Macau is by far the largest gaming jurisdiction in the world.  This year, the casinos in this Special Administrative Region of China are projected to win more than all of the privately owned casinos in the United States – about $40 billion.  And Macau is not only smaller than the U.S., or Rhode Island; even with its reclaimed land, it would fit inside the District of Columbia six times over, with room to spare.

Imagine what business it could do if it were completely legal.

Not that the casinos are violating any Macanese laws.  But restrictions in its main feeder market, Mainland China, mean that inevitably some laws are being broken by individuals and companies who have made this small gaming enclave such a success.


You can start with the patrons.  It is against the law for anyone from the Mainland to take out more than 20,000 yuan renminbi, or about US$3,150, in cash.  That’s less than $25,000 in Hong Kong dollars:  A typical bet in the high-roller rooms in Macau casinos.

So, how are Mainland players getting their cash across the border?  The old fashioned way – smuggling.

Guards at most border crossings now just wave you through, if they are even there at all.  Spot checks at Macau’s borders with Zhuhai, the connecting city on the Mainland, and at the two ferry terminals and the Macau Airport are extremely rare.

How rare?  Players are coming to Macau to gamble.  They know they have a better chance of winning a life-changing jackpot on a slot machine than of losing a life-changing conviction for violating currency laws.

Of course, wealthier visitors are also getting their money out in other ways.  But Mainland Chinese like cash, and they don’t trust banks.  They even buy houses with cash.

Of the 28 million visitors to Macau each year, more than half come from the Mainland.  Not coincidentally, more than half also stay for less than one day.  Millions arrive carrying shopping bags, and many of those bags have wads of yuans hidden at their bottoms.  And not all the shoppers who cross the borders with Zhuhai each year are carrying the cash only for themselves.

And smuggling cash into Macau by patrons is probably the least serious of the law-breaking that is going on.

Because gambling debts are not legally enforceable on the Mainland, casinos are extremely reluctant to directly lend money to players.  So a complex system of junket operators has arisen.

Much of what the junket operators do is completely legal.  They make arrangements for travel and are allowed to share directly in both the theoretical and actual losses of the high-rollers they bring to Macau’s casinos.  Although “promoting gambling” is a crime on the Mainland, China does not care if junket operators loan money for gambling, so long as only paperwork, not currency, crosses the border.

But how do the junket operators get their profits out of China?  Some invest in other legitimate businesses on the Mainland, which are allowed to wire funds to Hong Kong and elsewhere.  But some turn to those millions of shopping bags, or other, more nefarious, means.

Pawn shops have always been associated with casinos.  There does not appear to be any law against a player intentionally taking expensive personal merchandise out of the Mainland and selling it in Macau for cash for gambling.

But there are a growing number of high-end jewelry and watch stores popping up in Macau, even as booths right on the floors of the casinos.  These stores are not buying, but selling.  At least, that’s what they pretend to be doing.  What they are actually doing is transferring funds out of Mainland China.

The most common scam is to create a credit card sale of a very expensive item, like a watch.  But no actual watch is involved.  The seller gets a small percentage off the top, while the bulk of the money goes to the money-lender.  Often the credit card sale is not even recorded.  It is held, like a marker, for 24 hours so that it can be cancelled if the player wins.

This is done openly and blatantly.  During my most recent trip to Macau I watched players sign papers and receive bundles of cash from jewelry stores located directly on the casino floor.

The most recent development has been the creation of licensed micro-finance companies on the Mainland.  There are now more than 4,000 licensees, lending at least 180 billion yuan, or more than US$30 billion, each year.  Loans are supposed to go to small businesses.  But junket operators and their agents are getting licensed and taking the position that it is none of the government’s business what the loans are for.  They even believe, or at least state publicly, that being a licensed micro-lender somehow makes their business of loaning money for gambling legal.

There is no way China can check every loan.  Yuan-denominated loans now total 7.47 trillion yuan, or US$1.18 trillion.

Chinese law, of course, would not allow a lender to turn a non-enforceable gambling debt into one that the courts would enforce simply because the lender has a micro-finance license.  There is also the possibility of criminal charges being raised for promotion of gambling.  Of course, all this would require that the player declare publicly that he and everyone else involved knew that the money was being lent for him to gamble in Macau.

How would an agent of a lender make sure the player does not talk?  For that matter, how have agents been collecting those hundreds of billions of yuans over the years, when gambling debts were, and are, not legally enforceable?

That is the greatest risk of China’s outdated laws against gambling.  Because gambling debts cannot be collected through the legal system, they are sometimes collected through illegal means.  In a 2008 study by Macao Polytechnic of 99 high-rolling Mainlanders who made the Chinese newspapers for excessive gambling, seven died “extra-judicially,” meaning they committed suicide or were murdered.

Violence is not limited to organized crime.  Of the 99, 15 were sentenced to death.  This was usually for embezzlement.  But people have been executed in China for the crime of gambling.  The last one was apparently in 2004; today, gambling on the Mainland can still result in years in prison.

China has a problem, because it still thinks of gambling as a sin.  This was the view of most of the world, up until a couple of hundred years ago.  Today, in the common law countries, like England, the U.S. and Singapore, and the civil law countries, like France, Spain and Macau, gambling is seen as a vice.

The difference can be seen in the written records.  Sin is not discussed in polite society.  The first rule book on card games could only be written, by Edmund Hoyle, and published, in 1742, when gambling became viewed as something distasteful but not against God’s laws.

Sinful acts are almost always illegal, and in the rare cases where they are operated commercially, they cannot be advertised and their contracts are unenforceable.  Imagine a patron asking a judge to order specific performance in one of Nevada’s legal brothels.

But vice is often legal, if strictly controlled.  Maybe the government will want to put it in the middle of a desert, or isolated on a mountaintop, or on a riverboat surrounded by holy water.  Tobacco, alcohol and gambling can even advertise, in limited ways.  And as gaming becomes more accepted in society, gambling debts are becoming enforceable in more jurisdictions.

In 1999, Portugal gave Macau back to the People’s Republic of China.  The Mainland also has two of the largest lotteries in the world.  If gambling is a sin, then China is one of the world’s biggest sinners.

If the 21st century belongs to China, its attitudes toward gambling should at least be as modern as the 18th century.

END

© 2013, I. Nelson Rose.  Prof. Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments, industry and players.  His latest books, Gaming Law in a Nutshell, Internet Gaming Law (1st and 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.