Macao’s Washing Machine

Hong Kong and Macao—China’s pair of ex-colonies—rarely register negative valuations.  In any case, PWC’s traditional, careful poll—in existence since 2001—has awarded them 9th place globally in terms of ideal locations to launder money. Great Britain holds first place.  5,128 managers in 95 countries contributed to this unedifying classification.  For the ex-British colony, the responsible parties can be found in the numerous financial institutions, the pulsing heart of the economy; for the ex-Portuguese economy, they can be found in the river of money fluctuating in its gambling industry.  Carson Yeung Ka-Sing’s recent court case concentrates and confirms this double analysis.  The Chinese millionaire and proprietor of many assets, including the British soccer team, Birmingham City, was convicted of laundering illicit funds, and was condemned to 6 years in prison.  The sentence undermines the Chinese fruit vendor’s son’s dizzying career who made his fortune in Hong Kong starting out as a hairdresser.  Not surprisingly, Macao appears in the trial notes.  The prosecution claimed that the proceeds were illegal, the defense that the transfers were actually gambling winnings.   The case is resounding and has reopened analyses regarding Macao’s role.  Beijing has turned Guandong’s strip of land (which, like Hong Kong, also benefits from its status as a Special Administrative Region) into the world’s largest gambling center.  Even though the first casinos were opened 150 years ago, they never exceeded modest and sleepy Portuguese decadence.  Now, Macao’s 600,000 residents pride themselves on earnings not possible in China thanks almost entirely to gambling.  The upward climb was striking.  Joint ventures with US leaders in the sector were authorized in 2002, the Macao Sands opened its doors in 2004, in 2006 Macao topped the industry’s list, and in 2013 its gambling income exceeded that of Las Vegas by seven-fold.  Now, the city in Nevada should be called America’s Macao.  These sums, generated by 35 open casinos in the city, would not have been possible without Beijing’s authorization and interests.  Bans in China reflect liberties in Macao.  In fact, gambling is not allowed on the mainland.  Furthermore, exporting more than USD$50,000 per year is prohibited.  Macao is then the perfect candidate to receive a good fraction of illegal Chinese funds and convert it to money that can be spent more easily.  Washington DC’s “Congressional-Executive Commission on China” reported an astronomical sum of USD$202 billion in illegal funds being directed toward Macao each year in its 2013 annual report.  Passion for gambling cannot be the only motivation that channeled 17 million Chinese to Macao in 2012.  Investigations, evaluations, police reports, judiciary sentences, and press coverage all converge to identify the ex-colony as a port for money laundering.  It’s not by chance that ¾ of revenues are earned in private rooms reserved for the best clients, on high floors, far from tourists and casual players.  Wealthy Chinese rely on help from junket, promoters/intermediaries responsible for making players with available cash comfortable, take care of logistics, recover credits, and transfer winnings.  Chinese authorities are cracking down on these activities because they suspect them of being vehicles for illegal accumulations of wealth, illegal money transfers, and corruption.  After roulette or baccarat table bets, money escapes overseas towards the most sought-after destinations.  The turnover is too great to be stopped only by targeting the money.  Macao is instrumental to Beijing, and the administration knows it needs to address the root of the problem, which is the tangle of private interests and opaque channels that innervate the Chinese economy.  Secretary Xi has launched a courageous campaign against corruption, but the most arduous task will be to transform an intention into a systemic application of laws, which is hindered by too many interests when they take the road to Macao.