The Sanctioning of Ly Yong Phat: Milestone or Mirage?

On September 13, Senator Ly Yong Phat of the Cambodian People’s Party was sanctioned under the Global Magnitsky Act by the United States Office of Foreign Asset Control (OFAC). In many ways, this announcement has the appearance of a significant moment in Cambodian history. Yet, what does it really mean to the parties involved?

For labor and environmental rights activists and observers, this decision is a long time coming and will be viewed as a small victory for justice in a country irreparably marred by impunity.

Ly Yong Phat’s business empire prominently includes: illegal sand dredging, illegal deforestation, tobacco smuggling, illegal online gambling, money laundering, and industrial scale cybercrime operations. In the perpetration of these crimes – evidence of which spans decades – the collateral damage has been and continues to be substantial. Land grabbing, forced displacement, child labor, human trafficking, numerous wrongful deaths at his properties, and sweeping environmental devastation are just a few examples.

Yet, it is wholly incorrect to view this tycoon as a singular bad actor wreaking havoc in a hapless weak state with “governance challenges,” as Cambodia is often portrayed in the West.

Since seizing power following a loss in the 1993 UNTAC elections, the Cambodian People’s Party (CPP) has been intimately linked with the worst excesses of criminally extractive authoritarianism. More specifically, the state and party have been accessories to Ly Yong Phat’s abuses from the beginning.

His business empire arose from government land concessions. His land grabbing from rural Cambodians was enforced by the military. When groups marginalized by his crimes raised their voices, Cambodian courts worked in unison with extralegal threats to silence and intimidate. In his most recent business interest (online scamming) he operates as kingpin of a state-aligned protection racket – renting his properties to criminal syndicates specialized in human trafficking-fueled cybercrime and offering them shelter from any potential law enforcement response. Throughout, he has enjoyed the full-throated endorsement of the Cambodian elite, with propagandist mouthpieces going on high alert whenever his interests are threatened.

It is difficult to overstate Ly Yong Phat’s influence within the Cambodian political milieu. He is a senator, a neak okhna (an honorific bestowed on top Cambodian oligarchs), a permanent member of the CPP Central Committee, and a cabinet-level personal adviser to both former and current prime ministers.

Given this domestic eminence, sanctions against Ly Yong Phat seem to send a message about a shift in U.S. policy toward the Kingdom. Recent years have seen a much softer approach by the U.S. government in spite of escalating political repression, labor exploitation, and environmental devastation by the ruling party. Lighter touch diplomacy has ruled the day as the U.S. foreign policy establishment prioritizes drawing Phnom Penh out of Beijing’s orbit – with minimal evidenced progress.

As Cambodia’s state-driven criminal industries increasingly impact American citizens, an engagement-prioritizing approach is becoming more problematic. By the U.S. Embassy’s own estimate in August, U.S. taxpayers have lost over $100 million at the hands of Cambodia’s largest industry: trafficking-fueled cybercrime.

Ly Yong Phat’s sanctioning may signal growing frustration from Washington with this status quo. Though far from an outlier, he is one of the most prominent and visible state-affiliated kingpins of Cambodia’s flourishing scam industry and continues to demonstrate his significant power over Cambodian institutions.

Despite years of reporting and victim testimonies about human trafficking, violent abuse, and cybercrime ongoing at his O’Smach Resort and Casino, Ly Yong Phat continues to advertise his ownership of the property on his corporate website. O’Smach has evaded law enforcement action to-date; victims rescued from the compound are routinely threatened to be sent back by police. Perhaps most egregious of all, the government was recently caught brazenly attempting to host a United Nations-funded counter-trafficking workshop out of another of Ly Yong Phat’s hotels.

Behind the scenes, Ly Yong Phat serves as a major business partner to the ruling family and a key source of revenue to a regime which lacks either a popular mandate or much in terms of a formal economy. Moreover, the CPP relies heavily on the facade of legitimacy offered by tycoons like Ly Yong Phat and their sprawling holding companies to engage effectively with the global economy.

Thus, it is certain that these sanctions will destabilize the Cambodia-U.S. bilateral relationship. Such an outcome will have been foreseen by diplomats in Washington and at the U.S. Embassy in Phnom Penh. Yet, it remains unclear how or whether this move fits into a broader U.S. strategy to constrain elite Cambodian criminality. While historic and bold, an isolated sanction against a powerful bad actor is unlikely to materially shift the incentives guiding Cambodia’s state-affiliated transnational crime industries. There are many, many more actors who also merit sanctions.

Perhaps the announcement is a welcome signal of more to come, but even a more robust sanctioning program against Cambodia’s criminal oligarchs is unlikely to suffice. The state is directly involved in transnational and ecological crime and the CPP can likely credit much of its political dominance and longevity to the dynamism of its criminal elite.

The CPP reacted as they usually do. The sanctions will be publicly decried as “unjust” and “politically motivated,” an example of Western neocolonialism if not part of the “color revolution” perpetually anticipated (and preemptively responded to) by the party. The government statement warned that the sanctions are “counter to the spirit of reinforcing our bilateral cooperation and mutual trust.”  This reaction will cause consternation in Washington, reinforcing concerns about waning U.S. influence and the potential impact on the U.S. Embassy’s perceived “window of opportunity” in the dynastic succession of West Point-educated Hun Manet.

Yet how much does the United States really stand to lose in its relationship with a regime that has already effectively ceded much of its sovereignty to Beijing-aligned, state-embedded criminals? And how is it possible to look at the Hun Manet administration after a year and see the “window of opportunity” as anything other than a dangerous mirage – either from a rights perspective or a geopolitical lens? These are some of the core questions Washington will need grapple with as it hones its approach to a mafia state intractably vested in “the most powerful criminal network of the modern era.”

For Ly Yong Phat and his family empire, the move has the potential to complicate things. While sanctions will have zero effect on his assets or legal standing in Cambodia, they could shift the nature of his extensive business relationships in Thailand, as partners will now need to tread more carefully in their dealings with the “King of Koh Kong.” Sanctions also jeopardize his investments in the West and any linkable assets he holds in the global financial system. And, perhaps most importantly, the Global Magnitsky label strikes a devastating blow to any illusion of legitimacy Ly Yong Phat might once have lent the state or party.

Constraining kleptocrats is notoriously difficult and sanctions are no panacea. Ly Yong Phat is a savvy businessman with effectively limitless resources and surely will have seen the writing on the wall. The modern global and U.S. financial system is rife with loopholes and work-arounds accessible by actors like him. Shell companies, anonymous real estate ownership, and an antiquated, reactive anti-money laundering system stand little chance of meaningfully deterring the movement of money by the world’s worst. Ultimately, Ly Yong Phat is more than capable of evading the most serious potential consequences of his new designation as a Magnitsky recipient.

So, for the rights activists and able Washington technocrats who helped bring this landmark policy move about – and, more importantly, for the countless victims of his crimes – the new sanctions is not an unmitigated victory. In many ways the move is more a symbol of the insufficiencies of the present system to hold the powerful to account and a reminder that real justice remains elusive in Cambodia as elsewhere.

Yet, it is also, undoubtedly, a move in the right direction, a demonstration of the potential effects of sustained grassroots advocacy, and a reminder to the Cambodian people that there are others standing with them – an imperfect and insufficient but wholly necessary glimpse of hope in a place defined for decades by its absence.