A spectacular scam bares the foundation of illegality of the enclave's casinos
Few places on the planet are as carefully watched over by security guards and closed-circuit television cameras as large casinos. So it was amazing to read in the South China Morning Post of Feb. 12 that suites in top hotels had, unbeknownst to management, been “decked out to look like genuine gambling halls with security staff, dealers and other customers,” setting up a phony casino to trick mainland punters of millions of dollars. Customers were, it said, drugged with spiked drinks and provided with bogus chips.
According to the report, the gang that organized the heist had crossed the border at least 19 times in the previous two years before 16 people were arrested in a raid on a luxury hotel and charged with fraud and drug trafficking.
The newspaper did not name the luxury hotel but it is understood by Asia Sentinel to be the Venetian Macau, the largest hotel/casino complex in Macau, which is owned by Las Vegas Sands, the US-based empire of gambling magnate Sheldon Adelson (whose wife also happens to be the principal financier of Newt Gingrich’s bid to be the Republican presidential candidate for the US presidency).
The story, which the paper has not followed up, clearly suggested that the company, despite its legions of security staff and cameras, either had no control over what was going on there, or had knowingly subcontracted rooms to a mainland group which was given carte blanche to make its own arrangements within the hotel as well as freedom to bring in clients from the mainland. Although these side rooms, often operated by triads, have been a fixture of Macau’s gaming scene for decades, they had been thought to have been prohibited by the multinational gaming companies.
More details may emerge in due course, but the underlying problem of separating fact from fiction and gang warfare from honest operations, is that the great casinos of Macau are built on a foundation of illegality. While for the average punter they just offer a legitimate service from which the house takes a reasonable cut, the real money is there to be laundered to enable thousands of very rich Chinese to both to “clean” ill-gotten gains and to evade foreign exchange controls to buy their bolt-holes in Hong Kong, the west and Southeast Asia.
Officially Macau’s gambling turnover is now the largest in the world at over $30 billion annually. But quite likely it is a lot more than that because of the financial engineering created by the junket operators – those who bring in the high-rollers, mostly from the mainland but some from Taiwan and Hong Kong, providing them with credit, women and other services. They are also known to limit the take of the casino itself by unwritten understandings between operator and client that actual bets are a multiple of the officially recorded one – for example playing in Macanese patacas but actually denominating in US dollars.
Such side betting has been variously estimated at between 20 percent and 200 percent of official turnover of the VIP tables although both the casino operators including Sands and Macau’s Gaming Inspection and Coordination Bureau, the regulator, have denied to the Macau media that it is on anything like the scale sometimes claimed as it involves too many counter-party risks for the junket operators.
Although some of the capital outflow comes in the form of notes carried across the border, the bigger and more sophisticated operators arrange for foreign currency loans which enable winnings to remain offshore while operators acquire equivalent mainland assets.
Junket financing is a hugely profitable business requiring connections rather than large capital outlays, unlike the official casinos which must build fancy hotels and gambling halls for the masses of small gamblers.
Given the essential criminality involved in the high-rolling junket operations it is no surprise that whatever the public face provided by the big names like Sands, Wynn and Stanley Ho’s Sociedade de Jugos de Macau which used have a gambling monopoly, the high-roller business is mostly in the hands of triad groups.
Quite why this is permitted by Beijing is a bit of a mystery. Mass, small scale gambling and related tourism is certainly needed to sustain Macau’s one-industry economy. But even that has not proved popular with all locals who have seen the benefits of rapid expansion go either to the hotels and operators or the workers brought in to build the gambling palaces.
As for the blind eye that Beijing turns to the money-laundering and foreign exchange control evasion. one can only conclude that it views Macau as a safety valve. It provides one way for those who are rich and well connected, but who are not involved in foreign trade or other business which make capital export easy, to launder their riches and get them offshore.
The sums involved are huge by most standards but still small relative to China’s overall foreign exchange surplus. So the economic loss is slight while the gain to stability within a Communist party-led power structure is large. Like allowing limited mainland investment in foreign stocks, it provides opportunities for overseas investment for the wealthier members of society without exposing the state to the dangers of wholesale liberalization of capital controls.
Doubtless too the state security apparatus keeps a count of the identities of the high rollers in case they fall out of political favor and need to be shaken down.
Thus the short to medium terms benefits of tolerating the junketing in Macau outweigh concerns that the longer it persists the more compromised becomes the ruling party and more hypocritical its claims to be fighting corruption. For increasing numbers of high-level officials, ethics no longer matter and to “get rich is glorious” no matter how it is done.
So next time you read about arrests connected to large scale gambling in Macau, beware of taking the news at face value.Asia Sentinel
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