Nevada’s highest ranking regulators believe that the use of third party VIP junkets by casino operators in Macau reduces their ability to prevent money-laundering and increases the chance of other illegal activities taking place.
The US-China Economic and Security Review Commission in Washington heard how Macau has a ‘lax regulatory system for its casinos’ which has allowed ‘traditional Chinese organised crime figures to operate in Macau.’ Three Las Vegas-based operators are active in the lucrative Macau casino sector; Wynn Resorts, MGM Resorts and Las Vegas Sands.
William Reinsch, Chairman of the US-China Economic and Security Review Commission, said: “American authorities at the state and federal level want to make sure that the three US-based casino companies licensed to operate affiliate casinos in Macau do not get drawn into activities that would be considered illegal or improper in the United States. The fact that the People’s Republic of China (PRC) does not permit the legal collection of gambling debts appears to be the most significant factor in creating a unique chain of circumstances in which casinos effectively sublease a substantial portion of their gaming operations to VIP rooms, many of which are controlled by Chinese organised crime groups.”
He added that China has strict capital controls that restrict the convertibility of Chinese currency, limit its citizens’ ability to take it out of the country, and limit its use in international investment. “The structure of the casino system in Macau effectively allows people to use the casinos to circumvent these capital controls,” he explained. “Corrupt Chinese officials move embezzled funds across the border, drug smugglers and human traffickers move large sums of cash about, and lawbreakers seek to escape prosecution or the tax authorities by laundering money through gambling. In addition, Macau banks have been implicated in a variety of financial crimes. For example, the Macau-based Banco Delta Asia was once the transit point for counterfeit currency from North Korea.”
AG Burnett, Chairman of the Nevada State Gaming Control Board, said: “Our analysis indicates that the Nevada affiliated casinos in Macau offer robust compliance with anti-money laundering protocols. That robust compliance, however, is only up to a point. That point is where the VIP Room Operators assume responsibility. Though VIP Operator transactions conducted directly with the casino are tightly controlled and regulated, criminal transactions are widely alleged to take place just out of the direct purview of the casino. Such activities include back-betting, side-betting, loan sharking, violent loan collections, underground banking, and money laundering. It is common knowledge that the operation of VIP Rooms in Macau casinos had long been dominated by Asian Organised Crime (AOC), commonly referred to as ‘triads.’ With the evolution of gaming in Macau, the same AOC figures are allegedly still working the VIP Operations; only now they do it behind a façade of ‘legitimate’ public corporations, complex corporate structures, financial guarantees, and third-party assignments. Public media and intelligence sources have affiliated all but one of the seven VIP Room Operator groups of interest with reputed AOC figures. Many of these associations are linked through documented public records.”
Professor Nelson Rose, a Professor at Whittier Law School in California and a Visiting Professor at the University of Macau, said: “The casinos are not necessarily violating any Macanese laws. But restrictions in its main feeder market, Mainland China, mean that inevitably some laws are being broken by individuals and companies who have made this small gaming enclave such a success. It starts with the patrons. It is against the law for anyone from the Mainland to take out more than 20,000 yuan renminbi, or about US$3,150, in cash. That’s less than $25,000 in Hong Kong dollars: A typical bet in the high-roller rooms in Macau casinos. But casinos are a cash business. So, somehow, Mainland Chinese are getting billions of dollars in cash across the border. One of the most common ways for Mainland players to get their cash to Macau is through straight smuggling. Mainland Chinese like cash, and they don’t trust banks.”
Macanese law was amended a few years ago to allow casinos to loan money directly to players. Hong Kong courts issued a ruling that allow Macau casinos to collect there.
Professor Rose added: “Until the PRC allows the enforcement of gambling debts through its legal system, and loosens its restrictions on the transportation of cash across its borders, the ‘junket’ system will continue. And who the VIP gaming promoters are remains a problem. It is significant that not a single Macau VIP gaming promoter has been approved by the government of Singapore. As a totalitarian government, the PRC is not overly concerned with legal niceties, like holding hearings before changing its rules. But its leaders do care about bad publicity, such as stories of government officials embezzling money and losing it in the casinos of Macau.”
He highlighted several newspaper headlines including ‘High-rollers, triads and a Las Vegas giant,’ ‘Las Vegas Sands (LVS) Accused Of Mob Ties,’ ‘LV Sands ‘linked to Macau gang’ and ‘Macau Murder for Hire Tie-ing Las Vegas Sands.’
“There is a fear that other American companies will become reluctant to partner with casinos in Macau, and that investors will get scared off if there are more rounds of bad news,” Professor Rose explained. “The biggest potential problem for American companies involved with a scandal in Macau is that they are all, by definition, licensed by at least one state of the U.S. The current problems involving Las Vegas Sands and MGM are typical of the type of trouble casino companies can face when they are associating with VIP gaming promoters or partners who bring unwanted scrutiny from state regulators. But the major threat and unknown question is whether the Beijing government will once again impose visa restrictions on mainlanders’ visits to Macau. If the PRC closes the border it would be shooting itself in the foot. But the bullet would kill the casino industry in Macau.
Mr. Burnett concluded: “When Nevada licensees first entered the Macanese jurisdiction, the industry, federal agencies, international regulators, and the Nevada State Gaming Control Board watched with anticipation that the licensees would bring Nevada’s standards of gaming to the enclave battling a nefarious reputation of rampant AOC infiltration. While certain elements of the business model have indeed been ‘westernised,’ in effort to compete; however, the business model of the west has also become somewhat ‘easternised.’ Nonetheless, we feel that the business model itself is not an issue, nor do we believe that the casinos, themselves, are an issue; it is what the business model allows to occur outside of the casino’s purview that may pose problems.”