Supporting Financial Investigations into Corruption in Cambodia

Phnom Penh (Cambodia), 14 October 2020 - The eradication of corruption remains a governmental priority across Southeast Asia, especially in a region where the proceeds of organised crime are estimated to total $73.4 - $110.4 billion USD annually (UNODC 2019). Meanwhile, a UNODC study suggests that the Covid-19 pandemic has heightened the risk of corruption and fraud across the region.

In Cambodia, the State has pledged in recent years to target corruption and related issues such as illegal logging, perceived complicity of officials and illegal gambling. One key challenge is that the proceeds of such crimes are frequently concealed using sophisticated financial methods, both within and beyond national borders. Indeed, UNODC research finds evidence of criminal groups across the region recruiting specialised financial managers to hide the proceeds of corruption, particularly using nearby financial centres.

To address this, UNODC has been engaging with anti-corruption agencies across the region, promoting best practices on promoting beneficial ownership and financial investigations. In Cambodia, building on previous in-country interrogation and surveillance trainings, UNODC held a workshop on financial investigations over 12-14 October 2020.

Officers from Cambodia’s Anti-Corruption Unit (ACU) share financial investigation approaches

Some key messages highlighted during the latest workshop include:

Corrupt Officials Often Resort to Intermediaries

In cases of bribery, corrupt officials may seek to co-opt an intermediary or go-between, in order to distance themselves from incriminating transactions. The intermediary may be natural or legal persons:

In the case of natural persons, evidence suggests that intermediaries may skim as much as 30% of the illicit funds involved, in exchange for their involvement. Commonly, they may double as the assistant to the perpetrator in their official capacity. In some instances, the intermediary may seek to embezzle the entire bribe, posing a risk to the corrupt official.

To avoid this risk, corrupt persons may seek to create a corporation for use as a legal person, with a bank account in its own name. The bribe could then be deposited in the checking account. However, for the corrupt person, there is the risk that investigators check about these transactions with the bank.

To further avoid detection, a corrupt official may seek to co-opt an enabler to help them found a corporation abroad, perhaps even involving a nominee – someone who, for a fee, allows themselves to be listed on the corporate records.

Cornelia Koertl (UNODC Crime Prevention Officer) illustrates how corrupt persons may seek to undermine efforts made by banks to Know Your Customer (KYC) through the use of intermediaries

Complicated Ownership Structures as a Red Flag

As with other crime types, perpetrators of corruption often seek to conceal their actions beneath layers of complexity. However, while complicated ownership structures can impede investigations, they can also serve as a red flag.

Anti-corruption officers may draw on a wide range of sources – such as articles of incorporation, registers of corporate shareholders, company registers, income statements, tax returns and balance sheets – to ascertain whether ownership structures are likely to contain the telltale signs of corruption. If company management do not appear to be actively involved in the management of the company – for example, if they are in fact clerical staff from the Trust and Company Service Provider – this is one sign that the company may not be genuine.

Under the mentoring of UNODC experts, Cambodian officers develop responses to complex simulated cases of corruption

Identifying the Beneficial Owner is Vital Component of Corruption Investigations

A recent UNODC study on beneficial ownership in Southeast Asia  calls for state authorities to have access to the information needed to identify the true owners of legal entities. But what does this mean for anti-corruption investigators?

Investigators need to infer who in fact benefits from the proceeds of a legal entity using the information available. The beneficial owner is often registered as an authorised signatory of a bank account used for corruption – even if they are not the official account holder. Further clues to the identity of the beneficial owner may be revealed through the allocation of voting rights or percentage of ownership conferred through shares, the right to appoint or remove members of the board of directors, effective control over management and policies of the legal entity and the right to assets/profits.

A discussion of approaches to enhance the transparency of beneficial ownership at the state-level is available here.

ACU officers seek to identify the beneficial owners of legal entities in hypothetical scenarios

Risk Assessments Help to Navigate a Growing Volume of Information

As the complexity and volume of transactions increase, many FIUs face challenges in identifying and investigating suspicious transactions. Francesco Checchi, UNODC Anti-Corruption Adviser, emphasised the importance of undertaking risk assessments, including the prioritisation of high risk industries, particularly large scale infrastructure projects. For such projects, the potential for corruption in infrastructure can be further broken down across the phases of project selection, contractor selection and construction (see image). Increasingly, Anti-Corruption Agencies are turning to data analytics to automate aspects of such risk identification process, although this often requires significant volumes of data to be uploaded electronically.

Inter-Agency and Cross-Border Cooperation to Enhance Investigations

Where feasible, it is important to link up anti-corruption and financial investigations across agencies, to improve the range of evidence and quality of investigations. Meanwhile, FIUs may seek to overcome cross-border information exchange by drawing on international anti-corruption links, formally or informally, with ASEANPAC, Interpol, FIU to FIU, or the Egmont Group (see image below).