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US Senate hearing: Macau gaming system poses money-laundering concerns

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Macau’s gaming system poses concerns for the U.S., as there might be implications for Nevada-based U.S. casinos operating locally when U.S. casinos have to follow Macau’s unique way of gaming operation, closely associated with dubious cross-border capital flows and organized crime, according to a U.S. top gaming official and legal experts testifying at a U.S. Senate hearing.
The hearing was conducted shortly before the Macau government confirmed last week that it was thinking of requiring visitors to declare the amount of money they are bringing into the city, as a measure to prevent money-laundering.
In the hearing of the Senate’s U.S. - China Economic and Security Review Commission; A.G. Burnett, the Chairman of the Nevada State Gaming Control Board, said that their analysis indicates that the Nevada-affiliated casinos in Macau offer robust compliance with anti-money laundering protocols.
“That robust compliance, however, is only up to a point. That point is where the VIP Room Operators (or Junket Operators) assume responsibility,” the official said in his testimony.
“Although VIP Operator transactions conducted directly with the casino are tightly controlled and regulated, criminal transactions are widely alleged to take place just out of the direct purview of the casino. Such activities include back betting, side-betting, loan sharking, violent loan collections, underground banking, and money laundering.”
“Furthermore, it is common knowledge, the operation of VIP rooms in Macau casinos had long been dominated by Asian organized crime, commonly referred to as ‘triads.’”
He said that since March 2010, Macau’s gaming industry has been facing an increasing deluge of media scrutiny concerning the Nevada gaming companies’ ties to organized crime in Macau.
“In its purest form, the operation of VIP rooms is legitimate and lucrative for all parties. It is only in the ancillary affiliated activities that the model is vulnerable to perpetration of illegitimate activities.”
Burnett explained that VIP room operators are in a position to offer money laundering and underground banking transfer “services” for other criminal activities, especially when comingled with legitimate funds.
“Of concern to the United States is that once in the legitimate system, that once dirty money can be moved or used for legitimate or illegitimate purposes.” He said while transactions facilitated directly by casinos have robust anti-money laundering procedures, a money laundering vulnerability exists whereby illegitimate money enters the system through VIP room operator transactions facilitated outside of the casino’s purview.
Professor Nelson Rose of Whittier Law School, Costa Mesa, California, who is also a visiting professor of the University of Macau, said in his testimony that Macau casinos are not necessarily violating any laws, but restrictions in mainland China mean that inevitably some laws are being broken by individuals and companies “who have made this small gaming enclave such a success.”
    He detailed some of the most common practices: to smuggle, transfer, or arrange cash exceeding legal amounts from the mainland to Macau for high rollers to gamble in VIP rooms.
“Stores in Zhuhai and other cities near the border provide money lending and cash transfer services…Pawn shops have always been associated with casinos. There does not appear to be any law against a player intentionally taking expensive personal merchandise out of the mainland and selling it in Macau for cash for gambling.”
The professor noted that there are a growing number of high-end jewelry and watch stores popping up in Macau, even as booths right on the floors of the casinos. These stores are not buying, but selling. At least, that’s what they pretend to be doing. What they are actually doing is transferring funds out of mainland China. He said that the most common scam is to create a credit card sale of a very expensive item, like a watch.
“It appears that China does not care if VIP gaming promoters lend money for gambling, so long as only paperwork, not currency, crosses the border.”
“American casino companies in Macau that have licenses in
Nevada, Michigan, Mississippi and other states are now at risk, if any tie at all with organized crime is discovered.”
    James H. Freis, Jr., former Director of Cleary Gottlieb Steen & Hamilton LLP; U.S. Treasury Financial Crimes Enforcement Network, told the hearing that the threat of money-laundering proceeds through various channels, including banking and other financial institutions.
“Nonetheless, because of the predominance of non-traditional banking and other ‘high risk’ activities at the core of Macau’s economy, discussion will be focused on designated non-financial businesses and professions. These include casinos and other gaming institutions, accounting and legal services, pawn shops and jewelry dealers, those engaged in intermediary real estate services, and non-profit organizations,” he said.  SC, with agencies

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