Under siege in Myanmar’s cyber-scam capital

In November 2023, Htun was trapped in a cyber-scamming compound in Laukkai, in Myanmar’s eastern Shan State on the border with China, when the city came under siege.

For nearly a year, the former English tutor from Myanmar’s central Sagaing region had been held there against his will. Forced to engage in cryptocurrency scams by Chinese syndicates, he is one of what the United States Institute of Peace (USIP) recently estimated to be hundreds of thousands of people from more than 60 countries trafficked into the Southeast Asia-based industry.

Laukkai, a city in Myanmar’s autonomous Kokang region known for its glittering casinos and criminal underworld, quickly emerged as a major hub after the Myanmar's military took power in a February 2021 coup. Then, in October 2023, a coalition of autonomy-seeking ethnic armed organisations launched an offensive known as Operation 1027 along the Shan State-China border, quickly closing in on Laukkai.

As the sounds of war drew nearer, Htun and his fellow workers hunkered down inside their compound and hoped. “We were really happy, even though we could be killed, because it was our only chance at freedom,” he said. “We were praying that [resistance forces] would come and attack our company as soon as possible.”

By mid-November, the city was in chaos. As bosses abandoned the scamming compounds, Htun and his fellow workers suddenly found themselves free – and running for their lives in an active conflict zone. “Many people died in the crossfire,” he said. “We weren’t able to worry about that…Our minds were full of desire to return home.”

In early January, more than 2,000 soldiers handed over their arms in one of the biggest mass surrenders in the Myanmar military’s history. The city has since been under the control of the Myanmar National Democratic Alliance Army (MNDAA), which led the October offensive and has promised to eradicate cyber-scamming from its territory.

This article, the second in a two-part series, looks at the rise and fall of Laukkai as a cyber-scamming hub and what happened after the MNDAA took over the city. Htun and others interviewed have been given pseudonyms because of the risk of reprisals from the syndicates, the military, or armed groups.

Cyber-scamming took off in Southeast Asia during the COVID-19 pandemic, when China closed its borders and launched a crackdown on overseas gambling. As Chinese syndicates that had been operating out of casinos mainly in Myanmar, Cambodia and Laos scrambled for new sources of income, they turned to online scamming.

The industry has boomed in places where corruption is rampant and the rule of law weak. In Myanmar, scamming spread like a “criminal cancer” after the coup, according to a 2023 report by USIP. It found that Chinese syndicates were working with the military to engage in “complex fraud schemes from a growing number of autonomous enclaves” inside the country.

Nearly all of Myanmar’s biggest cyber-scamming operations are located along its eastern border with China and Thailand, where armed groups maintain ceasefires with the military or operate under its command while profiting from a range of illicit businesses. Laukkai, with its established criminal networks and proximity to the Chinese border, offered the perfect conditions for cyber-scamming to take root.

The capital of the Mandarin-speaking Kokang region, it was controlled by the MNDAA until 2009, when the military seized the region as part of a wider effort to gain control over border areas. It then installed four Kokang clans which had defected from the MNDAA as a new Border Guard Force (BGF) under military command.

These four clans – Liu, Bai, Wei and Ming –  were all “fully integrated with the Myanmar army on all levels”, according to Jason Tower, the Myanmar country director at the USIP.

He told Al Jazeera in written comments that the clans went on to establish casino operations generating billions of dollars and reinvested the profits to build conglomerates spanning Cambodia, China and Myanmar’s southeastern Karen State.

By the time cyber-scams began to take off, they were well-positioned to reap the benefits, according to Tower. “The Kokang BGF elites…were all directly involved in operating scam syndicates, renting space to scammers, and in providing a full range of services to criminal actors,” he said.

“They [did] so in direct partnership with representatives of the Myanmar army, and given the closeness of the relationship, it is certain that they did so with the direct knowledge of [General] Min Aung Hlaing” – the military’s commander-in-chief and coup leader.

Al Jazeera’s calls to military spokesperson Zaw Min Tun went unanswered. An article published in the military-run newspaper on July 10 blamed fraudulent online operations in the Kokang region and other border areas of Myanmar on “Chinese criminals who evaded arrest in China.” The military claimed that it initially did not know about these operations but that as soon as it became aware, it had “actively joined hands with China” to eliminate them.

Al Jazeera emailed three companies known to be run by Kokang BGF elites – the Fully Light Group, Hanley Group and Gobo East Subsidiary – at email addresses listed on their websites. They had not responded by the date of this article’s publication.

