Sara Kulic, Illicit Finance and Economic Threats Team
Week of Monday, October 4, 2021
Laos[1]
On September 9, 2021, the government of Laos announced a trial run of cryptocurrency mining and trade by authorizing six companies to mine and trade Bitcoin.[2] By limiting the number of companies authorized to mine and trade Bitcoin, the government likely aims to secure effective oversight over these activities in order to develop a suitable regulatory framework. As cryptocurrency mining and trade progress, the number of companies authorized for these activities is very likely to increase. There is a roughly even chance that the Laotian government's authorization will expand to the country-wide legalization of the use of cryptocurrencies. Regulatory restrictions accompanying cryptocurrencies are likely to increase due to the widespread corruption and financial criminality in the country. Transnational criminal networks, operating within the Golden Triangle Special Economic Zone, located on Laos’ border with Thailand and Myanmar, are likely to exploit the use of cryptocurrencies to launder their proceeds from illicit activities. Despite introducing cryptocurrency mining and trade to strengthen the country's economy, Laos' extensive criminal networks are likely to take advantage of the government's decision, impeding the detection and disruption of illicit financial flows.
Laos has developed a diverse criminal market, being a crucial transit hub for arms, drugs, wildlife, logging, and people, all of which are trafficked and smuggled to and from neighboring countries.[3] Laos’ geographic location, as well as the high and diverse regional demand for illicit goods likely increase Laos’ criminal prominence. Pervasive corruption, bribery, and political patronage existing at all levels of the Laotian government facilitate organized criminal activities, particularly illegal wildlife trade and illegal logging.[4] Besides corruption, its extensive borders, adjacent to five countries, very likely impede the attempts to tackle organized crime in the region.[5] Laos’ importance as a transit hub for drugs increased as neighboring Thailand and China tightened border controls to curb the flows of drugs and precursor chemicals[6], following the February 1, 2021 coup in Myanmar and COVID-19 outbreak.[7] International and regional focus on Myanmar, a growing global drug supplier, likely led to overlooking Laos as an important transit route not only for drugs but other contraband such as arms and wildlife. While the response of neighboring countries’ to drug trafficking was likely more stringent due to international pressure, and high-profile instability in Myanmar, other criminal activities, such as wildlife trafficking, were tacitly allowed to continue likely due to the high demand in those target countries.
Where the borders of Thailand, Myanmar, and Laos meet, known as the Golden Triangle, is Laos’ Golden Triangle Special Economic Zone (GTSEZ). Besides flourishing wildlife trade and sex trafficking, the GTSEZ is a central money-laundering hub for clients mainly from China.[8] The Laotian state owns only a 20 percent stake in the GTSEZ, while Chinese company Kings Romans Group[9], whose founder Zhao Wei, has been sanctioned by the U.S. Treasury Department for “acting for or on behalf of” the designated transnational criminal organization[10], owns 80 percent and holds a lease that could be extended up to 99-years.[11] Considering Zhao Wei's relationships with high-ranking Laos government officials,[12] it is very likely that corruption enabled Chinese dominance and assured that the Laotian 20 percent stake is subject to political patronage that serves Chinese interests. Corrupted Laotian political elites are very likely intertwined with local and regional criminal networks operating in the GTSEZ. The symbiosis of different criminals cooperating for profit from each other has likely made the GTSEZ the main money laundering hub in the region. The chances for detection and disruption of illicit financial flows are highly unlikely due to such high-level corruption and political connections.
Despite U.S. sanctions, Zhao Wei’s involvement in Laos persists and expands, including the construction of a seaport, an investment worth 50 million USD, in the Laotian town of Ban Mom close to the GTSEZ.[13] The port was almost certainly initiated to facilitate the movement of contraband in the GTSEZ, further managed by criminal syndicates operating under Zhao Wei’s influence. The attendance of Zhao Wei at the seaport groundbreaking ceremony alongside the Laotian deputy prime minister and the provincial governor, as well as Zhao Wei’s alleged gifts to Laotian government officials, suggest that the investment project is likely secured through bribery and relationships with high-ranking officials.[14] The port project is likely to intensify the presence of regional and foreign criminal syndicates interested in such a port for transporting contraband to nearby destinations. There is the potential of increased competition for a share of a flourishing criminal activity between local and regional groups operating in and around the port, which is very likely to increase bribery and corruption of port officials, and Laotian political elites, as well as increase crimes such as money laundering, tax evasion, and customs fraud. The infiltration of criminal actors in the businesses connected to the port, such as container shipping companies, is also likely to increase, intensifying overlap between the business, politics, and crime.
