The Hidden Cost of Growth: Illicit Economies and Structural Loss in Southeast Asia

Amy Lim, MSc in Economic Policy for International Development

After the body of 22-year-old university student Park Min-ho was discovered in the back of a pickup truck in Cambodia ①, South Korean officials announced that some 330 people had been reported missing this year after traveling to the country. Many were lured by the promise of high-paying jobs, only to be forced into defrauding other South Koreans ②, highlighting how illicit economies, including the online-scam industry, have become multinational and globalised, turning certain Southeast Asian countries into major hubs. The rapid expansion of globalised crime networks centered in the Mekong region ③, enabled by online payment systems, casinos, and underground banking, has dramatically increased criminal revenue streams and built infrastructure capable of moving and laundering vast amounts of flat and cryptocurrency. The report further notes that large volumes of funds entering these illicit markets originate from advanced financial jurisdictions, showing that Southeast Asia’s underground economy is increasingly sustained by capital inflows from developed countries.

• Figure1: Locations of known or reported scam centres in the Mekong region 2023

•Source: UNODC, 2024

•Figure 2: Origins of people identified in regional scam compounds

•Source: UNODC, 2024

Expanding Scale of Illicit Economies in Southeast Asia

Over the past decade, Southeast Asia has emerged as one of the most active nodes in the global illicit economy. The region’s rapid digitalisation, porous borders, and uneven institutional capacity have together created a fertile environment for underground markets to thrive. Casinos, cyber scams, illegal gambling, and cross-border banking have converged into a multi-billion-dollar ecosystem, interlinking financial and criminal networks across Cambodia, Laos, and Myanmar.

The 2024 UNODC report explains that previously separate criminal activities such as casinos, online gambling, cyber scams, and informal remittance systems have become closely connected. These sectors now share a common infrastructure that channels billions of U.S. dollars through digital payment systems, cryptocurrency exchanges, and underground banking networks across the Mekong region. Moreover, cyber-scam operations in Cambodia, Laos, and Myanmar alone generate criminal revenues equivalent to around 40 percent of their combined formal GDP ④, indicating the extent to which the informal and illicit sectors have been absorbed into regional growth patterns.

Building on these findings, the report highlights the unprecedented profitability and labour intensity of the cyberfraud industry within the Mekong subregion. In one Mekong country alone, estimates suggest that the sector generates between US $7.5 billion and US $12.5 billion annually and this is equivalent to roughly 28-46 percent of the country’s 2021 GDP, underscoring the degree to which illicit enterprise has become a structural component of the national economy. The report further documents the cross-border diffusion of these operations, tens of thousands of cyberfraud labourers have been identified or rescued in Lao PDR, Myanmar, and the Philippines, while repatriations from Cambodia alone exceeded 1,100 Indonesian nationals in 2023. The rapid expansion of such industries illustrates not only the scale of criminal integration across Southeast Asia but also the blurred boundaries between licit and illicit labour markets. 

Moreover, the US Federal Bureau of Investigation reported that victims of “pig butchering” scams suffered losses of US $3.3 billion in 2022, more than double the previous year’s total. Taken together, these figures reveal how Southeast Asia’s illicit economies have evolved into a regional growth regime, attracting foreign capital and labour while simultaneously diverting productive resources, weakening institutional governance, and undermining long-term development potential. 

• Figure 3: Value of cryptocurrency inflows received by wallets used by Huione Guarantee and its vendors,

2021 - 2024 

•Source: UNODC, Elliptic, 2025

•Figure 4: Estimated total inward IFFs (ranges, in millions of USD) resulting from opiates trafficking in Myanmar, 2018-2022 

•Source: UNODC Myanmar opium surveys

Recent UNODC investigations further reveal that illicit financial flows in the Mekong region are increasingly transnational and crypto-mediated. Huione Guarantee (recently rebranded Haowang), a Cambodia-based online marketplace, has processed at least US $24 billion in cryptocurrency transactions since 2021, with funds traced to wallets linked to illicit actors across multiple jurisdictions. While the exact geographic origins of these inflows remain unclear, available evidence from UNODC (2025) ⑤suggests that Southeast Asia now serves as a major conduit and consolidation point for cross-border illicit finance. Parallel to this, Myanmar, accounting for the world’s second-largest share of opium poppy cultivation, has seen a 33 percent increase in cultivation area in 2022, reinforcing the convergence of traditional and cyber-linked criminal economies ⑥. Together, these developments indicate that vast volumes of illicit wealth are being channeled into and through Southeast Asia’s economies rather than being generated domestically. 

Economic Implications of Expanding Illicit Economies

Empirical evidence demonstrates that the expansion of illicit markets can substantially weaken long-term growth trajectories in developing economies through several well-identified transmission channels. 

According to the U4 Helpdesk (2024) ⑦, a one-standard-deviation increase in illicit financial flows (IFFs) is associated with a 0.85 percentage-point decline in government revenue mobilisation in low-income economies (Thiao 2021), directly constraining public investment in infrastructure, education, and healthcare. Similarly, cross-country studies across 67 developing economies show that improving compliance with anti-money-laundering and anti-IFF standards (e.g., FATF Recommendations) could raise domestic tax revenues by approximately 1.2 percent of GDP (Combes et al. 2019).

