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Anti-money laundering and counter-terrorist financing measures in Cambodia – Mutual Evaluation Report – September 2017 1

Anti-money laundering and counter-terrorist financing (AML/CFT) measures in Cambodia Fourth Round Mutual Evaluation

Key findings, ratings and priority actions September 2017 www.fatf-gafi.org/publications/mutualevaluations/documents/mer-cambodia-2017.html

http://www.fatf-gafi.org/publications/mutualevaluations/documents/mer-cambodia-2017.html







Anti-money laundering and counter-terrorist financing measures in Cambodia – Mutual Evaluation Report – September 2017

Ratings – Effectiveness (1/3)

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Immediate outcome of an effective system to combat money laundering (ML) and terrorist financing (TF)

Extent to which Cambodia has achieved this objective

1. ML and TF risks are understood and, where appropriate, actions co-ordinated domestically to combat ML and TF

Moderate

2. International co-operation delivers appropriate information, financial intelligence, and evidence, and facilitates action against criminals and their assets

Moderate

3. Supervisors appropriately supervise, monitor and regulate financial institutions and designated non-financial businesses and professions (DNFBPs) for compliance with AML/CFT requirements commensurate with their risks.

Low

4. Financial institutions and DNFBPs adequately apply AML/CFT preventive measures commensurate with their risks, and report suspicious transactions.

Low




5. Legal persons and arrangements are prevented from misuse for money laundering or terrorist financing, and information on their beneficial ownership is available to competent authorities without impediments

Low

6. Financial intelligence and all other relevant information are appropriately used by competent authorities for money laundering and terrorist financing investigations.

Low

7. Money laundering offences and activities are investigated and offenders are prosecuted and subject to effective, proportionate and dissuasive sanctions

Low

8. Proceeds and instrumentalities of crime are confiscated. Low





9. Terrorist financing offences and activities are investigated and persons who finance terrorism are prosecuted and subject to effective, proportionate and dissuasive sanctions.

Substantial

10. Terrorists, terrorist organisations and terrorist financiers are prevented from raising, moving and using funds, and from abusing the non-profit sector.

Moderate

11. Persons and entities involved in the proliferation of weapons of mass destruction are prevented from raising, moving and using funds, consistent with the relevant United Nations Security Council Resolutions.

Low



Ratings – Effectiveness

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0 1

3

7

HighSubstantialModerateLow

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Ratings – technical compliance (1/5)

AML/CFT POLICIES AND COORDINATION1. Assessing risks & applying a risk-based approach Pa Pa Pa Pa Partially compliant2. National cooperation and coordination Pa Pa Pa Pa Partially compliant

MONEY LAUNDERING AND CONFISCATION3. Money laundering offence Lar Lar Lar Lar Largely compliant4. Confiscation and provisional measures Lar Lar Lar Lar Largely compliantTERRORIST FINANCING AND FINANCING OF PROLIFERATION5. Terrorist financing offence Lar Lar Lar Lar Largely compliant6. Targeted financial sanctions related to terrorism & terrorist financing Lar Lar Lar Lar Largely compliant7. Targeted financial sanctions related to proliferation No No No No Non compliant8. Non-profit organisations Pa Pa Pa Pa Partially compliant

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PREVENTIVE MEASURES9. Financial institution secrecy laws Co Co Co Co Compliant

Customer due diligence and record keeping10. Customer due diligence Lar Lar Lar Lar Largely compliant11. Record keeping Lar Lar Lar Lar Largely compliant

Additional measures for specific customers and activities12. Politically exposed persons Pa Pa Pa Pa Partially compliant13. Correspondent banking Pa Pa Pa Pa Partially compliant14. Money or value transfer services Lar Lar Lar Lar Largely compliant15. New technologies Co Co Co Co Compliant16. Wire transfers Pa Pa Pa Pa Partially compliant

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PREVENTIVE MEASURES (continued)Reliance, Controls and Financial Groups

