United States Institute of Peace

Concerned by the impact of organized crime on governance, local conflict, and global security, the United States Institute of Peace (USIP) formed a study group to explore the dimensions and nature of Southeast Asia’s China-origin criminal networks and the scourge of online scamming they are now spreading globally. Since 2021, the power, reach, and influence of these criminal networks have expanded to the point that they now directly threaten human security globally while posing a growing threat to the national security of the United States and many of its allies and partners around the world. Equipped with a series of case studies by experts on the key Southeast Asian countries involved with these networks and on the particular methodology and advanced technology employed in scamming, the study group developed a clearer understanding of the interconnections that facilitate the criminal networks’ operations and endow them with the flexibility to remain one step ahead of law enforcement. The resulting study illustrates how these networks have used their power and influence to develop a web of scam compounds within the region, centered primarily in Myanmar, Cambodia, and Laos, but involving most other countries of the region in the management of their operations and fraudulent proceeds. It analyzes in detail the nature of the online scams, how the criminal groups utilize advanced technology, how they gain control over weak and corrupt governments, how they traffic labor and deploy torture to engage victims in forced criminality, how they launder stolen funds, and how they attempt to whitewash their criminal activity.

Perhaps the most pernicious aspects of this spreading regional—and increasingly global—criminal phenomenon are the extent and character of the networks supporting it. They operate in both licit and illicit business spheres, gaining access to regional government and business elites through apparently legitimate connections and creating lucrative incentives for local elites to associate with and provide material support to their criminal activity, which is often hidden by a veneer of apparent legitimacy, such as casinos, resorts, hotels, and special economic zones (SEZs). The dispersal of these networks into the region is strongly correlated with the areas of weakest governance and the most profound state-embedded criminality. The melding of these groups with corrupt local elites has generated a malign ecosystem that is rapidly evolving into the most powerful criminal network of the modern era.

The only hope of destabilizing and disrupting this complex and entrenched criminal network in Southeast Asia is a dedicated and coordinated international effort.

Key Takeaways

Over the past decade, Southeast Asia has become a major breeding ground for transnational criminal networks emanating predominantly from China. These organizations target millions of victims around the world with illegal and unregulated online gambling and sophisticated scamming operations. As of the end of 2023, a conservative estimate of the annual value of funds stolen worldwide by these syndicates approached $64 billion.

The scamming operations proliferating in the region today have their roots in a regional network of loosely regulated casinos and online gambling that, beginning in the 1990s and accelerating in the 2000s, some governments promoted as a legitimate contribution to economic development. Chinese nationals were the main target of the overseas gambling business due to a complete ban on gambling in China, where the annual market for gaming is estimated at $40 billion to $80 billion. A range of forces have led this malign activity to take on new characteristics and, propelled by advances in digital technology, to reach beyond the region to target a global audience. These forces include the impact of the COVID-19 pandemic; expanding pockets of lax government regulation and law enforcement in the region; the spread of conflict in Myanmar; and the co-option of the state apparatus by gambling-related criminal interests in various countries, Cambodia and Laos in particular.

While Myanmar, Cambodia, and Laos form the epicenter of the regional scamming industry, most countries in the region contribute in some form to the operations of the criminal networks, facilitating illegal trafficking of forced labor into scam centers, providing a financial base for laundering the proceeds from the illicit activity, and assisting the development of advanced digital technology essential to the sophisticated gambling, scamming, and financial fraud carried out by the criminal networks.

The scamming operations are powered by hundreds of thousands of people, many duped by fraudulent online ads for lucrative high-tech jobs and trafficked illegally into scam compounds, where they are held by armed gangs in prisonlike conditions and forced to run online scams. These victims of forced labor (along with a small number of workers who willingly participate) come from more than 60 countries around the world. The scam compounds in Myanmar have an additional perimeter of armed protection provided by border guard forces under the authority of the Myanmar military or its proxies. In Cambodia, speculative real estate investments—casinos and hotels left empty by the COVID pandemic’s suppression of tourism—have been fortified and repurposed for online scamming in a vast web of elite-protected criminality spread across the country. In Laos, SEZs such as Zhao Wei’s notorious Golden Triangle SEZ are the dominant mode of criminal operation.

