Is Money Laundering Related to the Decline in Macau Casino Revenues?

The decline in Macau’s revenues may have been caused by something else than general decrease in gambling worldwide.

The recent increase in Chinese authorities’ efforts against illegal gambling and money laundering across the country may have played a part in Macau’s dropping revenues. The enclave is officially part of China, but adheres to its own Macanese gambling laws.

It is now considered to be the Asian gambling Mecca, rivaling and even overtaking Las Vegas for the title of World’s Gambling Capital. Last year, Macau revenue increased by a whopping 20 percent hitting record number of $45 billion, seven times more than Las Vegas strip managed to haul in last year.

However, starting June this year, Macau’s numbers are continuing to fall every month. In October 2014, the revenues fell by 23 percent, the biggest drop to date. There are a number of reasons including market saturation and general gambling stagnation, but some experts say that Chinese authorities are partially to blame.

A bit of figures from first hands

Chinese authorities cracking down on illegal gambling and money laundering may have affected Macau

• Macau’s revenues reached a record fall last month

• Macanese gambling laws allow mainland China tourists to play in casinos

• The city-state is regarded as the main channel to take money out of China

According to Hoffman Ma, deputy CEO of Ponte 16 Resort, which includes over 30 casinos, VIP clients are now scared to come play because of the crackdowns. The majority of high-rollers in Macau came from mainland China, and while the authorities there are wagering a war on illegal gambling, people are simply refusing to gamble.

Ma was quoted in Macau gambling news: “June, July, August, I think the VIP segment was suffering roughly about 20 percent decline per month.”

The executive says that high-rollers are spending much less these days, trying to avoid attention from authorities when it comes to the flow of money from mainland China to Macau.

He said: “Any form of moving a large amount of money out of China would be a lot more difficult because of what’s happening. Obviously, they don’t want the corrupted officials to be able to move their money out.”

Gambling regulations and illegal flow of money

Macau is a Special Administrative Region of China, only an hour’s ferry trip from Hong Kong. Currently it’s the only place in China where gambling is legal. Because of that it’s now the biggest channel to move money from mainland and beat the government’s currency control regulations.

According to current laws, Chinese authorities only allow citizens to take out around $3,300 overseas per day. But, by using other semi-legal methods, including Macau’s endless jewelry shops and other establishments people can extract much more.

Here’s how it works in the words of a gaming management and consulting company, IgamiX, managing partner Ben Lee: “The pretext they have is the client buys a watch, they put it through as a watch sale and then the client sells it back to the retailer.”

He continues to explain the procedure where the salesman gives the customer his money back, minus a commission of course: “The watch does not even get moved out from under the counter. It does not touch the customer’s hand.”

In order to reveal the illegal flow of money, China has cut the maximum amount people can transfer through UnionPay from what was a whopping $820,000 per day, to still relatively high $164,000.

According to the Monetary Authority of Macau, the city-state has collected more than $22 billion in UnionPay transfers last year alone. Most of those transactions came through various shops and around casinos. Noting the figure we have to remind you that the population of Macau is around 600,000.

Interestingly enough, UnionPay is not the only way to move out money from mainland China to Macau. There’s a shopping mall set up on the Macau-mainland border, in the Chinese city of Zhuhai. The shops there sell cell phones, accessories, cigarettes and food, but their real business is moving money.

Money flowing offshore has been a huge problem for Chinese authorities. Back in 2008 the People’s Bank of China carried out a study, where it was revealed that more than 16,000 Communist Party officials, as well as top-ranked CEOs and other businessmen have gone overseas with over $130 billion.

Considering somewhat unclear origins of most of big fortunes and the current political climate in the country, it’s no surprise that rich Chinese citizens are looking for more ways to move their money overseas.

Lee recites a usual conversation between a mainland businessman and himself: “I want to move money offshore. I may be clean now. However, at some point in my earlier life, I may have dealt with a government official. If that official was caught up in anti-corruption campaign, I could be caught up even though I no longer have any relationship with him.” The consulting company exec goes on to say: “So, there’s a lot of fear in China right now.”

What’s next for Chinese VIP gamblers?

Does all the above-mentioned mean that the high-rollers from China mainland decided to go away from casinos for good? Of course not. According to an independent consultant working with VIP junket operators and Macau casinos, Tony Tong, high-rollers are simply moving elsewhere.

He said: “I think other casinos in the surrounding countries have benefited from Macau’s decline.” These of course mean casino resorts in Singapore, Australia, and other Asian hubs, where VIP players from China can gamble with less control from their own authorities.

It remains to be seen just how big of an impact the recent Chinese gambling crackdown will have on Macau and when the current gambling capital of the world will be able to stop falling profits. Growing competition from resorts in the region certainly adds oil to the fire, with casinos being erected in Singapore, the Philippines, Australia, and elsewhere.