How China's Filthy Rich Use Macau To Launder Their Money
Diplomatic cables released by Wikileaks claimed that the casino and hospitality sector accounted for over 50% of Macau's GDP but that, "its phenomenal success is based on a formula that facilitates if not encourages money laundering."
And a lot of that money comes from China.
Macau casinos pulled in a record 36.5 billion patacas ($4.57 billion) in revenue in October, largely driven by Chinese visitors.
In 1999, Macau saw 800,000 mainland Chinese tourists. That figure exploded to about 12 million in 2008 and then 17 billion in 2012. In 2012, another 11 million visitors came from Hong Kong and Taiwan.
Diplomatic cables released by Wikileaks claimed that the casino and hospitality sector accounted for over 50% of Macau's GDP but that, "its phenomenal success is based on a formula that facilitates if not encourages money laundering."
How exactly does it work?
China only allows 20,000 yuan ($3,200) to be moved out of the Mainland at a time and $50,000 a year. To circumvent that, Chinese high rollers can do one of two things. They can deposit money with junkets in the mainland and use that money in Macau, or they can borrow from third-party junket agents.
If they choose to deposit the money, the junkets, who are basically gaming promoters, ferry money across borders. The gamblers can then use that money in Macau. Once they're done gambling they can take their winnings in U.S. funds or Hong Kong dollars and invest it in property or offshore tax havens.
These junket agents vary from sole proprietorships to publicly listed companies. They help arrange for visas and accommodations, including VIP rooms. They also collect gambling debts.
Frequently, the money that ends up here has come through illegal means, through bribes or embezzlement.
A paper from Jorge A. F. Godinho, at the University of Macau - Faculty of Law explains how junkets play a role in money laundering in Macau.
"According to the FATF and Asia/Pacific Group on Money Laundering (APG), there are several vulnerabilities regarding promoters, including the fact that their intervention enables the creation of an additional layer which may not contribute to knowing the identity of the players and the source of funds, in addition to the fact that not all jurisdictions regulate gaming promoters and/or their representative offices.
"...Gaming promoters may assist in the transfer of funds to the casinos of Macau. In the case of VIP Baccarat, the amounts involved can be very significant. Moreover, in many cases, there will be no actual transfer of funds, but rather a simple balancing of accounts between credits in mainland China and debits in Macau. This is one of the reasons why the gaming promoter sector is rather developed.
"There is no doubt that this channel can also serve for the movement of funds of an illicit origin, whether coming from corruption, embezzlement of public or private entities, or any other sources. Hence the particular need for rules and procedures for the detection of illegal transfers."
Triads
Triads, or Chinese organized crime units, "dominate the junket industry," according to Benjamin Carlson at Foreign Policy.
Since Chinese courts don't recognize or enforce payments on casino debts and since gambling is illegal in China, junkets often rely on triads to collect their debt.
Triads that operate in Macau and around the world, partake in everything from money laundering to drug and human trafficking.
Diplomatic cables released by Wikileaks that date back to 2009 explain how unregulated junkets are:
"Although they must register and are subject to nominal regulation in Macau, these facilitator organizations allegedly work closely with organized crime groups in mainland China to identify customers and collect debts. Junket operators work directly with Macau casinos to buy gaming chips at discounted rates, allowing players to avoid identification.
"Know-your-customer (KYC) and record-keeping requirements are significantly looser than in other international gaming venues. Government efforts to regulate junket operators in Macau have been aimed at limiting competition, rather than combating illicit activities.
"Oversight of both casinos and junket operators is limited and remains a serious weakness in Macau's AML regime. Periodic tightening of Chinese Individual Visitor Scheme permit requirements may reflect Chinese government concern about corrupt officials laundering money in Macau."
Another way illicit money finds its way to Macau's casinos is through pawn shops. Visitors buy goods from a pawn shops with a debit card and then sell it back for cash.
Cracking Down
Since the Chinese handover late last year, Beijing has been cracking down on corruption which has included efforts to regulate the gambling industry. In December, some junket operators were arrested.
Last year, Senator John McCain raised concerns about illicit money from Macau making its way into the American political sphere by pointing out that CEO of Las Vegas Sands Corporation, Sheldon Adelson, got his profits from Macau.
Macau is considering implementing a cross-border cash declaration system to restrict money laundering, though no specifics were unveiled.
A real crackdown on money laundering seems to still be a ways away.