GGRAsia – Macau plans changes to expand reach of AML law

Macau plans changes to expand reach of AML law

Nov 04, 2016 Newsdesk Latest News, Macau, Top of the deck

Macau’s Executive Council announced on Thursday proposed changes to two 2006 laws dealing with, respectively, anti-money laundering and combatting the financing of terrorism. The proposed changes must be submitted to the city’s Legislative Assembly (pictured in a file photo) before they can take effect.

The move by the Executive Council – a body that advises the city’s Chief Executive – was reported in statements issued respectively in Chinese and Portuguese.

The proposed changes concern Law No. 2/2006 on the Prevention and Suppression of the Crime of Money Laundering, and Law No. 3/2006 on the Prevention and Suppression of the Crimes of Terrorism.

In Thursday’s statement, the Executive Council said the main proposed amendments to Law No. 2/2006 were: to widen the scope of identifiable criminal offences with regard to money laundering; to emphasise that money laundering offences and predicate offences for money laundering are independent; to strengthen customer due diligence measures; to extend the obligation to report money laundering activities to include attempts to launder proceeds of crime; and to add special litigation measures.

The Executive Council stated that the main amendments to Law No. 3/2006 were: to widen the scope of identifiable criminal offences with regard to terrorist offences; and to extend the definition of terrorist financing to include any type of economic resources, assets and property, and products or rights that can be converted into funds to finance terrorism.

Brokerage Daiwa Securities Group Inc, which covers Macau gaming stocks, said in a Thursday note from analysts Jamie Soo, Adrian Chan and Jennifer Wu: “The government cited ensuring safety of economic systems in order to attract local and foreign investments, as well as to improve the legal framework to comply with the Financial Action Task Force’s 40 new recommendations and to rectify shortcomings identified during the assessment of Macau by the Asia/Pacific Group on Money Laundering, as reasons for the proposed bill.”

FATF wish-list

In 2012 the Paris-based Financial Action Task Force (FATF) published a 40-item wish-list of what it regarded as best practice for jurisdictions committed to tackling money laundering and terrorism financing. The recommendations were updated in October 2016.

Several investment analysts covering the gaming sector have mentioned in recent notes to clients that the FATF is due to conduct in the fourth quarter of 2016 an audit of Macau’s anti-money laundering safeguards.

The FATF is an intergovernmental body originally set up in 1989 by the Group of 7 – also known as the G7 – to combat a perceived growing global risk posed by money laundering.

The Asia/Pacific Group on Money Laundering, which describes itself as an “autonomous and collaborative” international organisation, was founded in 1997 in Bangkok, Thailand. It consists of 41 members and a number of international and regional observers.

A 2007 mutual evaluation report on Macau by the group – and a body called the Offshore Group of Banking Supervisors – said Macau had been demonstrating “a strong commitment towards implementing laws and institutional bodies to enhance its compliance with international anti-money laundering/combatting the financing of terrorism standards”.

But the report added that – as of the date of the report in July 2007 – “the legal framework for the reporting of suspicious transactions remains fragmented, incomplete, and potentially contradictory for designated non-financial businesses and professions more generally and casinos/gaming concessionaries more specifically.”

Macau efforts ongoing

A recent focus for the Macau government has been tighter controls on the large volumes of money flowing through the city’s casinos via VIP gambling. Such play is typically funded by credit issued by government-licensed gaming promoters – commonly referred to as junkets. They also arrange – via agents and sub-agents – collections on player gambling losses.

In October last year, the local regulator, the Gaming Inspection and Coordination Bureau, said junkets were being subjected to tighter accounting rules with effect from this year.

In May this year the gaming bureau announced a de facto ban on so-called proxy betting in Macau VIP rooms when it barred the use of telephones by people sitting at gaming tables.

One problem with allowing people not physically present in a casino to gamble via a ‘proxy’ taking instructions via telephone, is that it creates a loophole regarding the “know your customer” protocol, say several gaming lawyers spoken to by GGRAsia. Such a protocol is encouraged under best international practices on tackling the threat of money laundering.

The Macau government also said earlier this year it plans to step up efforts to combat what it referred to as “side betting”. This form of gambling – also referred to by some industry commentators as the “multiplier” – effectively evades the government’s 39 percent tax on casino gambling, via a private arrangement whereby the value of a legitimate on-table bet is inflated by a private ‘under-table’ arrangement between a player agent and a high roller.

But the Macau authorities have so far resisted repeated calls by the U.S. government to reduce the reporting threshold for “large” transactions in the city’s casinos to the equivalent of US$3,000, which the U.S. says would “bring it in line with international standards”.

Macau’s gaming regulator, also known by its Portuguese acronym DICJ, said in May it had extensively revised the anti-money laundering rules for the sector, but kept the threshold set for casinos to report “large” transactions at MOP500,000 (US$62,600).

The new AML rules – available in written form only in Chinese and Portuguese, Macau’s two official languages – were enacted on May 13. The rules – included in DICJ Instruction No. 1/2016 – require casinos and junket operators to engage in more detailed anti-money laundering procedures than were required under the previous protocols.

“We continue to believe that Macau is entering a stage in which the government is looking to tighten its policies in a gradual and continuous manner with increasing DICJ interventions going forward,” said the Daiwa team in Thursday’s note.