Skimming allegations hit Macau

A report in a Hong Kong newspaper that suggested a skimming operation in Macau could be depriving casinos of 50 percent of their gambling revenue was rejected Monday by several American gaming observers.

The South China Morning Post reported that skimming by junket agents, who bring deep-pocketed customers to gamble in ultraexclusive private gaming salons inside some of Macau's booming casinos, may have cost the gambling properties more than $13 billion in lost revenues in the past five years.

If the size of the operation is correct, the English-language daily said, the skimming would have caused Macau to lose tax revenue of more than $5.2 billion over the same five-year period. The newspaper said it surveyed five senior executives at licensed casinos in Macau about the alleged skim. On average, the respondents said the illegal activity represented 78 percent of the official market for private gaming salon gamblers.

Nevada Gaming Control Board Chairman Dennis Neilander said Monday he was aware of the article, but his understanding was that casinos were not involved in any of the alleged operations. He also noted that casinos operated by Nevada gaming giants Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Mirage didn't start appearing in the Chinese gaming enclave until 2004.

"What I've been told is that this is one of the reasons the Macau government took the view that it wanted a heavily regulated gaming environment," Neilander said. "Macau wanted to make sure the casinos were not involved in any of this activity."

Neilander said skimming was allegedly occurring before Nevada-style casinos entered Macau.

Hong Kong billionaire Stanley Ho monopolized the Macau casino market until 2002, when the Special Administrative Region of Macau opened the way for casino expansion. For years, U.S. and international law enforcement authorities have thought Chinese organized crime triads secretly controlled the casinos operated by Ho, much in the same manner Nevada's gambling industry was controlled by organized crime syndicates in the 1960s and 1970s.

"If anyone needs to be concerned, it's the Macau government, because if that problem was occurring, those are tax dollars being lost," Neilander said.

Spokesmen for the Las Vegas Sands and MGM Mirage were also aware of the report but did not wish to comment.

One Wall Street gaming analyst said he didn't think investors would be overly concerned by the report. Joel Simkins of Macquarie Research Equities said Nevada casino operators would jeopardize their lucrative gaming licenses and multibillion-dollar operations if they allowed skimming at their Macau casinos.

"Those companies take those gaming licenses seriously and they are not going to do anything that would give us any cause of concern," Simkins said.

Manual Joaquim das Neves, director of Macau's Gaming Inspection and Coordination bureau, told the South China Morning Post the problem was not as widespread as reported but that it needed to be addressed.

"The government is aware of this problem and has been taking measures to prevent it," he was quoted as saying by the newspaper.

Macau is the world's fastest- growing gaming market. Last year, the region surpassed the Strip in total gaming revenues, reporting $6.7 billion won from gamblers. It is estimated Macau casinos could generate almost $10 billion in annual gaming revenues by the end of the year.

Las Vegas Sands opened the Sands Macau in 2004 and the $2.4 billion Venetian Macau in August. The company is spending some $12 billion to develop more than a dozen hotel-casinos on the Cotai Strip region of Macau. Wynn Resorts opened the Wynn Macau last year while MGM Mirage is opening the $1.2 billion MGM Grand Macau on Dec. 18.

The Chinese operation is known as "side-betting," which occurs when a gambler and a junket agent negotiate an "off-table" agreement before entering a casino. Under the agreement, each amount bet on the table will be matched or multiplied by a separate "off-table bet" between the two sides, without the casinos' knowledge.

Those bets would avoid the 39 percent tax on gross casino revenues in Macau, allowing the junket operator to offer a better return to the gambler.

"A high tax rate will always provide an incentive for some operators to take revenue 'off the table.' " David Green, a partner at financial services firm PricewaterhouseCoopers in Macau, told the South China Morning Post.

"Side betting is notoriously difficult to detect; I suspect it affects all casino jurisdictions with VIP operations," Green said. "It should be recognized for what it is, a financial crime."

Contact reporter Howard Stutz at hstutz@reviewjournal.com or (702) 477-3871.