Scientific Game

Invisible Players

What has happened to triads in Macau since the turf wars of 1996-97? Steven Ribet looks at the role they still play in the city’s junket industry.

Tuesday, 26 April 2016 16:28
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By Steven Ribet


The Hong Kong criminologist T Wing Lo raised eyebrows in February when he published a new paper in the British Journal of Criminology, on triad involvement in Macau’s casinos.

Academics were impressed by the report’s methodology. Lo did not get his information from talks with police, as is usual in such papers. Instead his research took the form of interviews with no fewer than 17 triad members. “It’s the first paper that has gotten that much verbatim transcript. It’s amazing to me how he did it,” says Peter Zabielskis, an Assistant Professor at the University of Macau.

Laypeople paid more notice to Lo’s claim, repeated in media reports, that “VIP-room operations are still dominated by triads to date.” To be in the business, he said, “triad reputation and power is a crucial factor in winning the trust of casino management.”

Many industry experts agree with Lo’s claim that gangsters play a central role at the heart of Macau’s pillar casino industry. China’s anti-corruption crackdown has delivered them a setback. But some experts still say they remain too big for the government or casino operators to be willing or able to ban.

At New York’s John Jay College of Criminal Justice, Professor Henry Pontell points out why gaming and gangsters make natural partners. “The world of gambling offers a portfolio of anonymous expenditure,” he says. “Casinos are perfect for laundering money; for having anonymous types of funds dispersed. Organized crime has always been drawn to that.”

Oxford University criminologist Federico Varese says the main role mafias play in society is to regulate illegal markets. For casinos that means supplying the sex and drugs that can often go with gambling sprees. Most importantly for Macau, triads organize the flow of money out of China and into the city’s VIP rooms; the money that has for many years generated around three-quarters of Macau’s gross gaming revenue.

Triads created the VIP room system. In 1970 when Stanley Ho’s Sociedade de Turismo e Diversoes de Macau (STDM) opened the Casino Lisboa under a monopoly concession from the Macau government, gamblers flocked to see the largest hotel-casino in Asia. Ferry tickets became scarce at crowded piers either side of the Pearl River Delta. That created an opportunity for organized scalping. Obviously this was not good for either the ferry operator or casino, both of which were owned by STDM. So Stanley Ho hit on an idea to co-opt the scalpers.

His solution of allowing the triads into his casino to sell “dead chips” (chips that cannot be cashed-in and are initially given as loans to customers) still forms the basis of the VIP room system. Under the arrangement, a dead chip dealer bought dead chips from the casino at a 0.7% discount before selling them at face value to a gambler he befriended. The gambler would eventually replace the dead chips with regular cash chips he won. At this point, the dead chip dealer offered to exchange his cash chips for more dead chips. Generally the gamblers would agree for the sake of the relationship and because it made no difference to the gambler. “Chip rolling,” as the process is called, is still the basic revenue measure VIP rooms use for tax and commission accounting.

Competition to find gamblers in Macau pushed triads and their associates into expanding overseas to recruit customers in the 1980s. In effect they became marketing agents for STDM, laying on transport to Macau and hospitality for gamblers at their own expense. To compensate them Stanley Ho made a second innovation. That was to allow them to set up VIP rooms; essentially their own private mini-casinos inside his properties, with a larger share of the total take.

In the 1990s Portugal started winding down its control of Macau ahead of the territory’s return to China. Governance became weak and the police corrupted. Open war erupted for control of the lucrative junket trade, with murders carried out on the city’s busiest streets in broad daylight. Lo says the business in the decade “was effectively run and self-regulated by triads.” For those who would dispute this, it’s hard to imagine how non-criminals might have stayed in the game.

But after China regained sovereignty in 1999 the triads dropped out of view. Macau now has one of the lowest rates of violent crime in the world. “I have been here more than seven years. I heard a story about a body hung up in front of the police department when I first arrived. But I never heard of triads after that,” says Wang Changbin, Associate Professor at the Macao Polytechnic Institute’s Gaming Teaching and Research Centre. “I don’t think triads are a problem now. Maybe they’re active in some small VIP rooms.”

What happened? Most people interviewed for this article say the incoming Chinese let it be known they would stamp on behavior that threatened Macau’s social stability and tarnished its image abroad. “I read there were guns left in the streets because the PLA said they would kill anybody with firearms,” says Henry Pontell. To Westerners this may sound fantastic. But many Chinese on the mainland don’t doubt the police are capable of extrajudicial measures.

