* Vegas less powerful in casino world after Macau boom
* Nevada gaming board still learning how junkets work
* U.S. authorities probing money-laundering eye Vegas
* Lack of oversight of junkets' agents seen as problem
Oct 23 (Reuters) - For Nevada gaming companies grappling
with a weak economy and a splintering market at home, the Asian
casino boom has been a godsend. But it has left the Nevada
Gaming Control Board facing difficult questions about how to
confront the influence of Asian organized crime, both overseas
and inside the state.
With no full-time staff in Asia and a mission that includes
nurturing an industry increasingly dependent on China-controlled
Macau, the granddaddy of U.S. gambling regulators may ultimately
prove powerless to police a global business of which Las Vegas
is no longer the capital, industry veterans said.
Though the Control Board can levy fines, ban employees and
even revoke corporate licenses to operate gambling facilities in
Las Vegas for misdeeds abroad, it has done little in the face of
mounting evidence that Las Vegas Sands, Wynn Resorts
and MGM Resorts International are relying on
problematic business partners in Macau - and importing some of
the region's crime issues to the United States.
At the heart of both matters are the so-called junket
operators, who recruit, transport and offer credit to high
rollers, mostly from China. Some control rooms for the VIPs
inside the Macau casinos, and many have links to the Chinese
criminal gangs known as triads, according to U.S. diplomats,
intelligence officials and court testimony.
Nevada has allowed three people with ties to one Hong Kong
junket company - which Hong Kong Stock Exchange documents show
was partly financed by an alleged triad leader - to bring
gamblers to Las Vegas casinos on commission. Those people, named
in individual Nevada records, include the chairman of the
company, Neptune Group Ltd.
Though such Asian recruiters are increasingly important to
the casinos looking to lure Chinese big spenders, Nevada
investigators privately concede that they are having a hard time
establishing which of them have criminal connections. The
casinos say all their business partners are approved by Macau or
Nevada and that they eschew deals with proven criminals.
In one sign of mounting concern at home, Nevada Gaming
Control Board member A.G. Burnett told Reuters that the panel is
"exploring reinventing the whole junket representative process"
because of concerns about its lack of transparency.
BRIBERY LAWS
The expansion of the junkets prompted the U.S. Treasury
Department's Financial Crimes Enforcement Network to issue
guidance in August asking the casinos to record the identities
of everyone gambling from a junket operator's account.
Separately, U.S. prosecutors are investigating whether Sands
has broken money-laundering or bribery laws. Wynn also has
disclosed that it is the subject of an informal Securities and
Exchange Commission inquiry into possible Foreign Corrupt
Practices Act violations.
"We're getting to understand the junkets and how the VIP
rooms operate," Burnett said. "We haven't decided whether that's
offensive to the way we operate."
But former Nevada officials and industry experts said that
the Control Board's close ties to the industry, and Macau's
rapid emergence as the key driver of growth for the big gaming
companies, suggest that oversight is unlikely to strengthen.
"The trend is the other way," said Nelson Rose, a Whittier
Law School professor and frequent expert witness on gambling
rules. "To some extent the Nevada regulators are just crossing
their fingers."
IS NEVADA EVEN NECESSARY?
Macau now provides more profit to Sands and Wynn than Las
Vegas does; if forced to choose between Nevada and Asia, they
might well decide to leave Nevada behind, as MGM chose to
abandon Atlantic City. It did that rather than fight New Jersey
investigators' findings that its joint venture partner, Macau
businesswoman Pansy Ho, had unsuitable links to triads. Nevada
approved the venture after ruling that MGM had ultimate control
of it.
"The way (the casinos) have been structured, they can hive
off the companies" that operate in Asia, said former Control
Board chairman Mike Rumbolz, who later became a casino executive
at the Trump Organization and elsewhere. "Years ago companies
were very concerned to get the blessings of Nevada regulators.
Today I don't think you'd see that kind of concern."
Sands, Wynn and MGM have already put their Macau operations
into distinct subsidiaries, which could eventually be spun off
entirely. They declined to speculate on what they might do in
the future beyond saying they want to be everywhere. "We work
closely with our regulators in all of our markets," said Sands
spokesman Ron Reese.
Peter Bernhard, chairman of the Nevada Gaming Commission,
said that "the value of a Nevada license is still going to be
critical" and that the casinos "are going to make sure they are
going to comply with all of our requirements." The Commission
weighs regulation changes and acts as a judge in hearing
complaints and licensing recommendations brought to it by the
Control Board. Burnett likewise said that Nevada would remain
crucial.
But since 2005, MGM's revenue has more than doubled, Wynn's
has tripled, and Sands' more than quadrupled, thanks to the
Macau boom. Macau is on track to produce $62 billion in gambling
revenue overall by 2015, according to PricewaterhouseCoopers,
while Nevada's contribution will remain flat at $13 billion.
Singapore and other countries are also expanding their casino
licensing rapidly, further eroding Nevada's once-central role.
REGULATORY LOOPHOLES
The Control Board's three members are appointed by the
Nevada governor for four-year terms. If all agree, they can
bring formal complaints against companies or individuals before
the five governor-appointed members of the Gaming Commission,
who serve as part-time judges.
Over the decades the Control Board has conducted countless
background investigations of casino investors and executives,
rarely rejecting any licenses in public. (When it does, the
Gaming Commission typically supports the decision.)
The rules warn against conduct or associations "which might
reflect on the repute of the State of Nevada and act as a
detriment to the development of the industry." The policing is
designed not mainly to help consumers or investors but to help
the industry itself.
"Nevada's approach has really been very business-friendly,"
said Patrick Wynn, who retired in 2010 after 19 years at the
Control Board, finishing as deputy chief of investigations.
