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Vegas Bet on Chinese VIPs Raises Red Flags With Feds

1 : GS(14)@2012-12-08 21:43:22

http://online.wsj.com/article/SB ... 48160626366488.html
AS VEGAS—It could easily be mistaken for Chinese territory. On the
36th floor of the Venetian hotel and casino sits the "Paiza," a unique
gambling salon and suites for high rollers from Asia, adorned with
traditional serene Chinese paintings and a karaoke room. Gambling tables
accommodate as few as one player, for patrons who prefer more privacy.



Las Vegas is on a winning streak with rich
Chinese gamblers, but the WSJ's Kate O'Keeffe explains why big bets are
raising red flags with the U.S. authorities.
The area is
named after a passport given centuries ago to important Chinese
officials and guests. And the importance of the guests is certainly not
in question: These "whales" of gambling are betting anywhere from
$10,000 to $400,000—per hand.
For Las Vegas Sands Corp.,
LVS -0.43%
owner of the Venetian, and a handful of other casino companies in Las
Vegas, this select niche has become a godsend for an industry stuck in a
financial losing streak for much of the past four years. Jumping on a
business that is virtually invisible to most casino goers, industry
giants like Sands, MGM Resorts International
MGM -0.36%
and Wynn Resorts Ltd.,
WYNN -1.07%
are rolling out the red carpet for an elite group of gamblers, and scoring some remarkable jackpots.
Enlarge Image

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In a single night during the Lunar New Year
last year, Wynn's Las Vegas resort won $16 million in table gambling,
the biggest tables-game night in its history. Asked at an investor
conference about the Chinese business in Las Vegas, Sands' CEO Sheldon Adelson described gambling as a "linchpin" of the Chinese culture. "In my second life, I'm coming back as Chinese," he said.
But while this Asian connection is a potential gold mine, it is
quietly attracting a related and controversial business that has drawn
the attention of federal authorities. China allows residents to take
only $50,000 in currency abroad a year, so some high rollers rely on
foreign tour operators, known as "junkets," to provide access to far
greater sums. Based in the Chinese gambling mecca of Macau, it is an
industry U.S. law enforcement officials and diplomats have long
suspected of money laundering and organized crime.
Now as the big U.S. companies are
upping the ante on their Chinese business, the U.S. Treasury enforcement
arm is focusing on whether some junket operators are importing a new
layer of money laundering to Las Vegas by obscuring the source of their
funding, the method for transferring it to high rollers and the
identities of the gamblers themselves. As part of that focus, the
Treasury's Financial Crimes Enforcement Network last month issued a web
alert to casinos advising them to monitor junket operations and junket
patrons and report "all available information" on any suspicious

The alert isn't the only headache Las
Vegas may face from the world of junkets. According to documents
reviewed by The Wall Street Journal, at least two alleged Chinese
organized crime figures are operating in Las Vegas through Macau-based
junkets; both have been members of Sands' high roller "Chairman's Club."
Law enforcement authorities say they are concerned about casinos
transferring junket deposits across international borders for patron
gambling; without the same scrutiny banks provide, those fund movements
carry a high risk of money laundering, they say.
People close to the junket industry also
provided the Journal with names of four operators who have been
registered to do business in Nevada—but who were found unsuitable last
year by outside investigators for Singapore's gambling authority. Three
of the four are still registered in Nevada, including one who
investigators said had hundreds of millions of dollars in unaccounted
for cash and assets, the people said. Nevada and Singapore gambling
officials declined to comment.
Spokesmen for Sands, MGM and Wynn declined to discuss the specifics
of their junket partnerships, but casino officials say they have been
able to limit junket presence in Las Vegas by working directly with
Chinese patrons. Indeed, while their ranks are growing, the number of
VIP gamblers from the mainland who are making the trip to Las Vegas is
still a relatively small group. The casinos also said their operations
comply with all laws and that their junket partners haven't been charged
with any serious crimes. "We can't be held to account for something
that legal authorities have yet to resolve," said Alan Feldman, a
spokesman for MGM.
Las Vegas' interest in the Chinese
sector is the latest example of U.S. companies noticing—and trying to
capitalize on—increasing flows of assets leaving mainland China. Of
course, that interest by Las Vegas isn't entirely new, dating back to at
least the 1980s, when Caesars Palace famously placed a Buddhist shrine
in front of its casino. Lunar New Year has long been a big event in
town, and some casino hotels avoid rooms with the number "4," considered
unlucky by some Chinese. Still, attracting travelers from mainland
China was rare, since travel was limited and casino companies had few
inroads into the complex gambling scene in Macau, the heart of Chinese
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        Associated Press
The Lunar New Year display inside the conservatory at MGM's Bellagio hotel and casino in Las Vegas.
In recent years, though, MGM, Wynn and
Sands have opened casinos in Macau, which has catapulted into the
world's largest gambling center, with a remarkable $34 billion in
gambling revenue last year, more than five times the size of the Vegas
Strip. The success the companies have had there—Wynn relied on Macau for
72% of its revenue last year—has given them a new incentive to create a
home-away-from-home for Chinese mainlanders. Sands alone poured $25
million into upgrading just one "Paiza" gambling center in Las Vegas,
while other casinos have been similarly generous, creating ultra luxury
gambling salons with Chinese TV and Chinese food delicacies.
"Guests can have anything they want anytime," Greg Shulman, a vice
president for marketing for MGM's Bellagio hotel, said on a tour earlier
this year of that casino's salon, decorated with gold and red hues and
private spaces. He called the adjacent dim sum and noodle joint "one of
the most important restaurants in the entire building."
In all, the number of mainland Chinese and Hong Kong tourists to Las
Vegas has shot up almost 80% over five years, to 188,000 last year. But
for casinos, the most important payout has come at its baccarat tables,
the game favored by Chinese high rollers. Revenue from that game rose
49% through July this year, compared with the same time period five
years ago, even as overall gambling revenue on the Strip fell almost
10%. Because of baccarat's growth, the game has jumped to more than one
fifth of all Vegas Strip gambling revenues, up from 13%.
"The baccarat growth is entirely driven by mainland Chinese
travelers," said Ben Lee, a casino consultant who has written
extensively about the junket market. "What you have is a small number of
people making a big impact."
        Red Flags
View Interactive

