Casino managements in Macau actively seek VIP room contractors that have credibility – or ‘dor’ in the Cantonese term – among triads; Chinese secret societies linked by law enforcement bodies to organised crime activity, suggests a study by academics from the City University of Hong Kong.
“Even though triad membership is not necessarily a prerequisite to entering the [junket] business, the [study] respondents admitted that triad ‘dor’ (reputation) and power is a crucial factor in winning the trust of casino management,” stated the study from T. Wing Lo and Sharon Ingrid Kwok of the Department of Applied Social Sciences at the institution.
The paper – published on February 8 in the British Journal of Criminology – had been highlighted in a report on Tuesday by the Portuguese news agency Lusa.
The study authors claimed to have organised successfully interviews with 17 respondents for the study on dates between October 2012 and April 2015. The interviewees included members – some of them described as “senior” – from the Wo Shing Wo, 14K, Sun Yee On and Shui On triads, said the study authors.
Two of the self described triad members were said to be current Macau VIP room contractors at the time of the interviews.
Also spoken to for the study were two “senior police officers” (their areas of jurisdictional operation not identified); “Chinese officials in charge of Macau affairs”; one “former casino employee” and one “professional gambler”.
Macau’s casino regulator, the Gaming Inspection and Coordination Bureau, said in a response to Lusa’s request for comment on the suggestion of triads’ involvement in casino VIP rooms: “Up to now we have not identified any triad being selected by casinos for work related to gaming rooms.”
The gaming bureau said it would only take “the needed measures” if any such case were detected.
Political and regulatory pressure on Macau VIP gambling has grown even since the time the study research was completed. VIP baccarat gross gaming revenue (GGR) market wide in Macau – for years the biggest single component of the city’s gambling market – fell by 39.9 percent year-on-year for the full-year of 2015, according to official data published in January. Investment analysts have said the sector has been weighed down by factors including the Chinese central government’s anti-graft campaign and China’s economic slowdown.
It was disclosed in late January that the number of licensed gaming promoters in Macau – also known as junkets; the people that arrange the recruitment of VIP players and the provision of credit to them – had shrunk by nearly a quarter over the previous 12 months. Much of that is thought by analysts to be because of the shrinking of the segment and licensees withdrawing voluntarily, rather than licences not being renewed.
The recently appointed director of the gaming bureau, Paulo Martins Chan, said on January 13 that the regulator had not renewed the licences of 35 gaming promoters for failing to submit information required under new accounting rules for the sector.
The gaming bureau – also known as DICJ – noted in its response to Lusa: “Any party that requests a gaming promoter licence regardless of being an individual or a company is subject to rigorous suitability scrutiny and evaluation from DICJ.”
The study traced the development of Macau’s junket system from its reported beginnings in ferry ticket scalping hustles in Macau; through to the issuing of ‘dead’ or ‘rolling’ chips for VIP gambling in the city’s casinos under the former monopoly of Stanley Ho Hung Sun; on to some of the most notorious publicly known names associated with Macau junket activities. The list includes Wan Kuok Koi, also known as ‘Broken Tooth’ who rose to prominence in the 1990s because of his reputation for violence and his extravagant public image before being jailed for 15 years in 1999.
The study indicates that “extra-legal” tools, including violence or the threat of violence, is what even to this day backs up the survival of Macau’s credit-based VIP junket system: in those cases where even the risk of ‘loss of face’ by the gambler or other social peer pressure doesn’t prompt them to honour a debt.
Violence or threats
The study says however that actual violence against credit defaulters is discouraged – at least as a first resort – under what it terms the “entrepreneurial model” of junkets that developed in Macau after market liberalisation in 2002.
The authors stated: “To maintain a peaceful business environment, the junkets do not often use violence to fight for territories and collect debts, mainly because their triad backgrounds provide a reputation for violence that reduces the actual use of violence in extra-legal governance under an entrepreneurial environment.”
The authors quoted one respondent known as ‘K3’ – said to be a member of the 14K triad who was interviewed in August 2013 – as saying: “They [junket-related people] do not want to make trouble and violence is costly because they need to pay followers for fighting and for legal expenses if they get into trouble.”
The person added: “The management will also judge whether the triads involved can maintain order in the casino, and to ensure that no one will cause trouble for the casino. The casino will never choose triads with a troublesome track record.”
