IAG May 2014 - page 8

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TheMoneyTrail: TreadWithCare
hinese money is carrying gaming revenues on the recession-wracked Las Vegas Strip. Since
overtakingblackjack in2009as thestreet’shighest-grossinggame, baccarat hasgrown to thepoint
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
gamehascomprisedonaverageall of 9%of Strip table inventoryover this time, clearly, someverybigbetting
is going down. That’s a problem for theUS 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 AmericanGaming
Association, the industry’sWashington lobbying arm.
How did baccarat get so big? The answer lies principally with the threeNevada licensees that generate
a great deal of their operating profit inMacau (themajority of it in the case of Las Vegas Sands andWynn
Resorts). Wynn, LVS andMGMResorts International have been as successful as everyone knew they would
be in leveraging their Chinesepresence todrive big-timeChineseplay to their Stripflagships.
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, whoseworkings have intrigued law enforcement in the
West for years. How does a country whose citizens are forbidden by law from exportingmore 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 entirehaul of theUS 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. TheU.S.-China
Economic Security Review Commission, a group instituted by the US Congress to look into this kind of
thing, claims thatmore than$200billion is laundered throughMacauevery year; andwhile it “didnot seek
nor did it findevidenceofwrongdoingby anyU.S.-based casino company, either inMacauor inLasVegas,”
its latest annual report concludes:
“The underlying questions about the integrity of operations inMacau 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 ismerited.”
LasVegasSands,which last yearderived70%of itsgaming revenueand61%of EBITDA from itsSands
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 YeGon, a high-rollingChinese-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 canwithdraw 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.
FinCENwantsmore, 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
USBank Secrecy Act. Current law requires only that casinos report so-called “suspicious transactions,” so
this would indeed be radical, asMr 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
attentionof late. InMarch therewas the conviction inaHongKong court of sportsmanand junket investor
Carson Yeung for money laundering. The samemonth, the wife of the headman 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 inpart by informationobtained in theYeung caseand reportedly
involving corrupt Chinese government officials. Then earlier thismonth it was revealed that a shareholder
in a smaller VIP room promoter had disappeared with a staggeringHK$8 billion-$10 billion of investors’
money. Interestingly enough, these were funds that may have been earmarked for so-called side-betting,
amassive 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 inofficial revenue figures and therefore not audited by theMacau government
for tax purposes either.
But it’s with an eye on the US, not the powers that be inMacau, or Beijing for that matter, that Sands
Chinahasbegun takingacloser lookat its junket partners, or sonews reportshave it,whichcould reduce the
number of junketswilling toworkwith the company.
The AGA hopes this kind of self-policingwill 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 rulesmight contain. It’saprocess theyalsohopewill provide themwithopportunities toschool their
nemesis inwhat they describe as the “nuances of the gamingbusiness”.
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