"They've always looked toward what can it do for the state, what
can it do for the economy."
A majority of the current Commission members or their firms
have worked for casinos in the past, and many Control Board
veterans go on to work directly for those they have overseen.
The laws grant wide discretion to the regulators as to whether
or not to act on any particular issue.
Nevada's regulations, combined with the rise of corporate
investment in the gaming business, have fulfilled their
principal mandate of blocking outright mob control of the
casinos. But even though Nevada demands the right to approve its
licensees' ventures elsewhere, gambling's surge abroad has made
the state's job much more difficult, investigators and industry
executives said.
That's especially true in Macau, the former Portuguese
colony that reverted to Chinese dominion in 1999. The only place
in China where gambling is legal, Macau opened its doors to
Western casinos nearly a decade ago.
Sands, Wynn and MGM all plunged in, and soon found
themselves in close association with junket operators -
middlemen that organize trips to the casinos, largely from Hong
Kong and the Chinese mainland. Collectively they're responsible
for some 70 percent of the Macau gambling trade.
ADVANCE CREDIT
Mainland residents legally can move only $50,000 per year
out of China, but the junkets advance credit well above that
level to their clients. They also collect payments due within
China's old borders, where casinos can't advertise or use the
legal system to recover debts.
The U.S. State Department has repeatedly identified Macau as
a jurisdiction of "primary concern" for money-laundering,
largely because of the junkets.
Macau regulators have limited experience with the modern
market and have yet to establish "robust oversight of junket
operators" or an anti-money-laundering system "that meets
international standards," according to a March report by the
State Department's Bureau of International Narcotics and Law
Enforcement Affairs.
Macau requires the junkets to list their directors, but
triads have grown adept at disguising their investments, just as
the Mafia once did in Las Vegas.
"If criminals are employing the best attorneys and
accountants and setting up more elegant ways of hiding
ownership, it's possible that Nevada won't be able to find them
easily," Rumbolz said.
Even as Nevada has declined to crimp U.S. casinos' behavior
in Macau, federal authorities have grown more concerned about
the companies' bringing Macau cash and techniques to Las Vegas.
Junkets have advanced millions of dollars in credit from
Macau to their clients' accounts at Sands and MGM properties in
Las Vegas, according to casino officials and ledgers recently
exposed in a lawsuit between Sands and the fired head of its
Macau operations, Steve Jacobs.
As previously reported, one of the beneficiaries of a
$100,000 Sands transfer was Charles Heung Wah Keung, named in a
1992 Senate committee's investigation as an officer of the Sun
Yee On triad. [h t tp://link.reuters.com/xep53t
]
SYSTEMIC PROBLEM?
Other junket affiliates have registered as "independent
agents" commissioned to bring high rollers to Las Vegas. In one
sign of how important the Asian trade has become, baccarat, long
the game of choice in Macau, has displaced its cousin blackjack
as the most lucrative Nevada card game. Revenue from baccarat is
now growing 10 times faster than any other form of gambling in
Vegas.
A particular weakness in Nevada's regulatory approach
appears to be oversight of the agents. Applicants fill in an
11-page form with their business and legal histories, and casino
sponsors pass them on to the state; no full suitability review
is required, as would be the case for key employees at casinos.
Virtually every time the Control Board has asked aspiring
agents for more data, the applicants have simply withdrawn,
suggesting a systemic problem, one state investigator told
Reuters. Regulators fear that shadowy backers of the agents
simply submit new names with cleaner records, he said.
Registered agents, including junket representatives, can get
credit from the casinos and re-lend to their clients, raising
the prospect of loan-sharking.
"Once (an agent) has chips, it's hard to have control. He
could hand $50,000 to his friend," said one former Sands
executive.
Tracking agent histories is not easy, and some with
questionable associations have gotten through the process.
At least three people with ties to just one of the many
junket companies, publicly traded Hong Kong firm Neptune, became
agents in Nevada for Sands, Wynn, MGM and Caesars Entertainment
, which owns Las Vegas baccarat hub Caesars Palace,
according to public records.
A key former backer of Neptune is Cheung Chi Tai, named in
the same 1992 Senate report as a top lieutenant of the Wo Hop To
triad. In a more recent Hong Kong criminal trial, an informant
testified that Cheung was a triad leader and in 2008 ordered him
to murder a card dealer suspected of cheating at a Sands VIP
room in Macau where Cheung had an ownership interest.
Lower-level triad members were convicted in the case, while
Cheung was not charged and could not be reached for comment. []
Cheung helped underwrite Neptune's purchase of a stake in
junket operator Hou Wan in 2007 and for a time owned 8 percent
of Neptune. Though Cheung disposed of his stake, he has
maintained other connections to Neptune, corporate records in
Hong Kong and Macau show.
For example, his 50-50 partner in a company begun in 2003,
Lei In Peng, also owns a firm that has more than 18 percent of
Neptune's stock. Lei couldn't be reached for comment.
Neptune's chairman, Lin Cheuk Fung, served as an independent
agent from 2005 to 2009, signing up to bring gamblers to Wynn
and MGM casinos in Las Vegas. Neptune didn't respond to requests
for comment, while Lin couldn't be reached.
Wynn acknowledged using Lin as an agent but declined to
comment further. MGM spokesman Alan Feldman said only that his
company had "a comprehensive and robust compliance program that
involves several former regulators and law enforcement officials
who review all of our junket operators."
Though Neptune's links are complex, they are easier to
untangle than most junket operators because the company is
publicly traded. Investigators in both Las Vegas and Macau say
they simply don't know who stands behind many of the other
junkets.
Overall, said casino consultant and author Jim Kilby, the
junket issue "may be too big for gaming regulations."