Interconnected both within and between countries, the networks are able to evade occasional crackdowns by law enforcement by transferring their scamming operations between compounds within a country or between countries, depending on the circumstances. A move by China’s law enforcement in late 2023 to close down the scam compounds on Myanmar’s border with China led many of them to relocate to the south in Myanmar’s Karen State, on the border with Thailand, as well as to Cambodia and Laos.

The extensive scamming operations in Myanmar along the Chinese and Thai borders have become a key driver of the country’s internal conflict.

Inasmuch as the scam compounds have been protected and run by affiliates of the military junta government in Myanmar, they have also become a factor in the ongoing rebellion against the country’s military coup. In the Kokang area in the northeast of Myanmar, along the Chinese border, the border guard force that operated a large array of scam centers was attacked by a coalition of armed ethnic organizations seeking to wrest control of Kokang from the Myanmar military and its border guard and close down the scam centers. In Karen State on the Thai border, the scam compounds have become surrounded by open conflict between anti-junta Karen armed forces and military forces supported by the Karen Border Guard Force hosting the criminal compounds. Widespread conflict between the Myanmar military and anti-junta resistance forces in Myanmar not only makes the military and its associated forces—as well as some of the militia groups involved in the criminal activity—more reliant on the revenue from the criminal operations, but also contributes to the militarized fortification of their compounds.

Ample evidence suggests that protection of the scamming industry is now of strategic interest to the ruling elites in Myanmar, Cambodia, and other countries in the region due to the industry’s profitability and the nature of state involvement.

In Cambodia, the return on cyber scamming is estimated to exceed $12.5 billion annually—half the country’s formal GDP—with many compounds owned by local elites. More broadly, the study group calculates that the funds stolen by these criminal syndicates based in Mekong countries likely exceeds $43.8 billion a year—nearly 40 percent of the combined formal GDP of Laos, Cambodia, and Myanmar. A significant share of these profits is reported to flow to the Myanmar military and to ruling elites in Cambodia and Laos.

The criminal groups masterminding these scams have set up complex money-laundering operations to move funds into the formal economy, risking corruption of major international financial institutions.

The criminal networks’ methods have evolved over the past decade as they have sought to launder deposits made to online gambling accounts from China. Such industrial-scale laundering is prolific throughout Cambodia, Laos, Malaysia, Thailand, and Vietnam and in financial hubs such as Singapore, Hong Kong, and Dubai, where criminal groups take advantage of strategic vulnerabilities in financial systems and invest heavily in cutting-edge financial technologies that are not well understood by law enforcement. Investigative reporting has also exposed many examples of how laundered funds move into real estate across the globe, including in the United Kingdom and other parts of Europe, in Canada, and in the United States.

The relationship between these criminal groups and the Chinese government is a confusing complex of mixed incentives and mutual opportunity, leading Chinese law enforcement to focus on some of the Chinese-origin criminals behind the scamming networks but not on others.

China’s strict laws against gambling, in person and online, have pushed organized crime groups into Southeast Asia, where they can tap this lucrative market from a safe distance and align with local elites to protect themselves from Chinese law enforcement. While Chinese police try to crack down on the networks with campaigns targeting illegal online gambling, fraud, and money laundering in China and elsewhere, the same crime groups maintain close relations with members of the Chinese Communist Party, as well as partnerships with a range of Chinese state actors, including business enterprises, party agencies, and quasi-governmental institutions.

As the criminal networks have become more powerful, the Chinese state, recognizing that it can no longer control them, has become more concerned about the threat their activity poses to its citizens, who are major victims of the criminal scamming and the capture of forced labor through fraudulent trafficking. At the same time, however, Beijing appears to see opportunity in instrumentalizing the rising global reach and influence of criminal groups to advance China’s Belt and Road Initiative and its new Global Security Initiative, which aims directly at countering global security norms. 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. Meanwhile, rampant corruption in China also poses a major challenge to any Chinese crackdown, with anti-corruption agencies struggling with countless cases of police accepting bribes or favors to ignore illicit activity or undermine enforcement.

