Casinos slump on reported China illicit fund crackdown

Macau casino stocks plunged in Hong Kong trading after the South China Morning Post reported China will start cracking down on illicit money channeled through the city’s casinos.
China’s Ministry of Public Security is leading the move, the newspaper reported yesterday. The Post also cited documents it saw which confirmed the government action and which it said were sent to Macau’s banks late Tuesday by the city’s monetary authority. The ministry had met Macau regulators last month to discuss “criminal activities” related to mainland bank cards and point of sales machines, according to a Nov. 21 statement from the Monetary Authority of Macao.
Galaxy Entertainment Group Ltd. plunged 8.2 percent to HKD42 at the close of trading, the most since June 2013. MGM China Holdings Ltd. fell 7 percent and Sands China Ltd. and SJM Holdings Ltd. both dropped 6.2 percent. Wynn Macau Ltd. lost 4.3 percent and Melco Crown Entertainment Ltd. lost 3.9 percent. The benchmark Hang Seng Index was down 0.4 percent.
The report comes two days before Chinese President Xi Jinping’s visit to Macau for the 15th anniversary celebrations of the former Portuguese enclave’s return to China’s sovereignty. Macau has recorded six months of decline in casino revenue as Xi’s campaign against lavish spending by officials discouraged gambling by high rollers. The city is also bracing for the first annual decline in revenue for 2014.
Macau’s monetary authority wouldn’t comment further beyond its Nov. 21 statement, while Sands China declined to comment. Mainland payment services provider China UnionPay Co. and the city’s five other major casino companies couldn’t immediately comment. The Public Security Ministry did not answer questions sent by fax about the newspaper report.
The crackdown will impact Macau’s casinos “potentially profoundly, depending on the extent to which this is enforced,” said Philip Tulk, a Hong Kong-based analyst at Standard Chartered Plc, in a telephone interview.
“We are aware a lot of the VIPs working with junkets use various means to get funds into Macau and if these methods are deemed illegal, then they’ll stop and it will impact,” he said.
Junket operators are middlemen who arrange gambling trips and money for the high-stakes Chinese gamblers who account for about two-thirds of the city’s billion-dollar gambling revenue. They are increasingly taking these high rollers to gamble abroad including South Korea, the Philippines and Vietnam.
“The sector will be under great pressure going forward,” said Lantis Li, an analyst at Capital Securities Corp., adding investors are awaiting Xi’s comments on Macau this week and for any signs of his future direction for Macau. High rollers historically avoided traveling to the territory when the president visits, and this will lead to another weak month for Macau’s gambling revenue in December, he said.
The new government drive will give the Public Security Ministry’s Economic Crimes Investigation Bureau electronic access to all transfers through state-backed UnionPay’s bank payment card in order to identify suspicious transactions, the Post reported today, citing people it didn’t identify.
The bureau also plans to secure the return of corrupt party officials who have fled overseas and funneled illicit money out of the country, the newspaper said.
At the bureau’s Nov. 20 meeting with UnionPay, Macau’s judiciary police, monetary authority, and the public prosecution and finance intelligence offices discussed use of bank cards and machines and money laundering issues, according to the Monetary Authority of Macao.
China’s Public Security Ministry on Nov. 28 also met with representatives from 18 provinces and cities across the country to discuss steps to crack down on crimes related to gambling overseas, the ministry-run China Police Daily reported Dec. 1.
Macau’s government has curbed money flows to the world’s largest gambling hub by restricting the use of UnionPay’s debit cards at casinos. The Macau Monetary Authority ordered jewelry stores and pawnshops operating on casino floors to remove their UnionPay card terminals, making it harder for bettors to buy expensive items that they exchange for cash to gamble with.
China previously also cracked down on the use of UnionPay hand-held card swipers within casino resorts as concerns illegal funds are being taken out of the mainland into Macau. Bloomberg