Cutting Losses: Southeast Asia’s Crackdown on Online Gambling

Online gambling has emerged as a lucrative sector in Southeast Asia, luring in foreign investors and capital across the region. Consisting of live casino games, online gaming machines, and sports betting, the sector is primarily driven by offshore Chinese gamblers. By setting up operations in states with liberal gaming laws, they effectively evade China’s stringent ban on gambling activities.

However, amid rising criminal activity and illicit financial flows, Southeast Asia’s booming online gambling sector has resulted in economic and political losses for the member states of the Association of Southeast Asian Nations (ASEAN). This can be attributed to the transnational nature of online gambling, lax governance at the national level, and ASEAN’s fractured regulatory environment. While countries initially viewed the sector as a surefire solution for post-pandemic recovery, online gambling’s risks have been made apparent, precipitating legislation in countries like Indonesia, Singapore, and Laos that seek to crack down on these operations.

The Philippines and Cambodia have achieved notoriety due to their reputations as gambling meccas for Chinese nationals. Both have facilitated the industry’s growth within their borders through regulations conducive to online gambling operators. However, in a policy reversal, lawmakers have since urged their administrations to ban the industry entirely, as operators have, in the words of Philippine senator Risa Hontiveros, made countries like the Philippines “a playground” for “criminal activities.”

As the gambling sector expands, its associated risks with transnational crime and human trafficking will impact U.S. engagement with the region. Previously, the United States warned that casinos could be a front for human trafficking in the infamous “Golden Triangle” region (encompassing parts of Myanmar, Thailand, and Laos), spurring the growth of an underground economy. The United States has a responsibility as a global leader to engage with the region’s concerns in an action-oriented manner. By understanding the regulatory landscape of the sector and investigating its consequences in Cambodia and the Philippines, the United States can endeavor to engage with ASEAN member states’ concerns amid an era of rising Chinese influence.

Online Gambling in the Philippines

The Duterte administration encouraged the growth of Philippine offshore gaming operators (POGOs) as part of a desire to forge closer relations with Beijing by attracting Chinese business, investment, and tourists. However, lax oversight facilitated legal loopholes for these operators, culminating in shared concerns from Chinese and Filipino government officials of gambling’s illegal recruitment methods and operations.

President Ferdinand “Bongbong” Marcos Jr.’s pivot toward the United States, amid heightening tensions with China in the South China Sea, has shifted the regulatory landscape catered to the POGO sector. In his annual State of the Nation address on July 22, Marcos officially banned all offshore gambling operators, culminating in praise from local lawmakers and a standing ovation in Congress. However, questions remain on the ban’s implementation, which would trigger a massive outflow of Chinese capital.

Prior to Marcos’ announcement, emerging bills in the House and Senate restricting POGO operations were already making significant headway. The proposed Anti-POGO Act of 2024, led by the House’s minority lawmakers, would outlaw POGO operations, while a filed Senate bill sought to repeal the taxability of offshore gaming. However, a difficult balancing act existed for local policymakers, who weighed the sector’s economic contributions against its associated criminal acts. Reports of torture, prostitution, human trafficking, and suspicions of Chinese espionage associated with POGOs have dominated local headlines. Most recently, a POGO raid in Pampanga province yielded suspected Chinese military uniforms and pins, as well as equipment used for scams, torture rooms, and illegal drugs.

At their peak, POGO operations resulted in significant dividends. During Duterte’s tenure, the industry generated $1.8 billion in 2019, making the POGO sector an indispensable player in generating foreign investment. However, the sector’s economic benefits are well in decline, now only accounting for 0.31 percent of the country’s GDP. Further, a government agency flagged suspicious cash flows from POGO transactions, marking PHP 14 billion (out of PHP 54 billion) as suspicious. To lend further credence to these concerns, issues surrounding local employment and rising real estate prices raise questions about the industry’s impact on the host country – particularly given that the sector results in the growth of a closed business loop that accommodates itself exclusively to Chinese users.

Online Gambling in Cambodia

Similarly, Cambodia is notorious for its thriving online gambling sector, concentrated in the coastal city of Sihanoukville. The area’s coastal location and proximity to a special economic zone allowed Sihanoukville to transform into a hub for online gambling. In 2016, the country’s improved access to 4G networks allowed Chinese investors to direct funding to Cambodia’s online gambling industry. Cambodia’s lower tax rates and affordable cost of living compared to the Philippines places it in an advantageous position for the sector’s growth. While salaries of Chinese workers are roughly the same between both countries, Cambodia’s other areas of operations are financially advantageous (including housing costs, tax rates, and labor certifications).