17. Reliance on third parties Lar Lar Lar Lar Largely compliant18. Internal controls and foreign branches and subsidiaries Pa Pa Pa Pa Partially compliant19. Higher-risk countries Pa Pa Pa Pa Partially compliant

Reporting of suspicious transactions20. Reporting of suspicious transactions Lar Lar Lar Lar Largely compliant21. Tipping-off and confidentiality Lar Lar Lar Lar Largely compliant

Designated non-financial Businesses and Professions (DNFBPs)22. DNFBPs: Customer due diligence Pa Pa Pa Pa Partially compliant23. DNFBPs: Other measures Lar Lar Lar Lar Largely compliantTRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND ARRANGEMENTS24. Transparency and beneficial ownership of legal persons Pa Pa Pa Pa Partially compliant25. Transparency and beneficial ownership of legal arrangements Pa Pa Pa Pa Partially compliant

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POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES AND OTHER INSTITUTIONAL MEASURES

Regulation and Supervision26. Regulation and supervision of financial institutions Pa Pa Pa Pa Partially compliant27. Powers of supervisors Lar Lar Lar Lar Largely compliant28. Regulation and supervision of DNFBPs No No No No Non compliant

Operational and Law Enforcement29. Financial intelligence units Pa Pa Pa Pa Partially compliant30. Responsibilities of law enforcement and investigative authorities Co Co Co Co Compliant31. Powers of law enforcement and investigative authorities Co Co Co Co Compliant32. Cash couriers Pa Pa Pa Pa Partially compliant

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POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES AND OTHER INSTITUTIONAL MEASURES (continued)

General Requirements 33. Statistics Pa Pa Pa Pa Partially compliant34. Guidance and feedback Pa Pa Pa Pa Partially compliant

Sanctions35. Sanctions Pa Pa Pa Pa Partially compliantINTERNATIONAL COOPERATION36. International instruments Lar Lar Lar Lar Largely compliant37. Mutual legal assistance Pa Pa Pa Pa Partially compliant38. Mutual legal assistance: freezing and confiscation Pa Pa Pa Pa Partially compliant39. Extradition Lar Lar Lar Lar Largely compliant40. Other forms of international cooperation Pa Pa Pa Pa Partially compliant


Ratings – technical compliance

2

18 19

1

Compliant

Largely compliant

Partially compliant

Non compliant


Key findings Cambodia has made significant improvements to its level of

technical compliance with the FATF Standards since its 2007 mutual evaluation, including in relation to important ‘building block’ FATF Recommendations (criminalisation of money laundering and terrorist financing, customer due diligence, record-keeping and suspicious transaction reporting). However, further improvements in technical compliance are necessary to make Cambodia’s regime effective in the context of serious money laundering (ML) threats and vulnerabilities.

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Key findings

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Cambodia finalised its first national risk assessment (NRA) in November 2016, immediately before the assessment team’s on-site visit, and has developed some understanding of its ML and terrorist financing (TF) risks. The main risks faced by Cambodia include ML from fraud/scams, corruption and bribery, drug trafficking, human trafficking, illegal logging, wildlife crime and goods and cash smuggling. There are gaps in the scope of the NRA with respect to risks posed by legal persons, foreign trusts, the NPO sector and dealers in precious metals and stones. The NRA also did not consider the risks associated with illicit inflow and outflow of funds (both through movement of cash and trade-based money laundering). In terms of ML vulnerabilities, there are higher risks associated with the casino and real estate sectors, as well as the banking sector. However, the ML risks associated with banking, remittance and lawyers are higher than as assessed by Cambodia. To be more comprehensive, future assessments of ML/TF risks will require better data, case studies and feedback from stakeholders, within and outside government.


Key findings Cambodia has not yet sufficiently shared the results of its 2016

NRA with the private sector or within the public sector, nor has it implemented a comprehensive, risk-based approach to allocating resources and implementing measures to prevent or mitigate ML/TF. However, agencies with responsibility for AML/CFT work were generally aware of the risks identified in the NRA. Cambodia has a good institutional basis for national co-operation and co-ordination, but effectiveness needs to be improved, particularly at the operational level. The planned review of Cambodia’s national AML/CFT strategy informed by an understanding of risk will assist in guiding policy and effectiveness improvements.

