Economic and Security Review Commission; being investigated by congress is always painful

A congressional committee, the U.S.-China Economic and Security Review Commission, is holding hearings on the impacts of economic practices on national security; and last week that mean money laundering in Macau.  Some of the committee members are thinking, as Bob Dylan once famously sang: “two men died neath the Mississippi moon, somebody better vestigate soon.”

The committee is not so concerned about anyone dying under a moon, as it is about corruption in casinos under the moon in Macau; and it does think that someone should investigate.  Therefore in grand congressional style, the committee is investigating. Among those called to testify was the chairman of the Nevada Gaming Control Board, A.G. Burnett.  Burnett said, “it is common knowledge” that VIP rooms in Macau casinos have “long been dominated by Asian organized crime.”  Burnett is right, most casino observers and analysts around the world do think gambling in Macau has “long been dominated” by organized crime.  However, except when the New Jersey Division of Gaming questioned Pansy Ho’s acceptability to be licensed because of her father’s gambling empire in Macau, no regulatory agency has yet refused to license or revoked an existing license of any person or company operating a casino in Macau.

It is commonly said that the culprit in Macau is the VIP system.  The system is independent of the casinos and includes the VIP gamblers, junketeers, private baccarat rooms and a loan and collection system.  Unlike the casinos in the United States, the casinos in Macau do not control all of their business.  Instead, much like a restaurant or showroom in Las Vegas, the VIP rooms are four walled.  They are operated by a third party; the third party operates the room, recruits and transports the gamblers and handles the credit and the cash.  It is said that some of those VIP operators are corrupt; it is said that some of the money being gambled is being laundered; and it is said that some of those VIP gamblers are VIP crooks looking for a way to get their ill begotten riches out of China.

There is nothing new in any of those statements, it has been part of the dialogue concerning Macau since the city opened its gambling licenses to the non-Chinese companies, Sands, Wynn, MGM and Crown. The fact that the discussion has moved outside of the industry, away from gaming regulators in New Jersey and Nevada and into Washington is new; and potentially unsettling for the industry.  The biggest worry is federal legislation, no state or gaming corporation wants federal regulation.  However, even without federal regulation, whenever the federal government starts holding hearings on gaming, change is in the winds.

In the long-run, the changes the U.S.-China Economic and Security Review Commission are likely to produce in the gaming industry maybe for the best. Certainly gaming in Nevada, and by inference the rest of the country, is better off without the mafia, hidden interests and financing that was a sophisticated form of skimming that was part of Las Vegas in the 1950s.  Senator Estes Kefauver upset the mob-controlled casinos, Nevada politicians and regulators with his probe.  But, the Kefauver hearings led to some much needed changes in Nevada’s regulatory system.

If Chinese gangs and a corrupt VIP system are really doing what most believe they are doing, then gaming will be better off if that can be stopped.  That is the long-term perspective, in the short-term, if the casinos in Macau lose the VIP gamblers, the profits will plummet.  And if profits in Macau plummet, then the profits for the Sands, Wynn, MGM and Crown will plummet worldwide.  It is too early to predict the outcome of the hearings, but one thing is certain, being investigated by Congress is painful.  A very bright spotlight shinning into dark corners hurts people’s eyes.  The bright spotlight of congress will hurt more than eyes; it will damage a few careers and is bound to be unkind to profits and stock prices also.  However, in the meantime the Chinese government, the Macau regulators and the casino operators are pretending that nothing is happening.  Good luck with that one, guys!

Members of a congressional commission said Thursday that federal and state authorities aren’t doing enough to address money-laundering risks at Las Vegas casino companies’ units in Macau, the world’s biggest gambling market. “The truth is we really don’t have any idea what’s going on in Macau,” said Jim Talent, a former Republican senator from Missouri and a member of the U.S.-China Economic and Security Review Commission. The commission was created by Congress to investigate national-security implications of trade between the U.S. and China and to provide recommendations to Congress. It includes former U.S. senators, attorneys and public-policy experts who were appointed by Democratic and Republican congressional leaders.  Kate O’Keeffe, Alexandra Berzon, Wall Street Journal, 6-27-13

The use of outside VIP room operators by U.S.-based casino companies in Macau limits their ability to prevent money-laundering and other illegal activities, one of Nevada’s top regulators said. “Criminal transactions are widely alleged to take place just out of the direct purview of the casino,” A.G. Burnett, chairman of the Nevada State Gaming Control Board, said in testimony before the U.S.-China Economic and Security Review Commission in Washington yesterday… I. Nelson Rose, a professor at Whittier Law School in Costa Mesa, California, testified that Chinese government limits on money transfers from the mainland to Macau, at 20,000 yuan or $3,150, create a market for VIP room operators to lend money to gamblers. Christopher Palmeri, Bloomberg 6-27-13

Sands China Ltd. hasn’t seen any decline in revenue from high-stake gamblers as China’s economic growth slows. The company’s business is expected to be “very strong” going forward and the second half is traditionally better than the first, Sands China Chief Executive Officer Edward Tracy said. Mainland China holidays in the latter half of the year will boost growth, he said. “We don’t see anything on the horizon that’s troubling,” Tracy said. Stephanie Wong/ Rishaad Salamat, Macau Daily Times , 6-27-13

Biggest Loan-Sharking Gang Busted; The Judiciary Police has made the biggest loan-sharking gang bust since the handover…a total of 13 suspects have been taken into custody. The police said the gang had been operating in local casinos since 2000. A number of IOU letters – non-negotiable debt instruments addressed to a creditor, dated, and signed by the borrower – were found, involving about $50 million. Macau Business, 6-27-13


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