The United States has become a major victim of the Southeast Asian scamming industry, with annual financial losses mounting rapidly.

Recent documentaries broadcast or posted on major US and international media outlets have exposed the experience of victims across the United States who have together lost billions of dollars to sophisticated scams and fraud at the hands of malign actors operating across Southeast Asia. In 2023, for instance, Americans and Canadians are estimated to have lost $3.5 billion and $350 million, respectively. In December 2023, the US Department of Justice announced the indictment of four individuals based in the United States for allegedly laundering over $80 million in scam profits, confirming that the criminal groups are now working on American soil. This scamming industry could soon rival fentanyl as one of the top dangers that Chinese criminal networks pose to the United States. In 2023, US authorities warned Americans of the danger of being trafficked into scam syndicates in Southeast Asia and noted that US residents are now the top target of the criminal networks’ financial crimes.

Aside from targeting American citizens, the criminal networks behind these scams also threaten US security interests for three key reasons. First, they endanger democracy, good governance, and stability around the world by co-opting local elites, undermining law enforcement, weakening state authority, and threatening the United States’ strategic interest in a free and open Indo-Pacific. Second, 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. And third, China’s government and law enforcement, after failing to take this problem seriously for years, are now using the presence of Chinese-led crime groups in other countries to justify striking increases in the presence of China’s authoritarian police around the globe.

Policy Options

Constraining the transnational criminal networks examined in this report will require a holistic response that addresses their causes, effects, power, reach, and methods of operation. A country-by-country approach will be defeated by the criminal groups’ agility in hopping borders and outrunning law enforcement.

There is no overstating the degree to which robust international coordination is central to combating transnational organized crime. Tackling the scamming networks will require harnessing the research and law enforcement capacities of key countries and international organizations. The United States and China, as the two most strongly affected victims of the online scamming industry, would be key to any international response. Should they fail to find means of coordinating their efforts, criminal networks will exploit the resulting gaps to sustain their activities.

An effective response by United States government will require a coordinated, whole-of-government effort that draws on the competencies of federal agencies in information collection, financial management, and law enforcement.

A coordinated US mechanism of this kind would facilitate consistent US cooperation and coordination with countries in Southeast Asia and others affected by the criminal scamming. It would help compile and centralize a more robust information base than that which currently exists. Such a response would be most effectively centered in a National Security Council interagency task force. One major objective of a US response should be to strengthen the governmental and law enforcement capabilities and actions of Southeast Asian countries, not only to address this problem in their own countries but also to work together to interrupt the ability of the networks to move around the region and exploit weaknesses that provide new openings for their operations. Buttressing these efforts should be a concerted effort by the US government to hold accountable all evidenced criminals— including compound owners, state-embedded co-conspirators, and affiliated corporations— through sanctions, asset seizure, travel bans, and other safeguarding mechanisms.

The US response should begin by addressing the serious lack of information on all aspects of the scamming industry, not least the constantly advancing technology that facilitates the scamming operations, their financial underpinnings, and money laundering.

Working internationally in Southeast Asia and globally, this effort should coordinate data collection on a worldwide basis, engaging not only government sources but also civil society, media, business, and financial institutions. One of the greatest weaknesses of current law enforcement efforts and other attempts to counteract the criminal activities involved in the scamming industry is the lack of systematic and coordinated data collection. This gap must be urgently filled if law enforcement is to have a full picture of the problem, its vast and evolving network of criminal actors, and its constantly shifting dynamics. Effective data collection demands significant international cooperation.

To protect its own citizens, the US government should conduct a nationwide public awareness program to draw attention to the scamming methods used to draw potential victims into fraudulent investment, dating, and gambling schemes designed to impoverish them.