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Carrots and Sticks

Lawyer Bruno Nunes on Macau’s efforts to regulate its long standing tradition of gambling credit

Thursday, 09 September 2010 17:16
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In July, we looked at the rules governing Macau junket operations. This month, we consider how junket regulation meshes with other aspects of Macau gaming law and how the whole system is enforced.

Two gaming regulations have an impact specifically on the commercial incentives that drive the gambling agent system in the VIP rooms of Macau casinos. They relate to the commission cap and the provision of gambling credit by the gaming operators in Macau.

Commission cap

As mentioned in our previous article, Administrative Regulation No. 6/2002, amended by Administrative Regulation No. 27/2009, is the main legal document regulating junket activity. The latter regulation, published on 10th August 2009, is the one the Macau government relies upon for enforcement of the much discussed commission cap.

The cap was achieved by amending an article in another Administrative Regulation—No. 6/2002. This confirms that Macau’s Secretary for Economy and Finance has the power to establish, by legal dispatch, a maximum cap on the commissions and other types of payments that can be made to junkets by the casino operators. The second part of the same provision goes on to clarify that any bonuses, gratuities, services or other pecuniary advantages that can be subject to pecuniary determination, will be considered as retribution. The cap, while in force, applies whether such payments are made in Macau or abroad. It also applies to the following: payments made directly; payments made through a company in which the concessionaire has a stake; and payments to any company with which the concession itself has a relationship.

The commission cap was determined by the Dispatch of the Secretary for Economy and Finance No. 83/2009, which came into effect on 22nd September 2009.

Article 1 says commissions or any other type of compensation to a junket cannot be higher than 1.25% of the total wager (net rolling), regardless of the basis used for its calculation.

By making the legal provisions so broad when defining junket commission or compensation, it seems the Government has taken into consideration the highly imaginative forms of payment and perks that were being granted to and from some junkets following the establishment of the junket regulatory framework in 2002. As a further safeguard, casino operators must file with the Gaming Inspection and Coordination Bureau (DICJ) a copy of any agreements entered into with the junket operators. The casinos must also submit any complementary agreements or other documents involving obligations or payments equal to or higher than one million patacas (US$120,000).

In an attempt to ensure the enforcement of the commission cap, the Government went ahead with a minor change on one of the duties of the casino operators set forth in Article 30, Paragraph 1 of Administrative Regulation no. 6/2002. This change imposes an active responsibility on the casino operators to submit all the information needed for the DICJ to verify calculation of junket incentive payments.

As stated in the previous article, infringement of these limits or reporting obligations can lead to sanctions, including fines, under Article 32-A and 32-B of Administrative Regulation no. 6/2002.

Provision of gaming credit

Provision of gaming credit is one of the key elements of the success in the Macau gaming industry. VIP high rollers account for approximately two thirds of the total volume of gaming revenues in Macau. Many of those high rollers are mainland Chinese and can only legally bring a maximum of RMB20,000 (US$2,950) across the border. The provision of legal gaming credit, especially through junket operators, provides alternative forms of funding.

Gaming credit is regulated under Law no. 5/2004, in force since 1st July 2004 as part of the territory’s Legal Regime of Provision of Credit for Games of Fortune and Chance.

Article 2, No. 1 states gaming credit issuance occurs when a credit provider transmits to a third party the ownership of casino chips for games of fortune and chance without the immediate payment of money (i).

Under Article 3, only casino operators are legally authorised to provide gaming credit. It adds that junket operators can also be an authorised gaming credit provider if they enter into “credit provision agreements” with casino operators.

The Law specifically forbids, in Article 5, the provision of credit through third parties (i.e. anyone other than the authorised casino operator or the authorised junket operator), and would nullify any such contract or act under Macau law.

Article 3 No. 6 states only the following gaming credit relations may exist:

- between a casino operator (provider) and a player;

- between a junket operator (provider) and a player;

- or between a casino operator (provider) and a junket operator.

Credit provision agreements between a casino operator and a junket operator and any complementary documents or
changes must be approved by the DICJ, in writing and with notarised signatures. A copy of the agreement must be submitted to the DICJ within 15 days of the agreement coming into effect (as per Article 8).

Interest may be charged by the provider under the agreement if the debtor does not repay the credit within an agreed time. Article 1073 of the Civil Code determines that such interest cannot exceed three times the maximum annual percentage rate (ii) of 9.75%.

Article 4 of Law No. 5/2004 makes it clear that the provision of properly authorised gaming credit creates a civil liability on the part of the borrower that can be pursued by the creditor through the Macau courts.

This civil liability has not yet been tested in the Macau courts with regard to debts contracted by high rollers from mainland China. Any such judicial ruling in Macau against a passport holder from the People’s Republic of China would probably need to be confirmed and executed upon by a court in China. That’s because the respondent’s assets are likely to be domiciled there. Given that gambling debts are not recognised under PRC law as enforceable contracts, a PRC court may seek to invoke a statute of limitation of liability. That right comes from an agreement between mainland China and Macau concerning the reciprocal confirmation and execution of judicial decisions in civil and commercial matters.

Law No. 5/2004 requires all of Macau’s government departments to cooperate with the DICJ in its task of supervising the gambling credit system. The practical effect of that is to create extra safeguards against the establishment of unauthorised, ‘underground’ credit networks.

If an authorised gaming credit provider seriously infringes any legal or regulatory provision, or acts incompetently, the government has the right to suspend that provider’s credit activity or impose conditions upon the provider. That’s notwithstanding any criminal and administrative procedures that may be launched.

If the DICJ suspects a person or organisation of providing unauthorised credit, it can demand clarification and inspect the location in which the alleged activity has taken place. If evidence is gathered to support the allegation, the DICJ will prepare a report and submit it, as quickly as practicable, to the Public Prosecution Office.

Article 16 of Law No. 5/2004 protects legally authorised credit providers from being classified as ‘loan sharks’. Under Macau’s criminal law, loan sharking is punishable with up to three years in prison or up to five years if an aggravated offence.

Penalties

Further aggravating factors, such as where illegal gaming credit providers keep hold of the identification document of the person to whom they have granted credit, can result in a prison sentence of up to eight years. In all three scenarios, the court can ban the offenders from entering any Macau casino gaming rooms for at least two years and up to 10 years.

Other provisions of Law No. 5/2004, namely Articles 9, 10 and 11, impose a duty on gaming credit providers and their workers to act in a prudent manner, complying with any laws, regulations and internal company rules of professional conduct. They also have a duty of confidentiality regarding financial information relating to credit provision. That duty of confidentiality also applies to the DICJ’s workers and its service providers.

Loan sharking continues to be an issue in Macau. A total of 153 cases were registered between June 2009 and May 2010. The fact the figure actually represents a decrease of 15.47% on the equivalent period a year earlier suggests that Macau’s legal and administrate efforts to regulate the gambling credit market are workingiv. Ultimately, the aim must be to make the legal gambling credit system so efficient and so equitable for the parties involved and the enforcement against unauthorised lending so exacting that the commercial demand for loan sharking falls away. It happened in Las Vegas, so it can also happen in Macau.

 


(i). No. 2 of Article 2 clarifies, in very broad terms, the understanding of “money” in this context, providing a long list of examples, which include: cash, travellers cheques, certified cheques, cashier’s orders or cashier’s checks, money orders, electronic fund transfers through electronic means of payment (credit or debit cards or prepaid cards).

 

(ii). Legal interest is currently determined by Executive Order no. 29/2006.

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