Sands Said to Step Up Scrutiny of Casino Junkets in Macau

Las Vegas Sands Corp.’s Chinese unit is increasing scrutiny of Macau junket operators in a move that may lead to a shakeout among the middlemen who account for two-thirds of the betting in the world’s largest casino hub, a person familiar with the matter said.

Junket operators, who bring wealthy gamblers from mainland China, are being asked to provide more information about their businesses to Sands as the company seeks to bolster its safeguards against money laundering and other wrongdoing, said the person, who asked not to be named because the moves aren’t public. The changes are likely to reduce the number of junket operators working with Sands, the person said.

Sands, founded by billionaire Sheldon Adelson, is seeking to meet demands by U.S. regulators and prosecutors to prevent money laundering. Doing so risks alienating high rollers or offending local authorities who oversee the industry in Macau. At the same time, Sands and other casinos in Macau have stepped up efforts to attract mass-market players on their own, reducing their dependence on the lower-margin junket business.

“It is political, it is also financial,” said I. Nelson Rose, a professor at Whittier Law School in Costa Mesa, California, who studies the casino industry.

Over the past two years, Las Vegas-based Sands has beefed up the teams that monitor players, employing former Federal Bureau of Investigation agents, regulators and attorneys experienced in anti-money laundering law.

Nevada Oversight

“Our chairman and board expect the company to set the standard for ethical performance in our industry,” said Ron Reese, a Sands spokesman. “Across every spectrum of our business, we look for partners who share and abide by that goal.”

Shares of Sands China Ltd. fell 1.1 percent, the biggest drop in a week, to close at HK$63.35 in Hong Kong trading. Parent Las Vegas Sands dropped 2.7 percent to $79.26 as of 12:41 p.m. in New York.

In August, Sands reached an agreement with the U.S. Justice Department to forfeit $47 million in proceeds from a high-stakes gambler in Las Vegas who was later linked to international drug trafficking, according to a statement at the time.

The Nevada Gaming Control Board is also boosting oversight of U.S. casinos’ Macau operations, sending teams more often to monitor Sands, MGM Resorts International and Wynn Resorts Ltd. Each of the three U.S. companies have publicly traded subsidiaries listed in Hong Kong. Sands China is the biggest operator in the market with a 23 percent share in the first quarter, according to Barclays Plc’s investment-banking unit.

More Robust

Rules in Nevada and other local jurisdictions require regulators to monitor licensees’ activities elsewhere to guard against cross-border violations and damage to the market’s reputation.

“Controls are getting more robust,” Nevada Gaming Control Board Chairman A.G. Burnett said in a telephone interview. “Things are getting much better.”

Sands no longer allows international transfers of funds by customers and limits the use of checks or money transfers from business accounts, according to another person familiar with the matter. Sands also restricts the amount of cash customers can withdraw from their casino accounts in a given day, the person said.

MGM Resorts said in a statement it limits the use of junket operators to a small number of the total licensed.

“Our compliance program is robust and comprehensive,” said Alan Feldman, a spokesman for Las Vegas-based MGM Resorts.

Wynn Resorts, also based in Las Vegas, didn’t immediately respond to a request for comment.

Finding Gamblers

Macau’s casinos have relied on junket operators for years to locate gamblers on the mainland and bring them to the former Portuguese colony. The middlemen serve a critical role by lending to Chinese players who face curbs on how much money they can bring from home. They also collect gambling debts.

The conviction last month of Carson Yeung, an investor in gambling syndicate Neptune VIP Club, for money laundering last month has also shined a light on the activities of junket operators in Macau.

Lax rules allow criminals to transform ill-gotten cash into legitimate-looking gambling proceeds from casinos. A Congressional report in October said $202 billion is laundered each year through Macau.

Junkets are more involved in the gambling business in Macau than other parts of the world and aren’t subject to the same regulatory scrutiny as casinos, according to a report from the U.S.-China Economic Security Review Commission, a Congressionally chartered investigative body.

Underground Banking

“The main channel for money laundering is in the gaming sector through under-regulated junket operators and their affiliates, which include the underground banking system that supports their operations,” the panel said in the report.

Jennifer Shasky Calvery, who leads the U.S. Treasury Department’s Financial Crimes Enforcement Network, said in a September speech at a casino industry trade show operators need to improve their compliance with anti-money-laundering laws.

“There may be a culture within some pockets of the industry of reluctant compliance with the bare minimum, if not less,” Calvery said. “I hope together we can make a cultural change.”

On April 2, Geoff Freeman, president of the American Gaming Association trade group, sent Shasky Calvery a letter asking if potential rule making from the regulator would require casino operators to probe customers’ sources of funds.

Recent changes in strategy have lessened the role of intermediaries in Macau. Casinos have stepped up efforts to attract mass-market gamblers, who are more profitable, in part because they don’t lead to commissions for the junket operators.

Success Universe

Sands said in a January earnings presentation that VIPs, or high rollers, generate two-thirds of Macau’s $45 billion in gambling revenue and one-third of profit. The company reduced the number of tables devoted to VIPs to 439 in the fourth quarter from 525 in the second.

“Casino operators have been building direct connections with their customers and boosting the high-limit mass business in hopes to reduce reliance on junkets,” said Hoffman Ma, deputy chairman of Success Universe Group Ltd., which manages a casino resort in Macau and operates a casino ship. “Junkets are unlikely to be pushed out entirely because casinos rely on them for customer intelligence.”

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