International anti-money laundering (AML) regulations have been extended to non-financial businesses, including casinos.
Macau, a region situated on the south coast of China, has long stood in the economic shadow of its close neighbor Hong Kong. In 1844, in an attempt to compete, the former Portuguese territory legalized gambling, and in 2006, it superseded Las Vegas as the most successful gambling hub in the world. In Dec 2018, this autonomous region of just 33 square kilometers reached GDP per capita of US$82,613.301 – 80% of which was contributed by the casino industry.
A Safe Bet for Money Launderers
Casinos are particularly vulnerable to money laundering and financial crime. The business is cash-intensive, highly competitive, and deals with large numbers of transient visitors. High-roller gamblers expect a degree of privacy, and foreign holding accounts are commonly used. As a result, the sector is an attractive target for financial criminals wanting to ‘wash’ illicit funds.
In March 2016, US$101m was stolen from an account held by Bangladesh’s Central Bank at the Federal Reserve Bank in New York. It is thought that $81m of that amount was laundered through casinos in the Philippines.
The Financial Action Task Force (FATF), the body leading the international fight against financial crime, has had the casino sector in its sights for some time. In 2003, the FATF’s guidelines on anti-money laundering (AML) and counter terrorism financing (CFT) were extended to designated non-financial businesses and professions (DNFBPs), including casinos; in 2008, the FATF released specific guidance for casinos on a risk-based approach to combat money laundering.
Junkets Raise the Stakes
The prevalence of junkets in Macau – casino tourism operators providing transport, accommodation and meals to gamblers from across Asia, often targeting high net worth VIP gamblers, in exchange for a commission on bets laid by their clients – is a further complication.
As much as 70% of casino revenue in Macau can be generated by junket customers. It is relatively simple for a gambler to deposit money with a junket in Mainland China, access that money to gamble in Macau, and then deposit their winnings in US funds or Hong Kong dollars and move it offshore.
The Asia-Pacific Group on Money Laundering (APG) warned in its 2017 <a href=”https://www.fatf-gafi.org/media/fatf/content/images/APG-Mutual-Evaluation-Report-Macao-China-2017.pdf”>evaluation report on Macau that, while concessionaires and sub-concessionaires have a sound understanding of AML risks and obligations, there is ’incomplete awareness’ among junket operators. Junkets in Macau must apply for a license to operate from Macau’s Gaming Inspection and Coordination Bureau (DICJ), and are also subject to enforceable AML/CFT requirements.
Tighter Regulation Adds Commercial Pressure
Recently, the DICJ has strengthened requirements for all three casino tiers in Macau – concessionaire, sub-concessionaire and junket promoter – in line with FATF recommendations, including:
- a requirement to keep daily records and employ a compliance officer
- an obligation to carry out customer due diligence (CDD)
- an obligation to report and identify participants in large transactions, including the beneficiary owner
- identification, verification and ongoing monitoring of politically exposed persons (PEPs)
- a requirement to file suspicious transactions (STDs) reports to the DICJ
- joint liability between junkets and casinos for junkets’ compliance with applicable regulations.
One implication is that concessionaires and sub-concessionaires face tighter regulatory requirements in their business relationships with junket promoters. Concessionaires/sub-concessionaries and junkets must collaborate to implement preventative measures in AML. The concept of joint liability means that deficiencies in junkets will affect the risk management of the casinos themselves. Essentially, DICJ will be conducting reviews on both the concessionaires/sub-concessionaires and junkets. It has seen that in the recent years, Macau has taken a more stringent approach towards licensing and the supervision of junket promoters, which, in addition to acting as third-party introducers, are also subject to enforceable AML requirements. This area is the subject of enhanced and renews focus by DICJ. The number of license junket promoters has decreased from 235 in 2013 to about 100 in 2019. Macau’s casinos pointed out in 2016 when the new requirements were introduced that they placed extra costs and pressures on them at a time when the territory is facing competition from across Southeast Asia and casino revenue had hit a five-year low1.
While revenue generated by VIPs in Macau dropped sharply in 2016, partly due to a crackdown on corruption in Mainland China, new casinos across Southeast Asia have seen their business increase. Junkets have expanded their reach accordingly; new junket operators in Cambodia and the Philippines earned at least US$1.4bn from VIP gamblers in 2017.
In response, Macau’s junket operators have diversified their business activities and expanded their gaming-related operations to other geographies including the Philippines, South Korea and Vietnam. Suncity, Macau’s biggest junket operator, for example, recently announced that it’s new US$4bn integrated casino resort will open in Vietnam by the end of this year; the group is also considering the Philippines, Cambodia and Japan for its next investment.
The number of countries actively facilitating casino gambling is on the increase, but as a 2018 report by the Association of Certified Anti-Money Laundering Specialists (ACAMS) pointed out, some of these newer gambling hubs bring specific AML risks, including inadequate governance or unsecured borders with nations that have a high money laundering risk. ‘When junket operators work with casinos that have operations in several counties,’ added the report, ‘there is the potential for funds in one country being used for gambling in another, further complicating challenge of identifying the source of funds, as well as creating a significant money laundering risk.’
The AML risks posed by a successful gambling hub like Macau remains of concern to governments and regulators worldwide. A recent Strategy Report on money laundering from the US State Department, for example, advised that the Macau government ‘should continue to strengthen interagency coordination to prevent money laundering in the gaming industry’.
The challenge for casinos is to meet AML requirements effectively without impacting customer experience negatively.
Letting Technology Take the Strain: AML Beyond Banking
Across the region we are seeing stringent AML compliance requirements for Designated Non-Financial Businesses and Professionals (DNFBPs). It is important to have access to comprehensive, reliable and up-to-date screening list, such as ever-changing Sanctioned entities and Politically Exposed Persons registers and Negative news database, allowing DNFBPs to conduct accurate ongoing customer due diligence. The solution lies in technology.
In a customer centric industry, customer experience is crucial, as it will directly affect the Casinos’ patron visits, thus revenue. Casinos must ensure that the diligence process meetings regulatory requirements at the same time providing a positive customer experience. The key to this process is automation. With automation in place, real-time screening and checks can be conducted on new patron members and parties involved in high value transactions.
With a raise in casinos around the world, AML regulations in this industry will continue to tighten internationally. In order to remain compliant and not putting their Casino license at stake, Casinos has to review their due diligence process regularly.
Casinos around the world, and particularly in a successful gambling center such as Macau, can’t take any chances on financial crime risk. In fact, they have much to gain from taking steps to build trust in the sector and protect the industry from the growing reputational and financial risks posed by financial crime.
 Casino revenue in Macau fell from a high of US$45bn in 2013 to $28bn in 2016. Source – UNLV Center for Gaming Research https://gaming.unlv.edu/abstract/macau.html