As Myanmar-based scamming syndicates raked in billions, trouble was brewing by the middle of last year. With alarm rising among the Chinese public, who were largely targeted in the trafficking and the scams, Beijing ramped up pressure on the Myanmar military and armed groups hosting scamming operations in their territories to crack down.

The United Wa State Army, which maintains a ceasefire with the Myanmar military, cooperated with Chinese law enforcement to arrest and repatriate thousands of Chinese nationals from its territory last September. But in the Kokang region, the military and Kokang BGF first “blatantly ignored” Chinese pressure, and even after Chinese law enforcement arrested a group of Kokang BGF elites last October, still “failed to mount a serious response”, according to the USIP’s Tower.

He said that the military instead evacuated BGF elites by helicopter, while some of the most notorious scamming compounds relocated their operations. The plan backfired, however, when guards at one of these compounds, the Crouching Tiger Villa, opened fire on a group of people as they tried to escape while being moved on October 20.

Rumours swirled that Chinese nationals were killed, some of them being undercover police. A statement issued the next day by officials in China’s Yunnan province called on Kokang authorities to immediately investigate the incident and “explain the truth".

Six days later, the Three Brotherhood Alliance – consisting of the MNDAA, Ta’ang National Liberation Army and Arakan Army  – launched Operation 1027, declaring their intent to drive out online fraud from the Myanmar-China border and fight the “oppressive military dictatorship".

Within days, the MNDAA was waving its flag over a major border gate and showing off large hauls of newly-seized weapons in one of the most dramatic resistance advances since the coup. Sources working inside Laukkai’s scamming compounds, however, told Al Jazeera they had little idea what was happening outside.

Htun first noticed something was amiss when mobile networks went dead and he had to scam using wi-fi instead. Then the electricity stopped, and on November 20, he awoke to realise that his company’s bosses and Chinese workers had fled. “They had all disappeared,” he said. “Only then did we manage to leave.”

Ja Hkawn, a former university student from Kachin State, who was working as a cashier in a grocery store at a scamming operation at the time and who is going by a pseudonym, knew changes were happening when the security guards traded their militia uniforms for civilian clothes and opened the doors to make the building appear like a hotel.

Then the Chinese bosses and workers fled, leaving those from Myanmar to fend for themselves. A month later, running out of food and without power to charge their phones, Ja Hkawn and her roommate fled too.

It was late November, and Laukkai was on the brink of war. A frantic evacuation was under way, and roads were jammed with tens of thousands of people attempting to escape. Most were stuck at the city gates, however, where resistance forces were restricting passage due to the fighting – especially after two incidents in which residents were killed by stray artillery fire as they tried to flee.

Htun and his friends, who rented a car, spent a day going from one gate to another searching desperately for a way out. “There was heavy artillery fire and also firing from military jets. We were in the middle while they were shooting from one mountain to another,” he said. “Our ears were ringing. The only thing we could do was watch.”

Ja Hkawn and a friend escaped by motorbike, driving through cane fields until reaching a checkpoint manned by an MNDAA ally. “They did a body search for all of the men. They didn’t do that for the females, but they asked for our phones and threw them away,” she said.

She and Htun, who also had to leave his phone and belongings behind, described a gruelling, days-long journey to Lashio, the capital of northern Shan State less than 200km (124 miles) away. “We had to trek through nine mountains. There were many times when we just pushed the motorbike instead of riding it,” said Ja Hkawn. “The roads were extremely muddy and slippery… Any car or motorbike that couldn’t go uphill was abandoned near the roads or mountains.”

Passing through checkpoints manned by the MNDAA and other ethnic armed groups, she and Htun also witnessed young men being forcibly recruited. On the third day of his trip, Htun and his friends also picked up a heavily pregnant woman who gave birth in the car hours later. “We had no nurse or medication but luckily, we managed to deliver her baby safely,” he said.

He finally reached Lashio on November 28, continuing on to Mandalay while Ja Hkawn went home to Kachin State.

On January 12, five days after the military surrendered Laukkai, the MNDAA and its allies agreed to a China-brokered ceasefire, known as the Haigeng Agreement, covering northern Shan State. They also pledged “not to undermine the safety of Chinese people living in the border area and Chinese projects and personnel in Myanmar”, China’s Ministry of Foreign Affairs spokesperson Mao Ning said in a news briefing at the time.