Hence, Cambodia’s regulatory landscape has transformed Sihanoukville into prime breeding ground for scam operations and human trafficking. Speculative real estate investments, referring to casinos and hotels emptied by the Covid-19 pandemic, have been repurposed for scamming operations under the guise of the seemingly legitimate online gambling sector. Directly linked to online gambling, Cambodia has become the source, transit, and destination country for human trafficking victims, ranked as the second highest country for organized crime in the region.

The influx of Chinese capital as a result of online gambling has triggered economic unrest. The sector has exacerbated Cambodia’s wealth disparities due to the growing cost of living in major Cambodian cities – a trend that benefits local elites with links to land ownership and foreign capital to the detriment of non-elites. Cases of land grabbing, linked to Chinese-funded infrastructure to house criminal operations, have similarly risen in prominence. The sector’s negligible contributions to Cambodia’s local economy or workers mean that locals are excluded from its profits. Instead, they suffer from rising unemployment, exacerbated by the decrease in tourist numbers from elsewhere as the country increasingly caters to Chinese nationals.

To mitigate the social unrest and crime fueled by the sector, Cambodia has partnered with China to reform its online gambling environment – a vastly different approach than the Philippines. Cambodia formally banned online gambling in 2019 and passed a comprehensive framework governing the country’s gambling activities under then-prime minister Hun Sen. Now, under Prime Minister Hun Manet, Cambodia says it hopes to transform Sihanoukville into a business hub for shipping, manufacture, and finance, further supported by China’s global infrastructure project, the Belt and Road Initiative.

Reassessing Regional & National Online Gambling Regulations 

While Philippine and Cambodian legislation each seek to ameliorate their gambling sector’s woes, difficulties remain in constructing policy to effectively crack down on online gambling. Notably, gambling operators could easily move to nearby countries with looser controls, such as Myanmar, Palau, or Nepal.

ASEAN has indirectly sought to mitigate the sector’s related concerns with cyber scams and human trafficking, namely through a high-level dialogue with the United Nations and a dedicated center to combat transnational crime. However, these initiatives have demonstrated little progress, with no concrete efforts toward reform. Despite ASEAN’s organizational norms of nonintervention and emphasis on consensus-based decision making, such a transnational issue requires a comparatively interventionist approach that frames online gambling as an issue of national security and criminal justice—collective issues that extend beyond national borders.

Online gambling’s negative consequences in countries like the Philippines and Cambodia should be an important concern for policymakers as they involve issues the United States has an active stake in defending against, including human trafficking, transnational crime, and cybersecurity (through the sector’s scam operations). Particularly as countries like Cambodia turn to China to mitigate online gambling’s presence within their borders, it is imperative for the United States to step up and engage with the region in a substantive manner.

U.S. engagement may be helpful in strengthening cross-sectoral cooperation and information sharing. The United States can play an integral role in collaborating with ASEAN to engage in capacity building with the bloc’s divisions for cyber cooperation and human trafficking. The United States can further support regional efforts by emphasizing a victims-oriented approach to the sector’s victims of cyber-scams and human trafficking, distributing assistance and support to effectively prosecute perpetrators and compensate victims. Through joint programming efforts, the United States can encourage collective engagement across ASEAN in resolving concerns with the online gambling sector.

Further, current regulations for online gambling are inadequate in effectively cracking down on the industry, contributing to a thriving underground network at the national level. Enforcing stricter oversight, particularly of local politicians’ connections to the online gambling sector, is key. Greater efforts should also be made to alleviate poverty – an interlinked cause of the growth of online gambling – including through social welfare programs, minimum wage laws, and employment laws.

As countries weigh the sector’s economic merits against its social costs, it is clear that online gambling poses severe risks to individual countries and Southeast Asia overall. While emerging legislation seeks to restrict the industry’s operations, a careful reassessment of existing national and regional regulations is paramount in reversing the damage caused by the explosion in online gambling.

This article was originally published on New Perspectives on Asia from the Center for Strategic and International Studies and is reprinted with permission