Southeast Asia's Fraud Factories
What should Europeans do if the United States considers Southeast Asia-based scammers a national security threat?
I cannot recommend enough a recent report from the United States Institute for Peace (USIP) on mainland Southeast Asia’s scam industry, particularly in Cambodia, Laos, and Myanmar. The term "industry" is appropriate here. According to USIP estimates, it could now produce the equivalent of 40 percent of the combined GDP of these three states, and it may be worth at least $12.5 billion annually in Cambodia alone, nearly half the country's formal GDP. It has become the biggest industry in all three states, with all three at serious risk of becoming "scam-states," analogous to narco-states.
Thousands of fraud factories have sprung up in areas with strong Chinese organized crime presence: Laos’ unregulated SEZs, Cambodia’s casino-fueled Sihanoukville, and Myanmar’s wild-west border towns. Most “employ” trafficked individuals who are kept in slave-like conditions. It's not surprising that there are frequent stories from Cambodia or Laos of people throwing themselves from balconies to escape. The fraud factories became especially profitable during the pandemic when Chinese individuals, confined to their homes, became prime targets for scammers.
Why isn’t this industry being shut down? It’s a combination of factors. First, Southeast Asian law enforcement isn't highly effective. Generally, the police focus on petty crime, collecting bribes from motorists, and suppressing activists. They struggle significantly with organized crime, which is why the region’s drug problem has worsened every year. The only solutions they’ve implemented involve either co-opting the drug traffickers or occasionally resorting to Duterte-style extrajudicial killings of drug runners and dealers.
Even if law enforcement were more competent, they face a second issue: the political and economic elites of Cambodia, Laos, and Myanmar are intertwined with the scam industry. An industry cannot grow to account for a third of GDP without patronage from influential people. No self-respecting Cambodian or Laotian elite would not want a piece of this pie.
Despite their apparent strength and authoritarian dominance, the ruling parties of Cambodia and Laos, and Myanmar’s junta, are structurally weak. They abhor any sort of intra-party tension. Cambodia and Laos (less so Myanmar) can be likened to feudal states. You have the “political nobility” families: in Cambodia, the Huns, the Teas, the Sars, the Soks, etc.; in Laos, the Siphandones, the Phomvihane, etc. While some families sit at the top (the Huns in Cambodia and, currently, the Siphandones in Laos), all the political nobility needs to be appeased. This is usually done by allowing them their own corruption and patronage networks, access to proceeds from organized crime, and by dividing power equitably so that everyone of importance feels significant. Then there are the “economic barons” who, although not part of the political nobility, often marry into it and bankroll it. In return, they gain free rein to conduct their business.
The scam industry has turbocharged this entire system. Now, tens of billions of dollars are available for the political nobility to skim off. Vast criminal enterprises needing political protection and favor have intensified intra-elite tensions. Do certain political nobles risk fratricide by curbing an industry that their fellow nobles profit from? What’s happening now is that fraud factories lacking substantial political protection are being shut down, and their Chinese bosses are sent back home. But those with real political patronage remain untouched, even by Beijing. As USIP put it: “Beijing has found in countries such as Cambodia and Laos that leaders will align closely with China politically in exchange for Beijing ignoring lucrative criminal activity”.
THREE CONSIDERATIONS FOR EUROPE:
EUROPEANS SCAMMED. There’s no hard data yet on how much the industry has scammed Europeans. After talking to a few people, my guess is that it’s a lot less than the USIP report estimates for Americans and Canadians, which is $3.5 billion and $350 million, respectively. I'm told $500 million a year sounds about right for Europe. However, expect that to rise. If the US starts cracking down on money laundering for these groups, some could turn to Europe. This could be something that someone at the European Parliament wants to look into. It fits perfectly for a China hawk who wants another arrow in the quiver of why China is a threat.
AN AMERICAN “NATIONAL SECURITY” CONCERN. Currently, it is mainly viewed as a bilateral issue between Southeast Asian states and China. reckon that Americans will soon see this as a national security issue, which will significantly alter US policy in mainland Southeast Asia. After all, not only are Americans being scammed out of around $3.5 billion a year by Southeast Asian operations (the actual figure is almost certainly higher), but these operations are also starting to launder money through America. The USIP report pricked quite a few ears in Washington when it argued: “This scamming industry could soon rival fentanyl as one of the top dangers that Chinese criminal networks pose to the United States.” Or give it to this: “the criminal networks have taken advantage of weak governance to gain control over territory and acquire opaque influence over the governments of Myanmar, Cambodia, and Laos, from where they can victimize Americans with near-absolute impunity”.
If, as I suspect, Washington does soon start to see this as a national security issue, it could impose severe and widespread sanctions on Southeast Asian crime bosses and corrupt officials who profit from and protect the industry. It could re-list Cambodia, say, on the Financial Action Task Force’s AML blacklist. It could make trade and aid dependent on measurable outcomes of law enforcement. Or it could work more secretly and suggest to certain people that their certain associates might want to avoid targeting US citizens or else. If it does start seeing things that way, Europeans better be ready for even more tense relations between the US and especially Cambodia.
However, there’s a problem, which I’ll expand upon soon in my Radio Free Asia column. Suppose America exerts so much pressure that Southeast Asian governments feel they have to really curb the industry. And suppose this then opens up space for China to also take a more hands-on approach. What then? Well, the Southeast Asian governments will still find their law enforcement is probably too weak and corrupt to do much about the industry. I cannot see how an industry now worth a third or half of a state’s entire economy can be closed down...except with boots-on-the-ground support from Chinese law enforcement.
Am I exaggerating if I say that the only way to really tackle the entire scam industry would be if China did something like what the Americans did in Colombia against the cartels in the 1990s? Obviously, for domestic and international reasons, Cambodia and Myanmar’s governments wouldn’t agree to it or be allowed to agree to it. Washington, already panicked that China has its first overseas naval base in the Indo-Pacific in Cambodia, would be apoplectic if Chinese police were allowed to actively serve within Cambodia or Laos.
EUROPEAN SECURITY. It’s very unlikely that Europeans will view this threat in the same national security bracket as the Americans might soon. That’s principally because doing so would force Europeans to admit their powerlessness in stopping it. The Europeans have zero security influence in Myanmar and Laos. Barring the French, and even that’s minimal, they have no security influence in Cambodia. Framing it as a security concern would be pointless, as it would suggest a disease for which Europeans have no cure.
If the EU and the Europeans want to take this issue more seriously—which I think they do (and the China hawks would be wise to take this up)—they would instead have to focus on side issues of the industry, like human trafficking and forced labor, as they have been doing, The best approach, though, they could take is to talk, talk, talk—and talk loudly. Publicize the problems as much as possible. Conduct workshops for victims and raise awareness. The three Mekong governments hate it whenever the issue is publicly discussed. They prefer to ignore it completely because they don’t want to have to discuss it with their colleagues who are making bucket loads from the industry.
The only solution is to make the issue so toxic to their countries' reputations that they have to deal with it themselves. Indeed, they only tentatively started to crack down on some of the operations because the Chinese blockbuster film "No More Bets" last year made the Chinese terrified about visiting mainland Southeast Asia, which really hurt the region’s tourism sectors.