Shares of Macau-based casinos got slammed in the last day amid reports of the mainland cracking down on the junket operators that ferry rich players into high-roller rooms.Junket operators are widely believed to be associated with organised crime and money laundering.
So how does it work?
This was actually the subject of a Wikileak that was supposedly sent in 2009 from the American Consulate in Hong Kong. It’s about as concise of an explanation for the controversy as you could find:
The casino and hospitality sector now accounts for well over half of Macau’s GDP. Yet its phenomenal success 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 that restrict Chinese residents to taking just USD 50,000 worth of currency out of China each year.
Success of the VIP market in Macau depends on “junket operators” who arrange visas, supply local currency financing and provide access to VIP gaming rooms in Macau casinos. VIP gambling accounts for over 60 per cent of Macau’s casino revenues.
Although they must register and are subject to nominal regulation in Macau, these facilitator organisations allegedly work closely with organised crime groups in mainland China to identify customers and collect debts. Junket operators work directly with Macau casinos to buy gaming chips at discounted rates, allowing players to avoid identification.
Know-your-customer (KYC) and record-keeping requirements are significantly looser than in other international gaming venues. Government efforts to regulate junket operators in Macau have been aimed at limiting competition, rather than combating illicit activities. Oversight of both casinos and junket operators is limited and remains a serious weakness in Macau’s AML regime. Periodic tightening of Chinese Individual Visitor Scheme permit requirements may reflect Chinese government concern about corrupt officials laundering money in Macau.