According to Tower of the USIP, Operation 1027 was “extremely successful” in eradicating scam syndicates from the Kokang territory and resulted in more than 40,000 people returning to China. Scamming syndicates themselves, however, remained largely intact, said Tower, and quickly adapted  – including by moving elsewhere, such as Myanmar’s Karen State, Cambodia and Laos.

Speaking to Al Jazeera from an undisclosed location, one scamming worker said that his company had already resumed operations in another country. “Operation 1027 didn’t stop the scamming business, which only relocated to other places,” he said. “[Syndicates] didn’t even change their scamming strategies…They have some business for show and behind that, they are doing all kinds of things.”

Back in Laukkai, Hong Naw, who migrated to the city from her native Kachin State in 2019 and who is going by a nickname, told Al Jazeera in early April that Laukkai was cleaner and quieter than before, and that the shady enterprises that once dominated the city had vanished. She knew the dark side of these enterprises well, having worked as a cleaner at some of them before Operation 1027, and seen scamming bosses block CCTV cameras with paper and cuff people to beds.

Still, she worried about how she and other residents would make ends meet in a city that had gone quiet. Although she had recently found work as a hotel cleaner, the rooms had been mostly unoccupied and she could find few other places that were hiring. “Operation 1027 had the biggest impacts on working-class people,” she said. “Many people are struggling to eat.”

Mai Leng, an ethnic Ta’ang who was working at a furniture factory in Laukkai when Operation 1027 started, and who is also going by a pseudonym, was conscripted by MNDAA soldiers at a checkpoint on his way out of the city.

He escaped four months later but faced further problems back in his village in Shan State’s Lashio township, where the tea farming on which his family once depended no longer offered a sustainable income. He returned to Laukkai in March but also found few options. “Before, when there were many cyber-scamming companies, people had money and spent it like water,” he said. “Now, many people are struggling financially, so businesses [in Laukkai] aren’t running like before.”

Al Jazeera later learned that, unable to find work in Laukkai, Mai Leng migrated to China.

As the MNDAA works to restore the economy, it is also tasked with administering the Kokang region where on June 26, it announced a transition to civilian rule under its political arm, the Myanmar National Truth and Justice Party. In a statement, it pledged to “realise a civilised and just society based on the rule of law” and called on people of all ethnic groups to unite under the “core values” of democracy, freedom and equality.

While the MNDAA works to rid the Kokang region of its criminal past, its approach to administering its newly-seized territory has at times drawn criticism. In April, it sentenced three of its members to death after a public trial for “abuse of power”, reportedly executing them the same day.

It has also come under scrutiny for allegations of discrimination against people from Myanmar’s ethnic Bamar majority, which dominates the ranks of the military.

Moe Thura, a Bamar road construction owner who is going by a pseudonym, was at a worksite outside Laukkai when Operation 1027 started and MNDAA soldiers ordered him and his team of 30 workers to leave their trucks and equipment behind and head to the city.

They slept on a football pitch in Laukkai for a month, then joined the mass evacuation in November. In February, Moe Thura made two attempts to retrieve his equipment, but both were unsuccessful. “[They] didn’t even check the papers which I submitted because I am Bamar,” said Moe Thura, who had lived in the Kokang region for seven years before the operation and speaks Mandarin.

While his claim of discrimination is difficult to confirm, the loss of his equipment – two rock-hauling trucks and a six-tonne excavator – has left him unable to run his business and disinterested in working in the Kokang region again. “I was doing an honest job in Laukkai for its development. I did nothing unlawful. I worked hard to own those trucks and the excavator, and I would like them back,” he said.

Al Jazeera contacted the MNDAA by email through its affiliated media, the Kokang, but did not receive a response by the date of publication.

The situation in Laukkai has further destabilised in recent weeks, following the resumption of Operation 1027 on June 25. By July 2, the MNDAA had launched new attacks targeting the military’s Northeastern Command centre of Lashio, some 200km (124 miles) southwest of Laukkai.

As the fighting escalated, China stopped supplying electricity to the Kokang region on July 3. Then on July 14, the military bombed Laukkai, killing one civilian and damaging several hotels. The MNDAA promptly announced a temporary ceasefire with the military in response to concerns from China; although the ceasefire has since been extended until the end of July, the fighting has continued.

On July 23, the military bombed Laukkai again, killing two more civilians. Two days later, the MNDAA announced it had taken control over Lashio, but heavy fighting continues.

Shwe Phee Myay, a Shan State-based media outlet, contributed to this report.

This article was supported by the Pulitzer Center and is part of a series of articles about human trafficking into the cyber-scamming industry in Myanmar following the 2021 military coup.