Can Southeast Asia contain growing threat of cyber scams?

An unprecedented level of coordination is required to tackle such crimes as Southeast Asian economies become more digitalised

As Southeast Asian leaders focus on navigating trade tariffs and the US-China rivalry, a growing threat to the region’s economic resilience is being largely overlooked: the rise of billion-dollar cyber scam centres operating with impunity.

These operations not only endanger financial stability and investor confidence, but are also eroding national sovereignty – all while exploiting the region’s young, tech-savvy populations who are increasingly dependent on digital services.

The scale of the problem was laid bare earlier when US authorities imposed financial restrictions on entities in Cambodia, Myanmar and the Philippines accused of enabling large-scale cyber scams. Officials alleged that billions of dollars had been laundered through loosely regulated digital payment networks and bulk IP infrastructure, facilitating schemes ranging from crypto investment fraud to hacks attributed to sanctioned state-linked groups.

While the moves were hailed as a regulatory breakthrough, analysts warn it is a temporary win at best as the criminal networks behind these scams are highly mobile and adaptable, often resurfacing under different guises after enforcement actions.

According to an April report by the UN Office on Drugs and Crime, “it is now increasingly clear that a potentially irreversible spillover has taken place in Southeast Asia, leaving criminal groups free to pick, choose, and move jurisdictions, operations, and value as needed.”

That report estimates that cyber-enabled fraud cost East and Southeast Asia nearly US$40 billion in 2023, with Cambodia alone accounting for more than US$12.5 billion.

The report also flagged a disturbing trend: the growing nexus between cybercrime and human trafficking. Victims from across South and Southeast Asia are being lured or abducted into scam compounds, forced to carry out fraud under duress.

Asean is one of the fastest-growing internet markets in the world with an estimated 460 million users, most of whom are digital customers who transact goods and services online.

The dangers posed by such cybercrime centres are only likely to grow in tandem with greater digitalisation of Southeast Asian economies, demanding an unprecedented level of coordination to deal with crimes committed in virtual spaces.

Jake Sims, founding partner of Operation Shamrock – a global public-private coalition working to disrupt Southeast Asia’s cybercrime networks – says state-linked actors often enable or profit from the industry, which includes human trafficking into scam compounds.

Poor regional coordination, fragmented sovereignty in conflict-affected areas of Myanmar, and the misuse of special economic zones (SEZ) – areas with preferential policies such as lower taxes and duty-free imports – have further allowed criminal syndicates to flourish with impunity, according to Sims.

“We likely aren’t going to see the eradication of this industry,” he said, highlighting that the cybercrime industry was exponentially more fungible than the global drug trade syndicates. “Now, slowing the growth is something we can do and will require a harm minimisation approach.”

That would require disrupting revenue streams, increasing legal and reputational costs for those hosting the criminals and backing civil society-led efforts to document the menace, Sims said. “Increasing cyber defence systems and strategic clarity will also be pivotal.”

The Association of Southeast Asian Nations could strengthen cross-border investigative cooperation, share victim protection protocols, and adopt common standards for monitoring SEZs and crypto transactions, he said.

“A subregional task force outside of formal Asean structures may actually be more effective for constraining harms emerging from high-risk contexts like Cambodia where political will is lacking,” Sims added.

Artificial intelligence tools combined with trained manpower will need to be deployed to identify potential scams and fakes beforehand in a digital environment where tracking down criminals and punishing them is bound to be far more difficult than physical crimes.

Hong Kong has recently moved towards establishing stablecoins, a cryptocurrency that maintains a fixed value by pegging to a reference asset, to become a major cross-border payment tool to benefit users. The use of similar digital instruments is only bound to pick up across Asia because of the ease of use.

Gaps in law enforcement present an obvious threat to the broader financial ecosystem, and need to be dealt with swiftly in coordination without being distracted by geopolitics.