China Tightens Reins on Macau - WSJ.com

China Tightens Reins on Macau - WSJ.com

China Tightens Reins on Macau

Police in Gambling Enclave, Mainland Detain Junket Operators; First Sign of a Corruption Crackdown

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By KATE O'KEEFFE

Agence France-Presse/Getty Images

Sands casino employees receive training in Macau, where a flood of Chinese gamblers has fueled a boom.

The Chinese government is increasing its scrutiny of Macau's booming casino industry and the junket operators that bankroll its high-rolling gamblers, the first sign of a crackdown on corruption following stepped-up rhetoric by China's new leadership.

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• MarketBeat: Macau Casino Stocks Lag 

Police in mainland China and Macau have recently detained people from at least three of Macau's biggest junket operators. The WSJ's Kate O'Keeffe discusses the jolt to Macau's lucrative gambling industry.

In recent weeks, police in mainland China and Macau have detained people from at least three of Macau's biggest junket operators, the middlemen who extend credit to high-roller players and collect the debts in China, according to people familiar with the situation. Some of the detentions have occurred in China and in other cases, the detainees have been moved there, these people say.

Casino operators in Macau have also noticed more restrictions on cross-border financial transactions involving Chinese funds and recently received requests for information from Macau police about the people staying at their hotels, casino executives and others said. Such requests aren't unheard of but have raised concerns in light of the other events, these people say.

The territory is also reviewing its money-laundering rules and recently asked casino operators for feedback on proposed rule changes.

Details about why the people were detained or their current status weren't available because Chinese police don't routinely make such matters public. There have been no official allegations of wrongdoing by junket operators, individuals or casinos.

The recent detentions "are an attempt by the Chinese government to tell people in the market that they need to behave, especially regarding underground money transfers," said Hoffman Ma, deputy chief executive of Ponte 16, a Macau casino.

Macau boomed in recent years as Chinese gamblers flooded into the former Portuguese colony, which now generates more than five times the gambling revenue of the Las Vegas Strip. International authorities, including in the U.S., have raised concerns that wealthy Chinese were using the casinos to launder the proceeds of corruption and to illegally get money out of the country.

Chinese individuals aren't allowed to move more than $50,000 a year out of the country, including to Macau, which, like Hong Kong, is part of China but has its own financial system and its own set of laws. That restriction has prompted some high-roller gamblers to rely on junket operators to get around Chinese laws and provide access to greater sums.

According to a Wall Street Journal analysis of Chinese economic data, about $225 billion flowed out of China in the 12 months through September, a number that captures both legal capital outflow and some of the illicit flow.

Displays of wealth, such as the increasing numbers of wealthy Chinese coming to gamble in Macau's casinos, are of concern to the Chinese government amid heightened outrage at official corruption after the fall of former party high-flier Bo Xilai , who was ousted from his party posts in the spring and whose wife was convicted in August of murdering a British businessman.

Xi Jinping , who took the reins of China's Communist Party last month, highlighted corruption in his first speech as party leader. His predecessor, Hu Jintao , warned in his final speech as party chief that official corruption had become such a serious problem it could "cause the collapse of the party and the fall of the state."

U.S. law-enforcement officials and diplomats have long suspected that junket operators carried out money laundering and had ties to organized-crime gangs known as triads. A reminder of the grip the triads have traditionally held on Macau came over the weekend, when a former leader of a triad operating in Macau, "Broken Tooth" Wan Kuok-koi, was released from maximum-security prison after serving 14 years for triad membership and money laundering among other crimes. Since Macau returned to Chinese control in 1999, triad violence has declined.

Last month at Wynn Macau, 1128.HK +0.96% police detained a partner of one of Macau's major junket operators who has ties to Mr. Bo, the disgraced Chinese politician, said people familiar with the situation. The partner, Pang Yufeng, and his associates, including his driver, were taken to China at the request of Chinese authorities, the people said.

Mr. Pang is one of four partners at junket operator David Star, which has a presence at all six of Macau's casino operators, including properties owned by U.S. operatorsWynn Resorts Ltd. WYNN +1.37% and Las Vegas Sands Corp., LVS +2.92%according to people familiar with the matter and David Star's corporate website. David Star didn't return calls seeking comment. Mr. Pang couldn't be reached to comment.

Mr. Pang is also the director of a David Star affiliate called Zhong Ying Sociedade Unipessoal Lda., which operates at Sands' Venetian Macau property, according to Macau corporate records and an internal Sands document viewed by the Journal.

Wynn Resorts general counsel Kim Sinatra declined to comment, as did Sands spokesman Ron Reese. The Macau government's Office of the Secretary for Security and the Macau police also declined to comment.

Officials from the Hong Kong and Macau Affairs Office of China's State Council weren't available to comment.

Chinese police have also detained people on the mainland from at least four junket groups that operate in Macau in conjunction with their alleged illegal underground banking activities, said people familiar with the matter.

Qin Si Xin, another partner of David Star, is among those who have been detained in China, these people say. Mr. Qin, a mainlander, is listed on a Las Vegas Sands ledger viewed by the Journal that shows intracompany transactions between Macau and Las Vegas. In September 2009, he received $1.65 million at the Venetian in Las Vegas from a junket operator in Macau, according to the ledger. It is unclear what the payment was for, but there is no evidence that Mr. Qin's transaction violated any laws. He couldn't be reached to comment.

Transfers where money flows across borders via casino accounts have raised concerns among casino executives and U.S. authorities that customers could exploit the intracompany accounts to launder money.

The apparent crackdown comes as the Macau government conducts a major review of its antimoney-laundering rules. Hong Kong tightened its antimoney-laundering rules in April, which pushed banking business to Macau, people familiar with the transactions said.

There is some evidence that the junket operators' high-roller clients are scaling back their gambling. In the third quarter, Macau's VIP gambling revenue fell 1.1% compared with the previous year, the first decline since 2009. Revenue from slots and mass-market tables rose 27%, according to government statistics.

Mr. Ma, the Macau casino official, said the Chinese government flexed its muscle over Macau in 2008 when it tightened visa restrictions for its citizens coming to Macau, hurting the casinos' business. "Visa restrictions years ago showed the power of the Chinese government to control Macau's gambling revenue if they want to," he said.

—Deborah Kan contributed to this article.

Write to Kate O'Keeffe at Kathryn.OKeeffe@wsj.com