Profits in a Slowdown as Macau Comes under Increased Scrutiny

Recent measures to combat corruption backfire, as Macau revenues drop without mainland gamblers.

It’s been a month since the new restrictions on UnionPay machines in jewelry shops came into effect in Macau. Authorities are keeping their eyes out for signs money laundering in casinos. The world’s largest gambling hub is under tight scrutiny.

Macau officials have been cooperating with authorities from mainland China to fight corruption and discovered that some government employees gamble secretly, and that Chinese gamblers are coming up with ways to dodge the legal 20,000-yuan ($3,230) limit on the amount of money they are allowed to take with them when they travel.

How jewelry shops are used to break the law

Top 5 most popular casinos in Macau:

• Wynn Macau
• Grand Lisboa
• Sands Macao
• Venetian Macao
• Galaxy Rio

With Chinese gambling laws forbidding them from playing casino games, mainland gamblers are getting creative. One way to dodge the currency rules which impose a strict limit on the amount of cash they’re allowed to bring to Macau is to use watch and jewelry shops in casinos.

UnionPay debit cards tied to Chinese banks cannot be used to buy chips in casinos, but they do allow daily purchases up to 1 million yuan if the owner spends his money at shops or point-of-sale machines, including jewelry stores and pawn shops.

So here’s what players desperate to get their hands on some more spending money have figured out: they buy an expensive watch or piece of jewelry, then resell it to a pawn shop nearby, getting the same amount they initially paid, minus the commission. Then they pocket the cash and walk away with it, free to use it in any way they like. Including for gambling.

Macau authorities expect the moratorium introduced by secretary for economy and finance Francis Tam Pak Yuen to reduce this practice, although it will not be fully eliminated. Existing UnionPay point-of-sale machines can still be used; the new regulations merely say that merchants cannot add more. Casino operators can also move them from one venue to another.

Casinos, the pillars of economic growth

Under the current laws, there are only two places in China where people are allowed to gamble. Macau and Hong Kong are both are special administrative regions, which means they have different laws; the first one offers casino games, while the second one allows players to bet on sports in China, but only on horse races.

Every year, about 20 million mainlanders visit Macau to take advantage of the region’s permissive regulations, and to play casino games. The economy of the former Portuguese colony depends on these gambling-thirsty Chinese tourists.

Casino revenues have increased about 20% annually for the past 30 years, turning Macau into the world’s most popular destination for tourists who love to gamble. In 2013, the casino industry posted a revenue of about $45 billion, and provides nearly 83% of Macau’s tax revenues in the first half of 2014.

In other words, casinos are vital for the region’s economy and local authorities know it too well. Nevertheless, they are looking for new ways to better control the industry, in order to reduce criminality, corruption, and money laundering.

What will the future bring?

Casino employees say VIP customers and high-rollers have become more cautious and have started to avoid Macau since the corruption crackdown began. Government officials who gamble don’t come to the casino anymore; they place their bets over the phone instead.

With all the restrictions imposed by the Chinese government, gamblers from the mainland have few options of obtaining money when they’re abroad. Each person is allowed to take no more than 20,000 yuan with him when traveling. UnionPay cards have a daily overseas withdrawal limit of 10,000 yuan.

Rules require gambling venues, merchants, pawn shops, lenders, as well as insurance companies sto report any transaction exceeding 500,000 patacas (about $62,600) to the government finance office. No wonder big spenders are starting to look for new places where they are free to spend their money as they wish.

Slowly, but surely, Asia’s casino market is expanding. Players already have several options, but Macau is the number one favorite. There are casinos in Singapore, the Philippines, Australia and soon Japan will join the game.

The former Portuguese colony will be well off years from now, but its growth is slowing down and experts predict authorities won’t be able to rely solely on gambling revenues forever. Could this be a sign that Macau’s lucky streak is coming to an end?