According to a report issued by The Congressional Executive Commission on China Annual Report in November 2013, there is a significant problem with China’s rich and their dirty cash in Macau that has a global impact. A staggering $202 billion in illegal funds are directed through Macau every year, the majority of which was derived from the casino and hospitality industries. Analysts suggest that the success of this money laundering is due to a business model that encourages scams.
The Heist Framework
The Macau money laundering scheme works due to Chinese regulations on money going in and out of the country. China allows the equivalent of $3,200 to be moved out of the country in one transaction, as well as a limit of $50,000 per year. Getting around these financial rules is possible through one of two channels:
1. Depositing money with sources in China and spending these funds in Macau. These agents tend to be gaming affiliates who ferry money across borders. Those wanting to gamble can use the money once in Macau, either to take their winnings in U.S. Dollars or other currency to invest in offshore transactions.
2. Borrow from Macau junkets. These enterprises range from sole proprietorships to publicly traded corporations and LLCs, and they often provide travel-related services to their customers.
In general, the money spent in Macau arrives illegally, such as through bribery or high level embezzlement. These junkets assist in the transfer of funds to the country’s casinos through inventive methods that involve no actual funds transfer. For bookkeeping purposes, accountants simply balance accounts between the credits in China and the Macau debits. These promoter companies aren’t subject to regulation at the national or local level, enabling them to keep the identities of gaming participants and funding sources private.
Organized Crime Triad Formation
The Macau junkets hold a unique position as organized crime units, especially since they’re not subject to the jurisdiction of Chinese courts. As such, China’s rich and their dirty cash in Macau don’t have the legal standing to enforce gaming debts and must rely upon the triad units to collect for gambling. These organizations also participate in other organized crime activities, including drug and human trafficking.
Another tactic used by junkets to create cash flow into Macau casinos is via pawn shops. When visitors and tourists purchase items from these stores with a debit card, they’re able to sell them back for cash without official record of the transaction.
Heightened Enforcement
As junkets are making money on China’s rich and their dirty cash in Macau, Beijing is cracking down on organized crime and taking action to regulate the gambling industry. Even the government of Macau is getting involved, as officials are considering an initiative to implement a system to prevent money laundering through the country’s casinos. The specifics have yet to be revealed. The issue has been addressed in the U.S. as well, as Senator John McCain raised concerns about illegal funds entering Las Vegas casinos through Macau affiliates.
Veriti Consulting LLC provides professional money laundering investigation services across the U.S. Learn more about our fraud examination services by calling 855.232.4410 or contact us via email.
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