Bruno S Sergi instructs Sustainability and Global Development Practice at Harvard University and Fabian M Teichmann is a lawyer and notary based in Switzerland

When enforcement pressure rises in one jurisdiction, organised crime rarely disappears. It moves. This is among the oldest lessons in the economics of illicit markets, and it is now unfolding across the Indian Ocean. As Cambodia – pressed by both Beijing and Washington – begins to dismantle the compounds that made it a global byword for online fraud, the networks behind that industry are scouting fresh terrain. A series of recent arrests suggests that one of their chosen testing grounds may be Sri Lanka.

The numbers are no longer trivial. Sri Lankan authorities have detained more than a thousand people this year in connection with suspected cyber scam operations, a significant share of them foreign nationals. An April raid on the west coast uncovered more than 150 foreigners allegedly running a fraud operation; days later, a sweep near Colombo netted roughly 120 more. In May, 221 foreigners were arrested in the Southern Province alone. These are not isolated curiosities. Taken together, they suggest an industry probing whether the island can become its next home.

The balloon that will not pop

Anyone who has studied drug interdiction, counterfeit goods, or human trafficking recognises the pattern. Criminologists call it the displacement, or “balloon,” effect: squeeze the air in one place, and it bulges out in another. The cyber scam industry is unusually well-suited to this kind of migration. Its core assets are not fixed factories or mines but laptops, mobile phones, SIM cards, scripts, and people. A “pig-butchering” operation – the patient, romance-laced investment fraud that has defrauded victims of billions of dollars worldwide – can be packed into suitcases and reassembled in a rented apartment within days.

That portability is precisely why crackdowns, however necessary, are insufficient on their own. When Cambodia, Myanmar, and parts of the Philippines tighten enforcement, the marginal operator does not retire. He calculates where the expected cost of doing business is lowest and relocates accordingly. The relevant variables are familiar to any economist: the probability of detection, the severity of sanctions, the cost of bribing or co-opting local actors, and the quality of the surrounding infrastructure. Sri Lanka, for the moment, scores attractively on several of these measures.

What travels with the equipment, too often, are people. A defining and underappreciated feature of these networks is that a substantial portion of their workforce is itself coerced – lured across borders by fraudulent job advertisements and then trapped, through debt bondage or threats, into defrauding strangers online. When an operation relocates, its captive labour force frequently follows. This means each new host country inherits not only a fraud problem but also a human-trafficking one, raising the stakes for Sri Lanka.

A raid that treats every foreign national on the premises as a perpetrator risks re-victimising those who were brought there against their will, while the organisers – who hold the passports and the profits – slip away. Distinguishing the trafficked from the traffickers is both a moral obligation and an investigative necessity, because victims are often the only witnesses capable of mapping the network above them.

Why Sri Lanka, and why now? The answer lies in a combination of structural and economic factors that policymakers can still influence before the industry takes deeper root.

Sri Lanka offers a particular mix of characteristics that lowers the cost of setting up shop. It extends relatively relaxed entry to visitors from many countries and is actively seeking to widen visa-free access to revive a battered tourism sector. It has solid telecommunications infrastructure and widespread connectivity. Urban and coastal rental properties are abundant and easily occupied. Critically, the island is still climbing out of the worst financial crisis since independence. Property owners want tenants. Hotels want occupancy. Intermediaries are often disinclined to question groups of foreigners who pay generously and on time.

Unlike the jungle enclaves of Myanmar’s borderlands or the special economic zones that proliferated along the Mekong, Sri Lanka does not permit remote, quasi-sovereign compounds; the state controls its territory. Operators have therefore adapted, choosing inconspicuous settings – houses, hotel floors, apartment blocks, and office space – where a cluster of foreign nationals raises few eyebrows in a country accustomed to tourists renting in groups. This camouflage grants the networks mobility: wire a unit for operations, run it until police pressure builds, then abandon it and reassemble elsewhere.

There is, however, one feature that should concern policymakers more than the others: Sri Lanka’s deep-rooted informal money-transfer culture. The Undiyal system, a South Asian cousin of hawala, has long moved value outside formal banking channels. It exists for legitimate reasons – remittances, trade settlement, and the everyday needs of a diaspora – and is woven into the island’s economic fabric. Yet the same characteristics that make informal value transfer efficient and trusted also make it attractive to those seeking to move criminal proceeds without leaving a paper trail.

