Junkets in Macau aren’t dead yet, but they are on life support, argues Carlos Simões, a partner with law firm DSL, who takes us through some of the momentous events of recent months and asks where next?
The warrant issued by the Wenzhou People’s Procuratorate of Zhejiang Province on November 26, 2021 proved to be a biblical event, triggering a major exodus from Macau’s junket industry and VIP gaming.
The next day, the Judiciary Police detained Suncity CEO Alvin Chau and 10 other executives, on suspicion of committing crimes in Macau within the operations of the group. This was just the start.
What followed was a major collapse in the shares of Suncity stock and other listed junkets, as well as the shares of all the Macau gaming concessionaires, which later became known as the “wipeout.” Then came the closure of all Suncity VIP rooms in Macau by December 1 and the termination of cooperation agreements with Tak Chun. Finally most gaming operators claimed that junkets were no longer welcome in their casinos and terminated existing arrangements.
During an AGB webinar on December 9, 2021 most commentators were unanimous in their view that junkets were dead.
Two months fast forward and this stark diagnosis has not yet been confirmed, but junkets remain in Intensive Care and the diagnosis is “reserved.”
In this article we will focus mainly on the legal aspects of the junket exodus.
Junket activity has been regulated in Macau since 2004 under Administrative Regulation no. 6/2002 and Law no. 5/2004, which governs concession of credit for gaming or betting. Their activities are supervised by the Gaming Inspection and Coordination Bureau (DICJ), which runs background checks to confirm the suitability of shareholders and directors and issues licenses every year.
The licensing process begins with an application to the DICJ, accompanied by a declaration confirming the suitability (trustworthiness) of the applicant, as well as a statement signed by a legal representative, or director, of a gaming concessionaire stating its intention to cooperate with the applicant, in addition to other relevant documents.
However, the number of licenses issued by DICJ has been on a downward trajectory, from a high of 235 in 2013 to just 95 in 2020, 85 in 2021 and 46 in 2022.
The reality is that the biblical events that swept through the junket industry and VIP gaming have not been followed by any regulatory changes…yet.
The DICJ has been processing all the applications for junket licenses as “business as usual.” The only regulatory change that was implemented was the guideline from the DICJ that junkets (“gaming promoters”), were no longer allowed to grant credit to gamblers (as foreseen by law) and that the concessionaires should be granting such credit instead. A gambling debt is only enforceable in Macau if the credit is granted by a casino concessionaire.
But the legal march has started.
As part of procedures to change the Gaming Law (Law 16/2001) in preparation for the re-tendering of the concessions, the DICJ on December 23 published its final report on proposed amendments following a 45-day public consultation.
When it came to junkets, the general public agreed with the need to broaden the scope of verification and regulation of concessionaires/ sub-concessionaires and gaming promoters and their employees, strengthening such mechanisms.
The opinions focused mainly on the suitability criteria for gaming promoters and their employees, the increase of share capital of gaming promoters, as well as mechanisms to control their funds & operations in order to combat cross-border gambling practices, illicit betting practices, illicit online gambling and “side betting.”
Views were also expressed on the regulation of the ratio between assets and liabilities in order to prevent financial risks and to avoid illegal capturing of funds and money laundering.
These concerns were in line with most recent court cases, which have begun to hold gaming concessionaires co-liable for the debts of the junkets operating in their premises, whenever those liabilities were a direct consequence of gaming operations. These decisions are supported by Section 29 of Administrative Regulation no. 6/2002, which rules that casino operators are jointly liable for any infringement of regulations by the junkets and for the junkets’ activity in casinos.
The Court of Last Appeal in November 2021, under Court Case 45/2019, made a decision making the gaming concessionaire and gaming promoter co-responsible when the concessionaire does not fulfill its supervisory duty by allowing, or tolerating, the gaming promoter to acquire illegal financing in its casino. The ruling deemed the concessionaire to be jointly and severally liable for losses arising from that illegal activity.
From the above one should conclude that the junkets’ activity in Macau had a proper licensing system and proper regulatory supervision by the DICJ. But the same did not work outside the boundaries of the Macau SAR and the mainland authorities finally patched this major problem.
Participation and facilitation of gambling for mainland China customers has been classified as a criminal activity for some years. But from March 2021, helping mainland residents to take part in “cross-border gambling” – whether in person or online – has been defined as a crime under mainland law.
The penalties apply to any person who “organises” mainland Chinese citizens to gamble “outside the country (borders)”, when there is a “serious” amount of money involved, or for cases considered to have “grave consequences”, according to the amendment to the country’s criminal law.
These were the rules that led to the fall of Alvin Chau and Suncity in mainland China and Macau authorities had to follow.
Back to Macau, one of main changes announced in the draft of the Gaming Law, which was approved as a draft on January 24, 2022, was precisely that revenue share arrangements between junkets and casino concessionaires will be prohibited. Furthermore, junket licenses will continue to be issued but will restrict each licensed promoter to only carry out the activity of promoting games with one gaming concessionaire. Another blow to an already frail industry.
To conclude, the VIP exodus continues, with problems in all directions. Strict controls in mainland China, namely on the flow of funds, a much weaker market since the pandemic started, the successive closures of borders and finally the strikes against the industry leaders – the junkets.
Overall, the legal changes that are affecting the industry would be the most minor problem of all of them.
But even this is not settled yet and more is to come. – Just wait for the next episodes of this saga.