In June of this year my organization, the International Union of Operating Engineers, sent a letter to Wang Qishan of China’s Central Commission for Discipline Inspection that highlighted what we believe are flaws in the Macau government’s regulation of the VIP junket system.
We emphasized that Macau’s gaming regulator, the DICJ, did not adequately monitor and investigate many influential participants in the junket industry, such as the third-party financiers, credit guarantors and profit participants of gaming promoters, who manage to keep their names off of official paperwork. Further, the casinos have had no legal responsibility to track how their junket partners raise capital and collect on gambling debts.
Through these under-regulated channels individuals who might otherwise be denied a gaming license are positioned to exert control over a junket operation. They are also best positioned to facilitate international money movement, which has been a major concern of the PRC government.
We are heartened to see that the Macau government now appears intent on investigating these key hidden powerbrokers and forcing junkets and their casino partners to start disclosing them.
But, it should not have taken multiple large-scale junket thefts for the government to wake up to these regulatory deficiencies. Indeed, why has it taken so long for the government to come around on this issue? Simply put, we believe it has been all about deniability.
The existing system allows for casinos to conduct due diligence on a junket’s “on-record” straw man shareholder who has a clean record, while turning a blind eye to the true beneficial owner. The casinos can then profess that they are in compliance with Macau law, even if the controlling interest behind the junket has organized crime ties.
This carefully constructed apparent, but not real, regulatory structure has allowed the casinos and the government to look the other way and keep counting their money. These substandard policies we believe also infect outside jurisdictions, such as U.S. regulators in Nevada (the alleged premier gaming regulator) and Massachusetts, who accept this absurd logic and distort their standards in order to approve Macau casino operators in their locales.
But Macau, it appears, is finally confronting this problem. What are the next steps?
The DICJ should require junkets to disclose all financiers capitalizing their operations. In addition, all individuals who acquire a profit participation stake in the junket must also be disclosed. The DICJ should then subject substantial financiers and profit participants to a “suitability” review to ensure that these individuals do not have organized crime ties.
The DICJ should also reassess the standards for its existing suitability reviews. The regulator should not look solely at whether the applicant has a documented criminal record but should take a more holistic approach including reviewing associations and reliable law enforcement intelligence.
Lastly, and most importantly, the DICJ should provide more junket information to the public, including the identity of the casinos that junkets contract with, the chip volume that junkets roll, and the substantial owners, financiers and profit participants of junkets. Sunshine has a cleansing effect.
We have high hopes for the government’s new junkets initiatives, and we will work to continue bringing greater transparency to this industry, because it affects the United States as much as it does Macau.
Director, Special Projects & Initiatives
International Union of