At the macro level, these leakages translate into lower capital accumulation and reduced productivity. Afolabi (2024) finds that illicit outflows exert a statistically significant crowding-out effect on domestic investment across four sub-Saharan regions, while Fisseha (2022) estimates that each US $1 leaving a country in the form of IFFs deprives the economy of 8-13 cents in domestic investment. In Africa, Ndikumana (2014) shows that, had the funds lost to capital flight been reinvested locally, annual GDP growth could have been 2.4 percentage points higher over four decades. Globally, Madrueno and Silberberger (2023) estimate that a 10 percent rise in net illicit outflows corresponds to a 1.5 percent reduction in per-capita GNI growth, confirming the long-term cumulative drag of IFFs on development. 

While most empirical studies focus on the negative growth effects of illicit financial outflows from source countries, the same mechanisms, such as capital misallocation, weakened fiscal capacity, and declining productivity operate in destination economies like those in Southeast Asia, where illicit inflows fuel unproductive market expansion. Beyond fiscal and investment channels, IFFs also distort resource allocation by inflating unproductive sectors such as real estate and luxury consumption (Yikona et al. 2011; Maloney et al. 2019). The result is a dual misallocation: productive labour and capital are diverted from formal enterprises into low-multiplier illicit activities, while governments face shrinking fiscal space and growing external indebtedness. For developing economies like those in Southeast Asia, where institutional quality remains uneven, these mechanisms imply that the rapid expansion of illicit markets may suppress potential growth by several percentage points per year, lock economies into low-productivity equilibria, and erode the tax base necessary for inclusive development. 

Global and Regional Responses to Illicit Financial Flows

In recent years, international agencies have made significant progress toward building a common statistical basis for addressing illicit financial flows. UNODC and UNCTAD jointly released the Conceptual Framework for the Statistical Measurement of Illicit Financial Flowsk⑧ in 2020, establishing the first globally agreed definition and classification of IFFs. Endorsed by the UN Statistical Commission in 2022 ⑨, the framework has been piloted in twelve African, six Asian, and four Latin American countries, alongside complementary Methodological Guidelines on tax, commercial, and criminal IFFs. Although geographically balanced in design, the degree of implementation remains uneven. African and Latin American pilots, such as those in South Africa, Kenya, Mexico, and Colombia, have progressed toward institutionalising regular IFF measurement and publishing comprehensive national reports. In contrast, most Asian participants, including Viet Nam, Bangladesh, the Maldives, and Nepal, repair in the early stages of data collection and methodological testing.

This divergence underscores a persistent data and capacity gap in the Asia-Pacific region. Many Asian economies continue to face major constraints in accessing trade and financial transaction data, particularly in sectors linked to cyber-enabled crime and underground banking. Consequently, while global cooperation has succeeded in harmonising conceptual frameworks, it has yet to produce robust, comparable estimates or measurable reductions of illicit flows in Asia’s rapidly digitalising economies, precisely where such markets are expanding most rapidly.

Conclusion: Policy Imperatives for Sustainable and Inclusive Development

The rise of transnational illicit economies in Southeast Asia poses an increasingly structural threat to economic growth and governance. As recent UNODC and GI-TOC findings reveal, these activities have evolved into highly integrated regional industries that extract and recycle capital across borders, often surpassing the scale of formal sectors. Yet international and regional responses remain largely reactive, constrained by limited data, weak enforcement capacity, and fragmented cooperation. Bridging these gaps requires reframing the problem not only as a matter of law enforcement but as a developmental and macroeconomic challenge that directly undermines fiscal stability, productivity, and institutional trust.

Future policy efforts should therefore prioritise three fronts. First, strengthening regional data infrastructure under the UNODC-UNCTAD framework ⑧ to capture the real magnitude and economic cost of IFFs, enabling evidence-based fiscal and industrial policies. Second, deepening cross-border financial intelligence sharing, particularly among ASEAN economies, to trace crypto-mediated flows and disrupt transnational laundering networks. Third, redirecting recovered assets and illicit capital inflows toward productive public investment to rebuild formal growth capacity and employment. Without such a shift, Southeast Asia risks entrenching a dual economy, one that appears vibrant in short-term liquidity but erodes the institutional and developmental foundations of long-term prosperity.

Sources

①Hyung-Jin Kim and Sopheng Cheang, « Death of kidnapped South Korean student spurs talks with Cambodia to tackle online scams », AP News, 16 October 2025. 

② John Yoon and Francesca Regalado, « South Korea Targets Cambodia’s Scam Industry After Kidnappings, Torture and a Death », The New York Times, 15 October 2025.

③ Inshik Sim et al., «Casinos, Money Laundering, Underground Banking, and

Transnational Organized Crime in East and Southeast Asia: A Hidden and Accelerating Threat », United Nations Office on Drugs and Crime (UNODC), January 2024.

④ Kristina Amerhauser and Audrey Thill ,«Compound Crime: Cyber Scam Operations in

Southeast Asia», Global Initiative Against Transnational Organized Crime, May 2025.

⑤ John Wojcik et al. ,«Inflection Point: Global Implications of Scam Centres,

Underground Banking and Illicit Online Marketplaces in Southeast Asia», United Nations Office on Drugs and Crime (UNODC), April 2025.

⑥ UNODC, «Crime-related illicit financial flows: latest progress», United Nations Office on Drugs and Crime (UNODC), 11 December 2023.

⑦ Mathias Bak and Matthew Jenkins, «Illicit financial flows and economic growth», U4

Helpdesk Answer 2025:2, 16 January 2025.

⑧ Enrico Bisogno et al., «Conceptual Framework for the Statistical Measurement of Illicit Financial Flows», UNODC and UNCTAD,18 December 2020.

⑨ UNCTAD, «Illicit Financial Flows », UNCTAD16, March 2022.