diverse range of criminal activities, ranging from illegal drugs, wildlife and human trafficking and child prostitution. Illegal online betting and online scamming activities are also prominent.
The “one-stop shop” model provides transnational criminals with significant advantages. A key advantage is that they are able to develop what economists call economies of scale and scope.
The economies of scale advantages allow criminals to build up large operations and derive lower costs from large-scale casino operations (physical or online). For example, the Zhao Wei criminal organisation operating the Golden Triangle SEZ has built its own airport to expand the number of Chinese gamblers coming to the casino.
Economies of scope refer to the advantages of operating a diverse range of complementary criminal activities which enhance the attractiveness of the centre. For example, a gambler may travel to a casino to gamble, but may also be involved with illegal wildlife, child prostitution and other illicit activities at the SEZ while visiting the site. The Zhao Weicriminal group has been able to derive economies of scope by expanding both the physical casino, but also diversifying into online betting and scamming centres. Such diversification has been valuable during the prolonged lockdownof international tourist travel during Covid-19.
Sihanoukville has a SEZ, which is part of China’s Belt and Road Initiative[7]. It attracted numerous physical and online casinos reportedly owned primarily by ethnic Chinese, but the banning of online casinos in 2019 by the Cambodian government and the impact of Covid-19 decimated Chinese gambling tourism and led to the exodus of thousands of Chinese workers. The ban led to the growth of online scamming centres in Sihanoukville, with online betting continuing in an underground manner[8].
The Sihanoukville experience illustrates the sequence of developments from legal physical casino developments to online betting operators, generally illegally targeting the Chinese market. China pressured Cambodia to outlaw these operators, but unfortunately this has led to some of them shifting underground, often facilitated by corrupt Cambodian local government and law enforcement officials[9]. In addition, these illegal operations have diversified to online scamming centres, a development that has attracted widespread negative publicity overslave-labour conditions for workers from many Asian countries.
“Footloose” online illegal betting operations have the advantage of being able to move on quickly when law enforcement agencies act to close them. Two broad types may be identified. One is represented by online betting operations which are shifted from country to country in response to tightening government regulations on online illegal betting[10]. A sub-variant of this type are facilities which move within countries to more remote rural locations.
Secondly, technology allows illegal online betting enterprises to shift to offshore centres which have few, if any,regulations against their operations[11]. Clearly, widespread adoption of this model would have major implications for illegal online betting.
Implications for governments
These developments in transnational crime and online betting and gambling are raising major policy concerns for governments in the region. The danger is that transnational crime will spiral out of control in the Mekong region countries and the “overspill” of crime will spread throughout the region.
China has been increasingly worried about these developments and has criticised countries promoting online casinos targeting Chinese gamblers. It pressured Cambodia in 2019 to ban online betting, an action which led to many of these operations either leaving Sihanoukville or moving underground. China has threatened to retaliate against Southeast Asian countries that do not halt illegal online betting by banning Chinese tourism, although it has not publicly announced which countries are on the hit list[12]. China is particularly concerned that online betting is promoting capital flight. The wider the adoption of online betting, the greater the difficulty for China in controlling capital flight[13].
The U.S. has been concerned about the development in transnational crime, money laundering and human trafficking in the Mekong region. The U.S. has categorised Cambodia in the worst category for human trafficking offences. The U.S. Treasury designated the Zhao Wei criminal group of illegal drug trafficking, human trafficking, child prostitution, money laundering, bribery and wildlife trafficking, much of which has been facilitated by the Kings Romans casino[14].
The negative implications of the“overspill” of transnational crime and illegal online betting is having the greatest impact in Southeast Asia, with Thailand in particular being impacted.Illegal casinos operated by Chinese criminal groups are being used to launder money from illegal drug trafficking and other illicit activities[15]. The Thai government has been conducting numerous law enforcement operations against illegal online betting.
However, a recent major scandal in Thailand has exposed the extent of the involvement of Chinese criminal groups, who have trafficked illegal drugs from Myanmar, as well as being involved in illegal migration of Chinese to Thailand, property development and money laundering.The Thai case study illustrates both the “overspill” of crime from adjacent Mekong countries and the displacement effect of China’s crackdown on transnational crime, which has pushed crime into corrupt Southeast Asian countries[16].
This scandal meshes with the concerns in Southeast Asia and elsewhere about the human trafficking of duped people lured to online betting and scamming centres in Mekong countries. Southeast Asian governments have not been vocal in their criticisms of these centres, although international pressure is forcing Cambodia to close at least some of them[17].
While countries have been pressuring the Mekong countries to outlaw illegal online betting centres, profits from transnational crime, as well as physical casinos, online betting and scamming centres are massive. Criminal groups are able to bribe government officials and hinder law enforcement. Endemic corruption in Cambodia and in the rest of the Mekong region makes it difficult for any outside governments to exert sustained pressure on Mekong region governments to ban these illegal betting activities.
