The international sand market, dictators, and criminals

Hun Sen, Cambodia’s current prime minister, has been in power since 1985. His government faces long-standing charges of corruption and political violence. He recently declared he will rule until 2027 and there is no reason not to believe him — like many authoritarians, he knows how to transform markets into tools of political survival. In 2009 he banned the export of silica sand, citing environmental damages from the practice. However, as recently exposed by a small NGO and confirmed by others, Cambodia still exports the sand, but does not report it. The result of fraud like this is that dictators and criminals profit as Cambodians and global markets suffer losses.

Cambodia’s Prime Minister Hun Sen attends a plenary session at the National Assembly of Cambodia in central Phnom Penh, October 16, 2017. REUTERS/Samrang Pring

How did sand come to play a role in propping up Cambodia’s dictatorship? The global demand for certain types of sand is said to be so great that “sand-mafias” now infiltrate governments and business to facilitate supply. From 2012 to 2016, Cambodia reported exports of only $275,606 worth of all types of sand to Taiwan. Taiwan meanwhile, reported imports of $32 million worth of silica sand from Cambodia during that same period. The same pattern appeared with other countries. Singapore reportedly imported $752 million in Cambodian sand during that time, but Cambodia claims it only exported $5 million to Singapore.

By allowing unreported exports, unknown actors — most likely corrupt politicians and organized crime — pocketed untaxed and unregulated profits. Meanwhile, the importing entities that reported larger (and most likely correct) amounts of sand paid more taxes and followed local regulations. The losers are the Cambodian people and law-abiding businesses. The winners are criminals and dictators. There are few, if any, international laws or processes that can effectively stop this type of fraud.

The Cambodian government’s response was predictable. The NGO was stripped of its license, its founder deported, and journalists arrested. The official Cambodian government line is that no wrongdoing occurred and it repeats the now familiar authoritarian refrain that the real culprits are NGOs and the media.

It is easy to get caught up in the details of this sand market scandal — there are stories of a non-existent Belgian that owns an import company in Singapore, Cambodian Senators connected to a special economic zone, arrests of journalists in open water, and kidnappings of activists. However, the international community should focus on three broader points:

• Cambodia’s fraud is a global phenomenon and is rarely caught or punished. Terrorist organizations and drug cartels frequently use versions of this fraud to launder money.
• Trade fraud is easy to identify. This fraud is so common that investigators describe it as “searching for a needle in a stack of needles.”
• People will dismiss the fraud as inconsequential, unfixable, or fake. These people are frequently the same people who profit from it (i.e. the Cambodian People’s Party).

Cambodia’s dictatorship and fraud does not just hurt Cambodians. All forms of authoritarianism and corruption in global trade empower criminal elements and infect properly functioning markets.