A good part of
that growth, insiders say, wouldn't have been possible without the
junket industry. Entrenched in Macau casinos since the 1980s, junkets
are essential to many Chinese high rollers because China has tight
restrictions on how much currency residents can carry abroad in a year.
The country doesn't recognize gambling debt either.
To assist high-rollers, junkets give players extensive credit lines
to gamble and then collect debts when the losses pile up. Some allow
high rollers to merely sign IOUs before they go abroad—but exactly how
junkets get around Chinese regulations is shrouded in mystery,
regulators say. "I still to this day have not had anyone be able to show
me how the money leaves mainland China and ends up in Macau," said Mark
Lipparelli, the outgoing chairman of the Nevada Gaming Control Board,
which has sweeping authority over Nevada casinos and their partners. "I
have yet to have anyone explain this to me in a coherent manner."
Analysts estimate there are as many as 10,000 people working in some
capacity for the junket industry, which runs from single-man shops to
formal firms. Many are tied to so-called "super junkets," conglomerates
that operate a wide range of junket activity and in some cases, end up
with quirky assets from years of debt collecting. According to one
former junket employee, Steve Karoul, a Mystic, Conn., casino consultant
who now advises investors on the industry, the parking lot of one
junket he worked for in the 1990s looked like a used car dealership,
because it had seized so many cars from gamblers unable to pay debts.
The company also seized real-estate assets, including a 400-room hotel.
"It's all gray market," he said.

        Alexandra Berzon
Baccarat table in the 'Paiza'
gambling lounge for Asian high-rollers on the 50th floor of Sands'
Palazzo hotel and casino in Las Vegas.
operator who talked to the Journal said the industry has been trying to
change its reputation, and now has some firms listed on foreign stock
exchanges. "Junkets are becoming more corporate," said Hoffman Ma,
deputy chairman of Success Universe Group Ltd., which has been in the
junket business since the 1990s. He said some Macau junkets still have
links with organized crime in China, but described that activity as
lessening, with junkets trying to make "more loans legitimate" and
realizing that "violence isn't going to work in Macau anymore."
Mr. Lipparelli, at the Nevada gaming board, said that while those
links may occur in Macau, his office has found no evidence of junkets
introducing organized crime to Las Vegas. "There's nothing that would
indicate that," he said. Still, according to two people knowledgeable
about junkets in Asia, private investigators working for the Casino
Regulatory Authority of Singapore reviewed the application of a junket
operator registered in Nevada—and recommended he not be approved because
he failed to disclose ties to a suspected organized crime figure. The
same investigators found another Nevada-approved operator, Chan Ting
Lai, unsuitable because he listed more than $250 million in cash and
assets he couldn't account for, according to the two people.
Reached in Hong Kong, Mr. Chan, owner of a large interior design firm
who has occasionally appeared at local entertainment industry events,
said he was still waiting for news on his application from the
regulatory authority in Singapore.
Enlarge Image