[1] AUNG ZAW, ‘Shwe Kokko: How Myanmar’s CrimeHub is Destabilizing the Region’, The Irrawaddy, 27 February 2023 (https://www.irrawaddy.com/opinion/analysis/shwe-kokko-how-myanmars-crime-hub-is-destabilizing-the-region.htmlaccessed20 April 2023) Caleb Quinley, ‘Transnational crime boom a destabilising influence in SE Asia: UN’, Aljazeera, 18 July 2019 (https://www.aljazeera.com/news/2019/7/18/transnational-crime-boom-a-destabilising-influence-in-se-asia-unaccessed 20 April 2023)
[2] UNODC, Transnational Organized Crime in Southeast Asia: Evolution, Growth and Impact (2019) United Nations Office ofDrugs and Crime, Bangkok. (https://www.unodc.org/roseap/uploads/archive/documents/Publications/2019/SEA_TOCTA_2019_web.pdf)
UNODC,Synthetic Drugs in East and Southeast Asia: Latest Developments and Challenges,United Nations Office of Drugs and Crime (2022) Bangkok. (https://www.unodc.org/documents/scientific/Synthetic_Drugs_in_East_and_Southeast_Asia_2022_web.pdf)
[3] Martin Purbrick, ‘The displacement of illegal betting and transnational organised crime’, Asian Racing Federation Bulletin Council on Anti-Illegal Betting and Financial Crime, QuarterlyBulletin, Feb. (2023) (https://www.asianracing.org/email/202301qb-the-displacement-of-illegal-betting-and-transnational-organised-crime)
[4] Jeremy Douglas, ‘How the Covid-19 pandemic forced Southeast Asia’s casino criminals to bet on tech – and win’, South China Morning Post, 7 Aug. (2022). (https://www.scmp.com/comment/opinion/asia/article/3187800/how-covid-19-pandemic-forced-southeast-asias-casino-criminals)
[5] Fred Lord, ‘Free for all zone’ - Free Trade and Special Economic Zones (FTZ & SEZ) International Online Betting Operators and Gambling’, (2017) 5th OECD Task Force for Countering Illicit Trade, Mar. Paris: OECD. (https://one.oecd.org/document/GOV/PGC/HLRF/TFCIT/RD(2017)3/En/pdf)
[6] Sebastian Strangio, ‘Golden Triangle Gambling Zone the World’s ‘Worst’ SEZ, Group Says’, The Diplomat, 30 Mar.(2022). (https://thediplomat.com/tag/golden-triangle-special-economic-zone/)
[7] Chris Devonshire-Ellis, ‘Foreign Investment Opportunities in Cambodia’, ASEAN Briefing, 19 July (2022). (https://www.aseanbriefing.com/news/2023-foreign-investment-opportunities-in-cambodia/). Matthias Alffram, ‘Sihanoukville pays the price for heavy reliance on Chinese’, Bangkok Post, 9 May, (2022). https://www.bangkokpost.com/business/2306938/sihanoukville-pays-the-price-for-heavy-reliance-on-chinese
[8] Nicholas Farrelly Alice Dawkins and Patrick Deegan, Sihanoukville: A Hub of Environmental Crime Convergence, Global Initiative Against Transnational Crime, Geneva: Switzerland, Sept. (2022) (https://globalinitiative.net/wp-content/uploads/2022/09/GI-TOC-report_Sihanoukville_For-upload.pdf)
[9] Lindsey Kennedy and Nathan Southern,‘Inside Southeast Asia’s casino scam archipelago’, The Diplomat, 2 Aug.(2022). (https://thediplomat.com/2022/08/inside-southeast-asias-casino-scam-archipelago/)
[10] Martin Purbrick, ‘The displacement of illegal betting and transnational organised crime’, Asian Racing Federation Bulletin Council on Anti-Illegal Betting and Financial Crime, Quarterly Bulletin, Feb. (2023) (https://www.asianracing.org/email/202301qb-the-displacement-of-illegal-betting-and-transnational-organised-crime)
[11] Ibid.
[12] Philip Conneller, ‘Beijing Expands Gambling Travel Blacklist to‘Safeguard Lives and Property’, Casino.org, 29 Jan (2021). (https://www.casino.org/news/beijing-expands-gambling-travel-blacklist-to-save-lives-and-property/)
[13] Frank Tang and Ji Siqi, ‘China extends battle lines to manage capital outflows as Beijing doubles down on ‘economic security’’, South China Morning Post, 1 December 2021 (https://www.scmp.com/economy/china-economy/article/3158048/china-extends-battle-lines-manage-capital-outflows-beijing?module=perpetual_scroll_0&pgtype=article&campaign=3158048accessed 20 April 2023)
[14] U.S. Department of Treasury, Treasury Sanctions the Zhao Wei Transnational Criminal Organization Washington, D.C.Jan. 30 (2018). (https://home.treasury.gov/news/press-releases/sm0272)
[15] James Morris, and Son Nguyen, ‘Golden Triangle drugs threat aired in parliament, claims of senior police officers being involved in trafficking’, Thai Examiner, 23 Feb. (2021).(https://www.thaiexaminer.com/thai-news-foreigners/2021/02/23/golden-triangle-claims-against-senior-police-officers-aired-parliament/)
CarlaBoonkong, and Pranee O’Connor, ‘Shock police probe into drug dealing and money laundering linked with Myanmar to strain ties’, Thai Examiner, 22 Sept (2022).
Erik Gibbs,‘Thailand political corruption and illegal gambling becoming the new norm’,Casino.org, 4 Nov. (2022.) (https://www.casino.org/news/political-corruption-and-illegal-gambling-become-the-new-norm-in-thailand/)
[16] Wassayos Ngamkham, 'We're on the triads 'trail', Bangkok Post, 2 Feb (2023). (https://www.bangkokpost.com/thailand/general/2497055/were-on-the-triads-trail)
[17] Erik Gibbs, ‘Cambodia’s efforts to rid country of illegal casinos are paying off’, Casino.org, 3 Jan. (2023) (https://www.casino.org/news/cambodias-efforts-to-rid-country-of-illegal-casinos-are-paying-off/)