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Key findings

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Cambodia has made minimal use of financial intelligence in investigating ML/TF or predicate offences, including in developing evidence or tracing proceeds related to ML/TF. The limited ability of Cambodia’s Financial Intelligence Unit (CAFIU) to produce financial intelligence significantly undermines use of financial intelligence by competent authorities and levels of dissemination do not satisfy the operational needs of LEAs.

The narrow scope of STR reporting (95% received from banks) and low number of cross-border cash declarations limit the data available to CAFIU for analysis and do not align with the assessed ML/TF risks. The NRA rated casinos and real estate as areas of higher risk but there are limited reports received from entities outside the banking sector.


Key findings While Cambodia’s legal system provides a broad set of powers and

responsibilities for law enforcement agencies (LEAs) to investigate and prosecute ML offences, there is no policy or practice of ‘following the money’ to identify and investigate ML and only three ML investigations have been conducted, none of which proceeded to prosecution. Despite investigations of some predicate offences, no prosecutions or convictions have occurred for ML.

Cambodia’s legal framework for confiscation is generally sound. However, despite some confiscation in relation to drug trafficking and corruption, Cambodia does not demonstrate many of the characteristics of an effective system for confiscating proceeds and instrumentalities of crime. Confiscation is not pursued as a policy objective and it is not clear that LEAs consider confiscation when investigating predicate offences, or that the amount sought to be confiscated fully represents the available proceeds.

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Cambodia has a good legal framework to combat TF and has allocated substantial resources to combating terrorism and its financing. There have been no prosecutions or convictions for TF activity in Cambodia, but this is not inconsistent with the TF risk profile. Historically, however, Cambodia has demonstrated an ability to identify and investigate potential and actual cases of terrorism and TF and to cooperate domestically and internationally in the course of an investigation.

Cambodia has a reasonable legal framework to deprive terrorists, terrorist organisations and terrorist financiers of assets and instrumentalities related to TF activities, though some improvements are required to the legal framework and to mechanisms to disseminate updates to United Nations sanctions lists. Cambodia can designate individuals and entities as terrorists under United Nations Security Council Resolution (UNSCR) 1373 if the need arises. No terrorist assets have been identified or frozen under relevant UNSCRs.

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Key findings


Cambodia has a large NGO/NPO sector overseen by the Ministry of Interior (MOI), for domestic NGOs, and the Ministry of Foreign Affairs and International (MFA-IC) for foreign and international NGOs. No review has been conducted of the TF risks and vulnerabilities within the NPO sector, and no outreach has been delivered to the sector on the threat of terrorist abuse.

Cambodia does not have a legislative basis for, nor has it taken steps to implement, targeted financial sanctions (TFS) relating to combating proliferation of weapons of mass destruction. The authorities do not systematically disseminate UN notices on proliferation financing (PF) to financial institutions (FIs) or designated non-financial businesses and professions (DNFBPs), despite there being a good diplomatic and political relationship between Cambodia and the Democratic People’s Republic of Korea (DPRK).

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Key findings


Regarding preventative measures, the understanding of ML/TF risks and AML/CFT obligations varies within the financial sector. Commercial banks, securities firms and insurance companies have a more advanced understanding as compared to the specialised banks, micro-finance institutions (MFIs), money remittance operators, money changers and financial leasing companies.

There has been limited interaction between supervisors and DNFBPs, particularly real estate agents, small casinos, dealers in precious metals and stones, lawyers, stand-alone accounting and auditing firms. As a result, there is low understanding of ML/TF risks and AML/CFT obligations among these entities. Implementation of customer due diligence (CDD) obligations, including the collection of beneficial ownership information, is low. The CDD threshold for casinos is set at USD 10,000, which is higher than required under the FATF standards.