Nevada and Singapore regulators
typically share information, but a spokesman for the Nevada Gaming
Control Board wouldn't comment on whether the agency knew about the
outside investigators' report for Singapore. Agency officials say that
with hundreds of casino partnerships to monitor, it doesn't typically do
extensive reviews on applications for smaller operators. The gaming
board did recently increase registration fees, from $750 to $2,000, to
fund more thorough checks, but critics say it still needs to step up
scrutiny of Macau-based operators. "Macau is a real potential source of
embarrassment and difficulty for the Nevada regulators," said Bill
Eadington, a professor at the University of Nevada Reno who has studied
Macau junkets.
On the federal level, fund transfers between Macau and Las Vegas that
casinos handle for junkets have attracted the attention of the Treasury
Department. Chip Poncy, head of a Treasury Department policy office,
said such transfers are "a vulnerability we've seen for quite some time"
and that authorities are working with casinos and regulators to address
"the specific exploitation of it." Such transfers have long been a
concern for regulators internationally. "You've got these layers of
anonymity building up and building up so the player can hide between
quite a few layers of transactions," said Rachael Horton, a former New
Zealand casino regulator who wrote a 2009 report for the Financial
Action Task Force, an anti-money-laundering group based in Paris.
Casino officials for Sands, MGM and
Wynn say they comply with all federal requirements and have policies
guarding against money laundering; gamblers, they say, aren't allowed to
cash transferred funds in Las Vegas, just the winnings they make from
them. "Our company has a detailed compliance program that is submitted
to regulators," said Ron Reese, a Sands spokesman.

Charles Heung was identified as
a high-ranking triad figure in a 1992 U.S. Senate subcommittee report
on Asian organized crime. He has publicly denied being involved in
organized crime.
Details on the movement of funds for
Chinese high rollers into Las Vegas—and some of the more controversial
figures who may be involved—have also emerged since a high-profile,
wrongful-termination suit was filed in 2010 by Steve Jacobs, the former
head of Macau operations for Sands. In the suit, Mr. Jacobs filed copies
of a Sands ledger showing intracompany transactions between Macau and
Las Vegas with junket and individual names blocked out; the Journal has
now seen the names. Two people with past alleged ties to Chinese
organized crime groups known as triads are either listed in the
ledger—or are business partners of junkets on the document.
The two men—Cheung Chi Tai and Charles Heung—have each been
identified as high-ranking triad figures in a 1992 U.S. Senate
subcommittee report on Asian organized crime; the report, which followed
a series of triad-related arrests by the FBI, drew its findings from
law enforcement authorities and informants. More recently, a Hong Kong
appeals court judgment in March 2011 said Mr. Cheung was a "triad
leader" who ordered the death of a casino dealer. He wasn't charged in
the case, but a subordinate was sentenced for conspiracy to commit
Enlarge Image

        Las Vegas Sands Corp.
'Paiza' dining room.
Mr. Cheung nor Mr. Heung has been convicted of triad activity, and Mr.
Heung has publicly denied being involved in organized crime; when
contacted, representatives of the two men declined to comment. According
to people with knowledge of the company, both have also been members of
Sands' "Chairman's Club." The club is a select group of high-rollers
given exclusive access to Sands' most luxurious suites, six-figure
monthly expense accounts and extensive credit lines, according to a
court filing by Mr. Jacobs, who, through his attorney, has declined to
discuss his case.
For their part, Treasury and other law enforcement authorities who
have seen or are familiar with the Sands ledger say they are alarmed by
the size of some of the activity. Although the reasons for the fund
movements aren't known, the Journal found more than two dozen junket
operators on the ledger transferring a total of about $28 million from
2006 to 2010. One junket operator alone transferred $3.6 million in two
days between Macau and Las Vegas in 2009; another transferred $2.4
million in one day, according to the ledger.

Asked about the ledger, which was an
accounting document at Sands, Ron Reese, a company spokesman, wouldn't
comment on the money transfers, the company's use of junkets or any
people identified as moving money through casinos. "We believe the
company has acted properly and we will continue to cooperate with all
our regulators," he said. "But we will not compromise the privacy rights
of our customers."
In the end, some followers of the junket arrival in Las Vegas say the
biggest mystery may be the size of this new industry. In Macau, junkets
accounted for nearly three-fourths of the island's gambling revenues
last year, according to local regulators. Here in Las Vegas, casino
executives say the junket industry is much smaller, accounting for no
more than 20% of their mainland China VIP business. But some consultants
say that number is higher.
One problem: it is hard to track junket revenues because some junkets
don't use formal contracts—part of what Mr. Lee, the expert in the
Chinese gambling market, calls the "shadow junket" industry.
"Getting money over to America is even harder than getting money to
Macau," he said. "That's why the junkets have a big role in Vegas."
—Daniel Lippman, Chester Yung and Chun Han Wong contributed to this article.
        Write to         Alexandra Berzon at [url=mailto:[email protected]][email protected][/url], Kate O'Keeffe at         [url=mailto:[email protected]][email protected][/url] and James Grimaldi at         [url=mailto:[email protected]][email protected][/url]
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