For an industry whose entire purpose is to extract money and spirit it away before victims or regulators can react, a mature, low-visibility settlement layer is not a minor convenience. It is core infrastructure. While there is no public evidence that Sri Lanka’s recent scam cases have relied extensively on Undiyal networks, the existence of established informal value-transfer channels increases the risk that such systems could be exploited.

The lesson Cambodia teaches

Here lies the most important point – and the one most often missed in the rush to celebrate arrests. Cambodia’s scam economy did not metastasize simply because criminals showed up with laptops. It grew because they found shelter and powerful partners. Casinos left idle after the collapse of online gambling and the shock of the pandemic offered ready-made premises. Property developments, special economic zones, and politically connected business networks supplied space, cover, and, when it mattered, protection. Certain districts became, in effect, sanctioned zones for crime, where the cost of enforcement was artificially inflated by the very people who profited from looking the other way.

The corollary is that a scam industry is only as durable as its local host. Foreign bosses bring capital, scripts, and trafficked labour, but they cannot manufacture impunity on their own. They rent it. They buy it. They embed it in relationships with landlords, fixers, financiers, and, in the worst cases, officials. This is the difference between a transient nuisance and an entrenched ecosystem – and it is the variable Sri Lanka can still control.

This framing also cautions against a tempting but shallow response. Many of those arrested in Sri Lanka are Chinese nationals, and many victims of these networks are Chinese citizens; Beijing has accordingly pressed both Cambodia and Sri Lanka to act, and the Chinese embassy in Colombo has welcomed the crackdown. Cooperation with China, Interpol, and regional partners is welcome and necessary. But treating the problem as one associated with a single nationality would be a strategic error.

Cambodia’s experience shows that scam bosses thrive wherever local systems accommodate them. A narrow focus on foreign suspects may satisfy public anger for a season; it will not dismantle the machinery that allows the industry to take root.

A closing window

Sri Lanka’s advantage is timing. Had these networks attempted their move a few years earlier, they might have found willing and powerful political and business allies ready to stitch them into local communities and markets – the very dynamic that proved so corrosive in Cambodia. Under the current National People’s Power administration, that route appears narrower. Law enforcement seems more willing to act, and the political cost of shielding criminals has risen. The recent raids suggest that the state can still treat this as a problem to be prevented rather than one to be managed after the fact.

But raids alone will not hold the line. Scam networks adapt faster than bureaucracies, and an arrest-driven strategy merely scatters operators to the next rental. A serious response must attack the enabling environment, treating the issue as much a financial-integrity challenge as a policing one.

Sri Lanka should tighten the visa and entry channels that allow operations to be staffed quickly. It should bring informal value-transfer systems within a meaningful anti-money-laundering and counter-terrorist-financing framework, consistent with international standards, without strangling the legitimate remittances on which many families depend. Telecom and payment providers should be required to flag the tell-tale patterns of fraud farms. Above all, police, immigration authorities, telecom regulators, the financial intelligence unit, the national CERT, the Central Bank, and foreign missions must genuinely share information and act in concert. Fragmented mandates are exactly the seams that criminal networks are built to exploit.

Public awareness is the quieter half of the strategy. Until recently, few Sri Lankans would have thought twice about a group of foreigners living behind drawn curtains, avoiding their neighbours, working through the night, and surrounded by hardware. That naivety is itself a resource for scammers, and it is eroding. Sustained public education can deny these operations the anonymity they depend on, making it far more difficult for them to disappear into ordinary neighbourhoods.

The broader stakes extend well beyond one island. The cyber scam economy is now a transnational industry that launders its proceeds through whichever jurisdiction offers the least resistance, and every new haven it establishes raises the cost of the problem for everyone – victims, banks, regulators, and the integrity of the global financial system alike.

Cambodia is now struggling to unwind a system that took years and high-level collusion to build. Sri Lanka’s task is far simpler because it remains preventive: keep these networks from fusing with domestic business interests and property markets before that fusion hardens. The criminals have arrived. What Colombo does next will determine whether the island remains a temporary refuge – or becomes a permanent node in Asia’s cybercrime infrastructure.

The opinions expressed are those of the contributors, not necessarily of the RSAA.