The game’s up for Macau money funnel

The Times

Leo Lewis

The “Macau Laundry Service”, a set of illicit mechanisms thought to funnel more than £130 billion worth of yuan out of China every year, could be the Achilles heel of officials targeted in President Xi Jinping’s war on corruption.

The prediction, say well-connected political analysts in Beijing, comes as the Chinese authorities attempt to calculate exactly how quickly money is being haemorrhaged out of the country as everyone from captains of industry to small rural mayors scramble to move money offshore.

A report published last autumn by US-based Global Financial Integrity suggested that some $3.79 trillion (£2.49 trillion) may have secretly left China over the past decade. Organised crime experts believe that, if Macau’s official gaming revenues last year were $38 billion (£25 billion), as much as six times that sum may have been generated in illegal side-betting.

There are many routes by which money can leave China illicitly: Macau offers ones that are colourful, but often considered lower-risk for an official flush with ill-gotten cash. One of the favourite methods involves using a “junket” operator – the allegedly triad-linked organisations that arrange for groups of mainland visitors to come to Macau, extend them credit to beat capital controls and, if needed, assist in moving huge sums of money offshore.

Although not immediately expected to affect the roaring fortunes of Macau’s glittering casinos and baccarat tables, officials in China and the former Portuguese colony have been told to expect that systems used to launder money through the gaming hub will come under “tighter scrutiny” in coming months.

Last week, Chinese state media reported that groups that profit through organising gambling trips to Macau with more than ten mainland citizens “will be charged with the crime of gambling in line with Chinese criminal law.” Gaming analysts said that the comments were too vague to be treated as a direct threat to the junket operators, whose clients represent about 70 per cent of the declared revenues of Macau casinos. But others viewed the report as a signal that the junket activities are being watched.

Steve Vickers, the CEO of Steve Vickers and Associates, a specialist risk mitigation and consulting organisation said: “whatever the timing of a crackdown on the junkets, and however hard it actually is in practice, the Chinese government must have an interest in tackling this issue. Quite apart from the corruption crackdown, morality and the legality, the Macau route is allowing stunning sums of money to haemorrhage out of China”. Mr Vickers was the former head of the Royal Hong Kong Police Criminal Intelligence Bureau.

For smaller players wanting to get large volumes of yuan into Macau, the world’s most lucrative gaming hub provides pawnbrokers and certain “cash advance” ATM operators to circumvent China’s strict capital control rules that prevent people taking more than $50,000 (£33,800) a year out of the country.

In recent weeks, a price war between pawnbrokers and ATM operators has erupted as Chinese officials have found themselves unwelcome with junket operators and used lower-end methods to beat the capital controls.

The term “Macau Laundry Service” was coined in an unclassified 2009 US State Department cable that has since come to light via Wikileaks. The cable from the US consulate in Hong Kong warned that massive flows of money and relatively weak controls made Macau a target for those seeking to launder illicit funds.
The phenomenal success of the casino sector, said the author of the cable, “is based on a formula that facilitates if not encourages money laundering. Mainland Chinese gamblers account for a large share of the lucrative VIP gaming market, betting literally billions of dollars despite Chinese government-imposed capital controls.” The success of that, concluded the cable, depends on the junket operators allegedly working closely with organised crime groups in China.

Sensing they might be exposed if Mr Xi’s anti-corruption campaign takes off as advertised, junket operators have been distancing themselves from officials and other clients whose sources of wealth are questionable. Legal sources in China said that use of money laundering routes through Macau is already likely to feature in a number of imminent anti-corruption prosecutions – including, when it eventually comes to court, the trial of the fallen political supremo Bo Xilai.

The same sources said it was also possible that the focus on money laundering was an attempt by the authorities in Beijing to deflect rising calls for senior Chinese officials to openly declare their assets – demands that have triggered a string of recent detentions and “disappearances” of activists, lawyers and other perceived troublemakers.