After The Bank of Laos (BOL), the country’s central bank issued a warning and ban on Laotian citizens from using cryptocurrencies[15]. In response, the Laotian government, aiming to diversify the country’s sources of income due to the COVID-19 economic hardship, has allowed six companies, which include construction companies and a bank, to mine and trade Bitcoin.[16] Although Laos has an abundance of hydropower that could be used for cryptocurrency mining, ever-growing criminal enterprises and corruption raise concerns about the basis for Laos’ decision to legalize cryptocurrency mining and trade.[17] By limiting the mining and trade of Bitcoin to only six companies, the Laotian government is likely attempting to ensure control and regulation over the new activities. There is a roughly even chance that criminals have infiltrated the companies currently authorized for mining and trade. It is unlikely that the mining and trading of cryptocurrency among the Laotian population will decrease. The lack of effective governance combined with high levels of corruption, which led Laos to become a criminal hub in the first place, impedes any attempt to legitimately regulate crypto-related activities.
Laos' decision made it the only Southeast Asian country to officially allow and participate in cryptocurrency mining.[18] Laos is likely to become a regional crypto mining and trading hub, attracting companies from neighboring countries. This expansion is even more likely following China’s ban on cryptocurrency mining and trade in order to tackle illicit cryptocurrency activities.[19] With the expanding Chinese influence in Laos, it is likely that Chinese companies will relocate to Laos to take advantage of legalized cryptocurrency mining and trade. As a result, the number of companies authorized for mining and trade of Bitcoin is likely to increase in the following months. Such a development is likely to result in an increased influx of criminal networks, embedded in legitimate front companies, and investors looking to launder their illicit proceeds. Consequently, the complete detection of illicit financial flows is highly unlikely due to the difficulties in distinguishing between legal and illicit transactions. There is a roughly even chance that the initial trial period of cryptocurrency mining and trading results in the complete, nationwide legalization of cryptocurrency transactions. In such a case, crypto-related activities are likely to facilitate crime, benefiting only a network of corrupt and criminal actors, instead of the economy as a whole. Considering the penetration and influence of criminal activity in Laos' economy, the use of cryptocurrencies and following regulatory hardships is almost certainly going to be exploited by criminal actors, increasing the influx of illicit financial flows in and out of the country.
Besides engaging in cryptocurrency mining and trade, Laos decided to develop its own digital currency, with the help of the Japanese fintech company Soramitsu.[20] By developing the country's digital currency, the central bank likely aims to mitigate the lack of oversight over cash flows and transactions in Laos. However, even in the case of nationwide use of digital currency, the exclusion of cash transactions and subsequent disruption of illicit financial flows are highly unlikely. There is a roughly even chance that the development of Laos’ digital currency is initiated to introduce the people to the digital payment platform, which would be a step towards nationwide use of cryptocurrencies. However if Laos' digital currency coexists with non-state cryptocurrencies, it is highly likely that criminal networks will opt for other cryptocurrencies, such as Bitcoin, Ethereum, and Dogecoin, to secure anonymity, launder and disguise their illicit proceeds. The potential use of cryptocurrencies by criminal actors severely impedes the detection and disruption of illicit transactions by the Laotian government and law enforcement. Such a development is likely to make Laos an attractive money-laundering hub for criminal organizations and corrupt actors in the region.
The Counterterrorism Group (CTG) will continue to monitor and assess cryptocurrency and digital currency-related developments in Laos through its Illicit Finance and Economic Threats (IFET) and Cyber teams. The IFET team will continue to monitor illicit financial flows steaming in and out of Laos, and collaborate with the Crime and PACOM teams, which focus on identifying criminal and other types of threats in Laos and the region. The CTG’s Worldwide Analysis of Threats, Crime, and Hazards (W.A.T.C.H.) officers will remain vigilant to threats in Laos and the PACOM region by monitoring global events 24/7 and producing relevant reports.