Sonny Lo, a Professor at the Hong Kong Institute of Education, says the post-colonial government has done a commendable job of rooting out corruption in its police force. “Since the handover we haven’t seen obvious cases of violence causing the death of citizens, so I think the situation has been largely under control in the underworld and by the police,” he says.

But that’s not the same as saying there are less triads in the VIP room sector. A 2013 report by the US-China Economic and Security Review Commission stated, “Public media and intelligence sources have affiliated all but one of the seven VIP Room operator groups of interest with reputed Asian organized crime figures.” In 2010 New Jersey’s regulator refused MGM a gambling license because of the operator’s Macau joint venture with Stanley Ho’s daughter Pansy. The reason it gave was Ho family links to organized crime. For the same reason, Singapore demanded Malaysian operator Genting end all dealings with Ho before it could open a casino in the city state.

Sonny Lo identifies two trends in triad activity in Macau since 1999. First, the gangs have reverted to an earlier convention agreed on with Stanley Ho; that they keep a low profile and don’t make open trouble. “To achieve the goal of money-making, they do not wish to scare off customers,” says T Wing Lo in his paper. “The junkets do not often use violence to fight for territories and collect debts, mainly because their triad backgrounds provide a reputation for violence that reduces the actual use of violence in extra-legal governance.”

According to Lo, casinos are eager to work with triads of reputation because then nobody will dare to make trouble. Maintaining order inside VIP rooms is good for business. As one Macau citizen puts it, “You need insurance whenever a considerable amount of money is involved. A high roller will choose a junket that’s well connected to be confident he is protected.”

In 2002, the Macau government passed junket legislation, laying down rules for an industry that under Stanley Ho had been unregulated. To a large extent this was to satisfy the need for incoming American operators Wynn, Sands and MGM to operate under US-style regulations; a requirement demanded of them by their own government. Henry Pontell says the main effect of this was to create an extra layer of operations between the triads and casinos. “As soon as they tack on a new regulation a new company or something else springs up to push back from the regulatory control,” he says. “Organized crime will always find regulatory holes. Whenever a government adds regulations there will be openings for organized crime to exist.”

The second trend Sonny Lo identifies has been expansion of triad networks into China. “On the one hand triad activities have become less visible than ever before. But on the other hand, cross border criminal activities involving loosely organized crime groups have become far more prominent,” he says.

T Wing Lo goes so far as to claim that, in the years before Hong Kong’s handover in 1997, the Chinese Communist Party formed an alliance with triads. It did so, he says, to stop triads working with pro-democracy elements in Hong Kong, to prevent triad threats to the colony’s social stability, and to block infiltration by triads from Taiwan. In 1992 China’s Minister of Public Security Tao Siju remarked that some triad members were patriots and should be respected if they upheld Hong Kong’s prosperity. As further evidence Lo produces a photograph, initially published in Hong Kong’s Next magazine, of Ye Xuanping officiating at a film production center in China the magazine claimed was owned by the Sun Yee On triad society. Ye Xuanping was Vice Chairman of the National Committee of the Chinese People’s Political Consultative Conference and son of former Chinese President Ye Jianying. In the picture he is standing next to Sun Yee On leaders Jimmy and Charles Heung.

It is the networks that triads have built up in China that make them so important to Macau’s casino industry. While Chinese tourists today account for over 90% of visitor spending in Macau, by law they are each only allowed to transfer at most US$50,000 (HK$390,000) out of the country in a single year. An amount this small might not get a player into a VIP room.

Triads enable the flow of money into Macau that underpins the entire VIP system. The Chinese government does not accept gambling debts as legal. So if a gambler takes a loan from a VIP room operator and then refuses to repay it after returning to China, junkets do not have any legal means of collection. Junket operators run an underground banking system for moving money out of China.

Much of the money flowing into VIP rooms, T Wing Lo says, is there to be laundered, “mainly because of the rampant corruption in China.” The US-China Economic and Security Review Commission’s 2013 report cites a Chinese study that estimates “30-40% of all capital moving through underground banking channels is dirty money being laundered.” Macau’s regulatory oversight of VIP rooms, the report says, “remains opaque and prone to substantial abuse.” Consequently, “In Macau there is an even larger risk of money laundering within the VIP gaming room operations, which are physically conducted within the casinos but remain outside of the casino’s official oversight.”

