China’s crackdown against corruption and money laundering has demolished Macau gambling. Revenues are expected to be down a whopping 53% this year. Macau gambling has too often been a front for Chinese to bring large amounts of cash to the casinos (with everyone taking a cut along the way) then remaining money would disappear into offshore banks and investments.
Here’s how the money laundering used to work.
China only allows 20,000 yuan ($3,200) to be moved out of the Mainland at a time and $50,000 a year. To circumvent that, Chinese high rollers can do one of two things. They can deposit money with junkets in the mainland and use that money in Macau, or they can borrow from junket agents.
If they choose to deposit the money, the junkets, who are basically gaming promoters, ferry money across borders. The gamblers can then use that money in Macau. Once they’re done gambling they can take their winnings in U.S. funds or Hong Kong dollars and invest it in property or offshore tax havens.
Casinos rely on “whales” (big spenders) for revenues. Shao Dongming was the biggest of the whales. He owes Macau casinos a stunning $160 million, has threatened to kill creditors, and is being investigated by China for corruption. It really does seemÂ China is indeed relentless about stopping corruption, no matter who is involved.
Two years of time ago, this probably wouldn’t have been a problem, yet with a national anti-corruption crusade afoot in China — in which President Xi Jinping vowed to go after lowly “flies” and powerful “tigers” — and Macau’s casino industry going through a massive slow down, there is no longer any tolerance for the ‘red king’s’ excesses.
Unlike the pretend Rule of Law here in the US, China really does put elites in prison for corruption and sometimes executes them. And Macau is now hurting because of it. The whales have stopped coming and the little gamblers are gambling and spending less.
Despite a 7% rise in actual tourist arrivals to Macau from China during this Lunar New Year’s holiday, ‘The Year of The Goat’ is off to an extremely inauspicious start. As Bloomberg reports, even with expectations of a 40% drop, Macau casino revenues is now projected to crash a stunning 53.5% from last year.
Caesar’s in Las Vegas is being investigated by DoJ over allegations of failure to comply with money laundering laws.
The casino industry’s compliance with the Bank Secrecy Act, the primary U.S. anti-money laundering law, has come under scrutiny from the government in recent years. Authorities believe criminals around the world are using American casinos to launder their ill-gotten gains and move them into the U.S. financial system.
Authorities also believe the casino industry has done a poor job of complying with the banking law, which requires, among other things, that financial services businesses report suspicious transactions or those involving large sums of cash.