The Counterterrorism Group (CTG) is a subdivision of the global consulting firm Paladin 7. CTG has a developed business acumen that proactively identifies and counteracts the threat of terrorism through intelligence and investigative products. Business development resources can now be accessed via the Counter Threat Center (CTC), emerging Fall 2021. The CTG produces W.A.T.C.H resources using daily threat intelligence, also designed to complement CTG specialty reports which utilize analytical and scenario-based planning. Innovation must accommodate political, financial, and cyber threats to maintain a level of business continuity, regardless of unplanned incidents that may take critical systems offline. To find out more about our products and services visit us at counterterrorismgroup.com.
[2] Laos, a Southeast Asian nation, is legalizing Bitcoin mining and trading, Technology Insight, September 2021, https://technologyinsight.tech/laos-a-southeast-asian-nation-is-legalizing-bitcoin-mining-and-trading.html
[3] Laos, Global Organized Crime Index, 2021, https://ocindex.net/country/laos
[4] Ibid.
[5] Laos, Britannica, 2021, n.d., https://www.britannica.com/place/Laos
[6] Laos is a missing link in Asia's fight against organized crime, CNN, August 2020, https://edition.cnn.com/2020/08/19/asia/laos-organized-crime-intl-hnk/index.html
[7] How Myanmar’s coup fuelled a rise in the illegal drugs trade, The Irish Times, August 2021, https://www.irishtimes.com/news/world/asia-pacific/how-myanmar-s-coup-fuelled-a-rise-in-the-illegal-drugs-trade-1.4653998
[8] Is an alleged drug kingpin from China investing millions in a port in Laos?, CNN, December 2020, https://edition.cnn.com/2020/12/07/asia/laos-ban-mom-port-zhao-wei-intl-hnk-dst/index.html
[9] Laos’ Sin City is an illegal wildlife trade supermarket for visiting Chinese tourists, Environmental Investigation Agency, March 2015, https://eia-international.org/press-releases/laos-sin-city-is-an-illegal-wildlife-supermarket-for-chinese-tourists/
[10] Treasury Sanctions the Zhao Wei Transnational Criminal Organization, U.S. Department of the Treasury, January 2018, https://home.treasury.gov/news/press-releases/sm0272
[11] Laos’ Sin City is an illegal wildlife trade supermarket for visiting Chinese tourists, Environmental Investigation Agency, March 2015, https://eia-international.org/press-releases/laos-sin-city-is-an-illegal-wildlife-supermarket-for-chinese-tourists/
[12] Chinese Casino Magnate’s Empire Set to Expand in Laos, The Diplomat, April 2021, https://thediplomat.com/2021/04/chinese-casino-magnates-empire-set-to-expand-in-laos/
[13] Is an alleged drug kingpin from China investing millions in a port in Laos?, CNN, December 2020, https://edition.cnn.com/2020/12/07/asia/laos-ban-mom-port-zhao-wei-intl-hnk-dst/index.html
[14] Ibid.
[15] Bank of Laos Warns Public Against Use of Cryptocurrency, Laotian Times, August 2021, https://laotiantimes.com/2021/08/18/bank-of-laos-warns-public-against-use-of-cryptocurrency/
[16] Laos, a Southeast Asian nation, is legalizing Bitcoin mining and trading, Technology Insight, September 2021, https://technologyinsight.tech/laos-a-southeast-asian-nation-is-legalizing-bitcoin-mining-and-trading.html
[17] Laos welcomes cryptocurrency miners, Financial Times, September 2021, https://www.ft.com/content/8e3784f8-5605-40aa-a8b5-3d0e5bdae9a9
[18] China’s crypto ban a big boon for little Laos, Asia Times, October 2021, https://asiatimes.com/2021/10/chinas-crypto-ban-a-big-boon-for-little-laos/
[19] China's top regulators ban crypto trading and mining, sending bitcoin tumbling, Reuters, September 2021, https://www.reuters.com/world/china/china-central-bank-vows-crackdown-cryptocurrency-trading-2021-09-24/
[20] Laos to Study Digital Currency With Help From Japanese Fintech, Report Reveals, Bitcoin.com, October 2021, https://news.bitcoin.com/laos-to-study-digital-currency-with-help-from-japanese-fintech-report-reveals/