Macau is on the verge of a mutual evaluation by the Asia Pacific Group (APG) on Money Laundering, an autonomous organization that works with the Financial Action Task Force, International Monetary Fund, and World Bank to implement international standards against money laundering and terrorism financing. This is the fourth round of evaluation, with the last one taking place in 2007, five years after the 40-year casino monopoly held by Stanley Ho ended.
According to Principal Consultant for Governance Associates Limited Alan Pedley, a gambling regulator turned consultant, Macau will not pass its 2016 audit. Pedley specializes in land-based casinos, online gaming, technical standards, operating procedures, anti-money laundering regulation, governance, and compliance. When asked if Macau would pass its audit, he responded with a flat “no”.
The initial APG mutual review in 2007 focused on whether jurisdictions had legislation on the books, but this time the audit will focus on the effectiveness of regulations and technical compliance. Pedley notes that the evaluators are meant to actually inspect and see that the measures that were on the books in 2007 are actually being technically complied with.
Challenges in Compliance
Pedley holds out little hope that Macau will pass its inspection, but notes that it’s not alone. Many non-G-20 countries have gambling industries that haven’t been doing enough to combat money laundering and terrorism financing. On March 21, the Legislative Assembly unanimously passed a proposed law on asset freezing, and the Financial Intelligence Office (GIF) is working to incorporate commended measures from the APG/GIFCS audit in 2007.
Macau is moving closer to better regulation, but the audit comes at a time when casino revenues have been dropping for 22 consecutive months, largely due to a crackdown on corruption in the Mainland. Pedley believes that the crackdown on corruption in China coincides with the fourth round of mutual evaluation, and that they’re unlikely to be unrelated.
Hindrances to Compliance
Major hindrances to compliance in Macau include struggles with VIPs and problems with know-your-customer (KYC) and customer due diligence. Pedley notes that the legislation required for complete compliance means that casinos must report any gaming transactions exceeding US$3,000 (MOP24,000), which he believes is a control that is not reasonable.
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Pedley proposes that compliance should be based on risk, allowing multi-millionaires to gamble substantial amounts of money. He also notes that not all gamblers should be subject to the same restrictions, and that the current approach is inconsistent with the financial actions task force (FATF) recommendations.
Compliance and Gambling
Compliance does not stop gambling, according to Pedley. Reporting money laundering means detecting suspicious matters, reporting them to law enforcement, and investigating whether the activity is illegal. In the case of Macau being evaluated as non-compliant, the international community will put pressure on jurisdictions to comply, which may impact operators in Macau, particularly those facing businesses in the U.S.
Pedley believes that the greatest pressure may come from U.S. regulators, who may toughen up their regulatory scrutiny on the U.S. side. However, he notes that while profits are down, they’re still healthy, and there’s still growth potential in Macau, particularly if the territory can attract more middle-income earners and move away from the volatile junket market.
Despite the challenges, Pedley remains cautiously optimistic about Macau’s prospects, noting that there are still many people in China who would like to visit the territory. However, he also acknowledges that increasing tourism and diversification will bring its own set of issues, and that Macau will need to be able to manage these challenges in order to succeed.
Macau will face pressure to comply with international standards.
