Inside Asian Gaming

inside asian gaming May 2014 8 EDITORIAL Inside Asian Gaming is an official media partner of: www.gamingstandards.com Inside Asian Gaming is published by Must Read Publications Ltd 5A FIT Center Avenida Comercial de Macau Macau Tel: (853) 8294 6755 For subscription enquiries, please email subs@asgam.com For advertising enquiries, please email ads@asgam.com or call: (853) 6680 9419 www.asgam.com ISSN 2070-7681 Publisher Kareem Jalal Director João Costeira Varela Editor James Rutherford Editor At Large Muhammad Cohen Business Development Manager Danilo Madeira Contributors Paul Doocey, John Grochowski, James Hodl, Richard Meyer, Matt Pollins, I. Nelson Rose Graphic Designer Rui Gomes Photography Ike, Gary Wong, James Leong, Wong Kei Cheong James Rutherford We crave your feedback. Please email your comments to James@asgam.com The Money Trail: Tread With Care C hinese money is carrying gaming revenues on the recession-wracked Las Vegas Strip. Since overtaking blackjack in 2009 as the street’s highest-grossing game, baccarat has grown to the point where it now accounts for more than 40% of total Strip table win and more than that at the 17 largest casinos by gaming revenue. Last year it was good for $1.58 billion. Considering that the game has comprised on average all of 9% of Strip table inventory over this time, clearly, some very big betting is going down. That’s a problem for the US Treasury Department’s Financial Crimes Enforcement Network. They want to know where all the money is coming from. That makes it the casinos’ problem. It could, in fact, “radically alter the way casinos do business,” warns Geoff Freeman, who heads the American Gaming Association, the industry’s Washington lobbying arm. How did baccarat get so big? The answer lies principally with the three Nevada licensees that generate a great deal of their operating profit in Macau (the majority of it in the case of Las Vegas Sands and Wynn Resorts). Wynn, LVS and MGM Resorts International have been as successful as everyone knew they would be in leveraging their Chinese presence to drive big-time Chinese play to their Strip flagships. As everyone knows, most of Macau’s world-beating gaming revenue, US$45 billion-plus last year, is derived from VIP rolling chip play, and most of that, as we also know, is supplied, managed and funded through the secretive realm of the junket syndicates, whose workings have intrigued law enforcement in the West for years. How does a country whose citizens are forbidden by law from exporting more than the yuan equivalent of US$50,000 a year fuel a gambling boom the size of seven Las Vegas Strips? How is it possible that this tiny city on the South China Sea coast now surpasses—and by leaps and bounds, something like 18% in 2013—the entire haul of the US commercial casino industry? Data analyzed by The Wall Street Journal suggests that in the 12 months through September 2012, about $225 billion flowed illegally out of China—3% of the nation’s total economic output. The U.S.-China Economic Security Review Commission, a group instituted by the US Congress to look into this kind of thing, claims that more than $200 billion is laundered through Macau every year; and while it “did not seek nor did it find evidence of wrongdoing by any U.S.-based casino company, either in Macau or in Las Vegas,” its latest annual report concludes: “The underlying questions about the integrity of operations in Macau bear further scrutiny by Congress. As part of this review, Congress should examine whether federal oversight and, potentially, regulation of the overseas activities of domestically licensed gaming enterprises is merited.” Las Vegas Sands, which last year derived 70% of its gaming revenue and 61% of EBITDA from its Sands China subsidiary (90.6% and 90% counting Singapore), has been under investigation by the US Justice Department and the US Securities and Exchange Commission since 2011, in large part, so it appears, in connection with its business in Macau. Last August, the company forfeited $47.4 million to the Justice Department to avoid criminal charges tied to cash transactions its Strip resorts handled on behalf of one Zhenli Ye Gon, a high-rolling Chinese-Mexican businessman linked to international drug trafficking. LVS says it no longer allows customers to transfer funds internationally and limits the use of checks or money transfers from business accounts. It also restricts the amount of cash customers can withdraw from their casino accounts in a given day. And it has bulked up on former FBI agents, regulators and attorneys experienced in anti-money laundering law and compliance. FinCEN wants more, though, and is reported to be crafting rules that will require casinos to vet their big customers along the lines of the strict requirements financial institutions must adhere to under the US Bank Secrecy Act. Current law requires only that casinos report so-called “suspicious transactions,” so this would indeed be radical, as Mr Freeman says. Players are sure to resent the intrusion, and operators fear, not without reason, the whales will take their chips elsewhere—to places where no questions will be asked, like Macau, where a whole different reality prevails, albeit one that has received some rude attention of late. In March there was the conviction in a Hong Kong court of sportsman and junket investor Carson Yeung for money laundering. The same month, the wife of the head man at Neptune, one of the largest junkets in Macau, was detained by authorities in Hong Kong in connection with a wide-ranging investigation into junket activities spurred in part by information obtained in the Yeung case and reportedly involving corrupt Chinese government officials. Then earlier this month it was revealed that a shareholder in a smaller VIP room promoter had disappeared with a staggering HK$8 billion-$10 billion of investors’ money. Interestingly enough, these were funds that may have been earmarked for so-called side-betting, a massive underground business, by all accounts, in which high rollers engage with junket operatives to make private bets at the VIP room tables that are not recorded on the casinos’ books, which, of course, means they’re not included in official revenue figures and therefore not audited by the Macau government for tax purposes either. But it’s with an eye on the US, not the powers that be in Macau, or Beijing for that matter, that Sands China has begun taking a closer look at its junket partners, or so news reports have it, which could reduce the number of junkets willing to work with the company. The AGA hopes this kind of self-policing will do the trick. They’ve assembled a task force whose aim is to impress Treasury officials with a set of “best practices” and thereby head off the worst of what the new FinCEN rules might contain. It’s a process they also hope will provide them with opportunities to school their nemesis in what they describe as the “nuances of the gaming business”.