The New Financial Consequences of Ungoverned Space
Illicit actors have always gravitated toward weak governance. What’s changed is what they’re able to build there.
In testimony before the U.S.-China Economic and Security Review Commission this past March, Brookings scholar Vanda Felbab-Brown described something financial crime practitioners will recognize: enforcement that is selective by design, with entire sectors treated as too politically sensitive to regulate. She was describing Chinese criminal networks in Latin America. The underlying logic runs much wider when it comes to threat finance.
The assumption in most AML frameworks is that illicit finance exploits the absence of governance. That assumption is increasingly incomplete. What enables industrial-scale financial crime today is not ungoverned space, it is selectively governed space. Authority is present and enforcement is a tool of governing powers, not law or adherence to global AML norms.
Transnistria
In 2018, Transnistria’s government legalized cryptocurrency mining. It established a blockchain free economic zone through a state-owned entity called Technopark OJSC. It offered some of the cheapest electricity in Europe, subsidized by Gazprom-supplied gas flowing to the local power plant, then running at less than 20% capacity and in need of a revenue model. Cryptocurrency mining provided one.
The Sheriff Group, estimated to control roughly 60% of Transnistria’s economy and founded by two former KGB officers, dominates the region. Igor Chaika, sanctioned by Switzerland in 2024 for financing FSB destabilization operations in Moldova, was among the early promoters of Transnistria’s cryptocurrency mining ambitions.
The value of mining rather than purchasing cryptocurrency was well understood by Russian intelligence. Freshly minted coins carry no transaction history at the point of first transfer, complicating forensic investigations that have become central to financial intelligence work. GRU-linked actors have used mined Bitcoin sourced from these shadow territories to fund their activities, including infrastructure used in influence operations targeting Western democracies.
This is not ungoverned space. Russian influence did not simply shield the territory from outside scrutiny, it determined who could operate, at what scale, and on whose terms. What looks like a regulatory gap is a structure designed to endure, one where financial experimentation at scale is not just tolerated but built in.
Southeast Asia: Governance as Criminal Franchise
Scam compounds across Cambodia, Myanmar, Laos, the Philippines, and Malaysia have transformed online fraud into an industrial enterprise. UNODC estimates annual profits from these centers now approach $40 billion, generated by hundreds of thousands of trafficked workers. These are not opportunistic fraudsters, they are structured enterprises functioning under organized criminal authority that provides internal order, oversight that rivals slavery, and protection from outside accountability in exchange for revenue. Fragmented sovereignty is the product that fuels them.
The financial architecture behind these compounds follows the same design. Proceeds flow through cryptocurrency rails that extend the characteristics of the physical environment into the digital one, permissive, difficult to oversee, and protected politically. Huione Guarantee, a platform tied to Cambodia’s ruling family, processed more than $49 billion in cryptocurrency transactions since 2021 with documented on-chain connections to pig butchering operations and scam compound networks. It is not a gap in the system. It was the system, underwritten by political protection at the highest levels of the Cambodian state.
Chinese Transnational Networks: Selective Enforcement as State Instrument
This pattern also operates at state-adjacent scale. In her March 2026 testimony, Felbab-Brown detailed how Chinese criminal groups across Latin America exploit governance selectivity rather than its absence, cultivating protection from officials and regulators through corruption and patronage. In her account, Chinese underground banking networks have displaced long-established laundering systems for Mexican cartels, while precursor networks supply the chemicals behind fentanyl and methamphetamine production, pivoting rapidly to unscheduled compounds each time regulators close a pathway.
China acts against these groups when they cross specific redlines: significant capital flight, violence against Chinese citizens, or diplomatic embarrassment severe enough to outweigh strategic utility. Below those thresholds, actors that cultivate political goodwill with Chinese authorities or provide informal intelligence functions enjoy a degree of protection that no compliance framework is designed to find.
What This Means for Financial Intelligence
Selectively governed environments produce durable, embedded networks with consistent financial signatures. Their proceeds need to enter the international financial system, and the methods are familiar: layered offshore structures, beneficial ownership chains designed to obscure, and cryptocurrency activity calibrated to stay outside the purview of competent authorities. These are all detectable. What varies is whether the analytical framework is oriented toward finding them, and whether the political will exists to dismantle them.
FATF's mutual evaluation architecture was built on the assumption that states want to comply but lack capacity. It has no good answer for jurisdictions where selective enforcement is deliberate policy. Tracing financial activity through these environments, and building the frameworks capable of finding it, is work Meridian3 continues to examine closely.
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