Starting in 2013, President Xi Jinping’s anti-corruption campaign has delivered a serious blow to the VIP room business. The crackdown has made rich gamblers scared to come to Macau and disrupted the network for transferring their money. It has also damaged triad connections with corrupt local government officials used to collect debt. Interviewed in T Wing Lo’s paper, a triad member recalls how recently “a junket collected debt from an official in the mainland but was arrested by the public security, because the official misappropriated public funds to gamble.”

In spite of this, however, the flow of money from China into VIP rooms remains huge. Last year it was still about half of Macau’s total GGR of US$28 billion. Within the city itself, there remains plenty of scope for avoiding oversight. A big loophole in junket legislation is that while VIP room contractors themselves have to be licensed, they can sub-contract to agents who do not.

According to the US government report, “... unlike states such as Nevada, where junket operators are subject to in-depth background checks, strict internal control standards, and independent audits that are conducted in VIP rooms, in Macau, obtaining a junket license is a cursory process, and VIP rooms rely on in-house accountants to report on the financial status of their business.”

“I never heard of a license being refused,” says Wang Changbin in reference to the work of Macau’s gaming regulator, The Gaming Inspection and Coordination Bureau (DICJ). “The DICJ is quite is quite closed.”

Macau Legislator José Pereira Coutinho agrees. “There is no transparency on that work,” he says. “You are not entitled to information. They don’t give it to anyone, not even legislators.”

IAG gave the DICJ an opportunity to provide information for this article. The Bureau acknowledged receipt of the request, but did not respond before IAG went to press.

José Coutinho describes the lack of accounting for money that flows in and out of VIP rooms, and the lack of monitoring of the people that work in them as “a joke.” He says, “Casino operators say they don’t know what goes on inside their VIP rooms but of course they’re turning a blind eye. I’m not just talking about one government department. Everyone knows about the illegal behavior, but everyone lets it be.”

IAG sought to interview the junket industry group, the Association of Gaming and Entertainment Promoters (AGEP), but they could not be reached for comment.

Macau’s Judiciary Police acknowledges that triads operate in the gaming industry. Despite the liberalization and modernization of the industry, why has organized crime proved so resilient?

An obvious reason is that, in gaming or any other industry, an overly zealous enforcement of rules is bad for business. Take the case for a full paper trail for funds flowing into VIP rooms. Strictly speaking nearly all of that money is in a sense ill-gotten, because tax evasion is rampant in mainland China. Rich people there generally pay little or no tax. When they do, it’s common for the government to write and thank them.

On top of this, gambling is generally considered shameful by Chinese; behavior they want to hide from relatives and peers. Many prefer the anonymity that comes from using cash. “I don’t think any VIP high roller would want to fill out a form or give bank references or collateral or anything like that,” says Peter Zabielskis.

One junket regulation loophole might be closed by requiring everyone financially transacting with gamblers directly or indirectly to apply for a license, subject to background checks. But there would be problems with this too. First, many cooperators come from mainland China. It would not be easy to get information needed from authorities in their place of origin in order to vet them. Second, gaming promotion is illegal in China. Many junket agents canvass there under the guise of general tourism, or even in secret. Licensing would identify them to the mainland authorities, and subject them to arrest.

In truth, it may well be that triads are too important to gambling in Macau to be gotten rid of. Macau’s gaming industry depends on the VIP room system, which in turn depends on triads. Too many people are making too much money to want to change the setup. A full assault on them might capsize the boat. “When you go against folks who are essential to the running of the system you run the risk of hurting the system,” says Henry Pontell. “So enforcement is usually nibbling around the edges, with no systemic change.”

In future, a bigger threat to triads than Xi Jinping’s corruption crackdown would be the legalization of the illegal markets they control. Liberalization of cross-border money flows, in other words, to cut them out as middlemen. The benefits of cash smuggling would be reduced if China fully implemented its tax code. And if Macau’s casinos were allowed to market directly in China and issue credit that was recognized by courts there, the gangsters might ultimately be reduced to loansharking.

Until these things happen, however, organized criminals will likely remain a part of Macau’s casino industry. Steve Wynn seemed to be saying as much when, speaking at a Massachusetts Gaming Commission hearing in 2013, he said triads should not be equated with mafia. “Experienced law enforcement people will tell you that triad is not a synonym for organized crime,” he said. Triads, in other words, may be too big to be bad.

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