The study suggests however that with the growing importance in the Macau market of VIP players from China rather than from Hong Kong – a phenomenon seen after the liberalisation of the Macau market in 2002, and the easing of China’s policies on exit visas for mainland Chinese residents – it has been hard for Macau- or Hong Kong-based triads to keep control of debt collection on the mainland.
“As the triads have used mainland Chinese people to be junkets or middlemen to solicit investors from different parts of the country, the triads seem to have gradually lost control over them, resulting in cases of fraud,” said the study authors.
They cited the case of Huang Shan – a representative of the Kimren Group, a junket entity – who allegedly absconded with HKD10 billion (US$1.3 billion) in April 2014. There have been other reported fraud cases since then. In September 2015, Macau junket operator Dore Entertainment Co Ltd announced it had been a victim of internal fraud by a former employee. Investors in the cage operations of Dore filed complaint claims amounting to at least HKD520 million as of October 31, according to media reports.
“The case of Huang Shan is the tip of the iceberg,” said ‘PO2’, reportedly a senior police officer interviewed for the study in April 2015. The person suggested some people associated with the VIP sector have a criminality that lurks beneath a respectable front.
“Some junkets claimed they represented a junket company to accept [junket] investors’ funds by offering them a higher than standard interest rate, and then absconded with the money,” the officer reportedly said, as quoted by the study.
‘PO1’, said to be another police officer interviewed on a different date in April 2015, noted, referring to an industry nickname for high value gamblers: “The problem with the current model is that the whales have a gambling cycle, normally two years. After two years, their financial resources would drain up and the junkets would lose the resourceful [sic] customers. Unless the junkets can locate new customers and bring in new resources, the company would be financially insecure.”
The study authors note: “Apart from scams, money laundering is another crime found in VIP rooms mainly because of the rampant corruption in China.”
‘PO2’ is quoted saying: “Normally the launderers will prefer commission-free baccarat to roulette, blackjack or the Chinese big-small game [sic bo], because [with the latter games] they may have a chance to lose all the money… The syndicate operates in a small group. The first team places one million [H.K.] dollars on the banker bet and the second team places another million on the player bet in the same game. If the player wins, the second team will win one million and the first team lose one million. Overall, it is a draw to the syndicate but the money is now clean.”
The authors say that because of some recent travel restrictions on Macau bound trips for some mainland visitors – associated with the Chinese central government’s anti-graft crackdown – “new forms of betting” have developed in Macau, including gambling done via telephone.
“Moreover, a new form of betting for the whales, ‘under-the-table betting’, has emerged,” they write.
A format that some casino industry analysts have referred to as “the multiplier”, is said by analysts to pre-date China’s anti-corruption campaign and is more related to a tax scam. With the multiplier, the bet denominated at the table actually represents a bet made privately between the player and a junket industry associate that could be a multiple many times the ‘official’ one. Macau’s gaming tax, levied at a rate close to 40 percent of the gross, is paid only on the ‘official’ bet.
‘CE1’, said to be a former casino employee interviewed in May 2014, was quoted saying: “Basically, there are two layers of gambling: the top layer is for those gambling on the table, while the bottom layer is for those gambling under the table. The under the table bet is much higher. This means when a customer is betting HKD100,000 on the casino table, the under the table bet could be [HKD] one million, or even more. The on-the-table bet is visible; people can see the amount of transaction. The under-the-table bet is different; the bet is not visible to others and is only a deal between the bookmaker and the ‘hidden’ gamblers.”
The same person added: “Some whales do not want their identities and money to be exposed. They do not want others to know they are gambling. They gamble remotely via telephones, and so it is not necessary for money to be passed on the gambling table. Moreover, the betting odds are better, there is no commission required from dealers as in on the table betting and the whales can collect the whole sum of money if they win.”
‘PO1’ noted: “One of the reasons for the emergence of the under-the-table bet is to evade the 40 percent government tax imposed on casino income. It is illegal but no one yet tries to regulate it.”
Time and circumstance might play a role in lessening triad influence in Macau casino gambling, according to the study.
The authors conclude: “In view of the recent anti-corruption campaign launched by the Chinese leader, [President] Xi Jinping, Macau’s casino income has slowed down, which may reshape the triad operations in the gaming industry. Future research should pay attention to investigate whether the political shifts and the changes in gambling modes and casino activities reflect the wider structural change across the board, or just within one slice of triad organised crime, because the junket companies are the main drivers of economic profits for the triads in response to the open-door policy of China.”
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Professor emeritus at Whittier Law School in California, in the United States, and a visiting professor at University of Macau