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Key findings


AML/CFT supervision has focused on banks and deposit taking MFIs, with few supervisory activities conducted on other FIs and no supervision of DNFBPs. This is problematic given the inherent risk of some DNFBPs and the vulnerabilities stemming from a lack of supervision. Risk-based AML/CFT supervision is only applied to the banking sector. No sanctions have been imposed on REs for breaches of AML/CFT obligations, however, CAFIU has identified deficiencies during on-site inspections and required FIs to submit remedial plans to rectify the deficiencies.

The vast majority of legal persons in Cambodia are registered in the online business register. Basic information held in the register is publicly available online and competent authorities can gain timely access to shareholder information held by the Ministry of Commerce (MOC). However, there are some concerns regarding the accuracy and currency of this information. The best source of beneficial ownership information is the information collected by reporting entities (REs) pursuant to their CDD obligations. However, many DNFBPs and some non-bank FIs fail to comply with their obligations. There are no mechanisms in place to mitigate the, admittedly low, risks posed by bearer shares, bearer share warrants, nominee shares or nominee directors.

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Key findings


While trusts cannot be created under Cambodian law, there is no explicit prohibition on foreign trusts operating in Cambodia. There are no mitigating measures in place to prevent the misuse of foreign trusts for ML/TF purposes.

Cambodia has a reasonable legal framework for international cooperation. However, in the absence of a general mutual legal assistance (MLA) law (currently in draft), there is no domestic legal framework for the provision and receipt of MLA outside of the ASEAN MLA Treaty and special laws relating to drugs, corruption and terrorism. Broadly, while Cambodia is responsive to incoming international requests for cooperation, as permitted by limited capacity and resources, its use of international cooperation is limited and does not match its ML risk profile.

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Key findings


Priority Actions for Cambodia to strengthen its AML/CFT System

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The prioritised recommended actions for Cambodia, based on these findings, are: 1. Update the National AML/CFT Strategies to reflect Cambodia’s current

understanding of ML/TF risks and implement a comprehensive, risk-based approach to allocating resources and implementing measures to prevent or mitigate ML/TF on the basis of assessed risks, and improve co-ordination at strategic and operational levels.

2. Improve the capacity of CAFIU to produce significantly more high quality intelligence products for LEAs, including prompt dissemination of analysed STRs and strategic analysis.

3. Establish a consolidated AML strategy across LEAs which covers parallel investigations and use of financial intelligence in ML and predicate offence investigations. Clarify that all relevant agencies can conduct ML investigations, and specify the circumstances in which they should do so. Provide further training and direction to LEAs to increase investigation and prosecution of ML, particularly (but not only) in relation to more serious proceeds-generating offences. Increase penalties for ML, in particular for legal persons to encourage the use of these sanctions.



4. Adopt clear policies and strategies to pursue confiscation, including repatriation, sharing and restitution of criminal proceeds, instrumentalities, and property of equivalent value, in particular for areas identified to be high risk, such as cross-border goods and cash smuggling.

5. Engage in substantially more risk-based AML/CFT supervisory activity, including commencing supervision of higher-risk DNFBPs as a matter of priority, conducting further outreach to smaller FIs and DNFBPs and monitoring and enforcing compliance by REs with requirements to identify the beneficial ownership.

6. Increase engagement and information sharing with FIs and DNFBPs to promote a better understanding of their AML/CFT obligations and ML/TF risks and trends facing Cambodia.

7. Implement TFS against proliferation, through the introduction of legal instruments and a framework for monitoring compliance.

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8. Update the relevant legislative instruments to reflect revisions in the CDD requirements of the FATF standards, in particular: a. broaden the definition of PEPs to include domestic PEPs; b. lower the CDD threshold for casinos to USD 3,000; c. require REs to determine whether the beneficial owner is a PEP; d. allow REs to not pursue CDD if there is a risk of tipping-off the customer.

9. Strengthen future assessments of ML/TF risks to address gaps in coverage, such as legal persons and arrangements, and through the use of better data and information

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