Gaming Law International

Is money laundering rampant in the iGaming environment?

Not really. Read our article in InterGaming Law for a full discussion on the issue of whether money laundering is actually more prevalent with online gambling and if so, whether it makes a difference whether the sites are regulated or not. 

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Vietnam says Macau still money laundering capital for China

According to this article in the Saigon Times, casinos in Macau remain the primary source of money laudnering for wealthy people from Mainland China. It refers to a report by China's national bank which estimates that in 2013, over $202 billion was illicitly removed from China and funelled to Macau through VIP gaming rooms. Most of that activity is under the control of junket operators who move funds from the Mainland, through Hong Kong financial institutions, to Macau. Funds are often then moved to what are called offshore financial centres (tax havens) under beneficial ownership structures to hide the names of the trustees, and are accessed for immigration purposes in places like Canada and the US.

As the Chinese government continues its crackdown on corruption in its so-called "tigers" and "flies" campaign, revenues in Macau have dropped, appearing to confirm the dependence of Macau casinos on junket VIP clients from China for movements of funds. 

 

Wife of Oman's foreign minister loses gambling addiction case

The wife of Oman's foreign minister, Nora Al-Daher, lost her claim against London's Ritz Hotel over an alleged gambling addiction. In 2012, the Ritz sued Ms. Al-Daher to recover £1 million credit advanced to her to gamble which she did not pay. When the Ritz sought recovery of the debt, Ms. Al-Daher counter-sued in negligence, claiming that the Casino breached its duty of care to her by giving her credit when they were aware that she had a gambling addiction. In one evening, she lost £2 million at the Ritz Casino and two months later, lost $5 million at Las Vegas casinos. She is married to Sayyid Badr bin Hamad bin Hamood Al-Busaidi. She and her husband are politically exposed persons, meaning that financial institutions globally are required to subject their financial transactions with heighted due diligence and monitor their transactions on an on-going basis. 

Macau casino revenues drop again on continued financial crime woes

Macau Casino Revenues Drop

by Christine Duhaime, BA, JD, Certified Financial Crime and Anti-Money Laundering Law Specialist

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Casino revenues in Macau fell 3.6% in July for the second month in a row, the first such decrease in monthly revenue in five years. The decline, caused by contraction in VIP Room gambling, was expected and is expected to continue to cause declines in the short term. It was expected for a number of gambling and money laundering law reasons: (a) the financial crime concerns with VIP Rooms in casinos in Macau is becoming more widely known; (b) the Chinese government is becoming increasingly concerned with respect to financial crimes, especially money laundering, in Macau especially amid pressure from the US; and (c) VIP Room gamblers from Mainland China are becoming reluctant to be seen (and video-taped) gambling extravagent amounts of money in Macau's casinos particularly given the corruption crackdown in Mainland China. 

Junket operators bring in about 75% of all of the gambling revenues to Macau and operate VIP Roms that are not subject to the normal anti-money laundering law regime that other casinos must abide by worldwide. Not only does it create an unfair advantage as a matter of anti-trust law but it can be a breeding ground for other financial crimes, such as tax evasion and removal of state assets by what are called politically exposed persons (e.g., state officials from Mainland China) in anti-money laundering law. 

The money laundering problems at Macau casinos from one US government perspective can be read here ("US Congressional Report urges Macau to implement money laundering controls").

Our summary of the junket system, VIP Rooms and financial crime concerns that was originally published in Asia Gambling Brief can be read here ("Macau junket operators use trade show to polish image" - Part 1) and here ("Macau casinos face regulatory balancing act" - Part 2). 

More recently, there have been several news reports that the Chinese government is in talks with the US to recover state assets removed by politically exposed persons under the US EB-5 immigration program and much of those assets were apparently funelled to the US from Hong Kong or Macau, then to offshore tax havens controlled by Chinese nationals now living in the US. Separate and apart from that initiative, the implementation of FACTA in China will have the same result and is causing a chilling effect on wealthy families in China. 

Casino Lawyer Covers Anti-Money Laundering Law in EU

We are pleased to announce that Casino Lawyer magazine is featuring an article by Christine Duhaime on the new EU 4th AML directive entitled: “New EU Anti-Money Laundering Directive to Affect I-Gaming” available here

In the article, Ms. Duhaime discusses politically exposed persons, beneficial ownership regime changes, risk assessments, the expanded role of Financial Intelligence Units for internet gambling, and expanded customer due diligence.

 “The key change,” said Ms. Duhaime, “is that the definition of obliged entities is changing to cover all providers of gambling services which now clearly captures Internet or online gambling. The rationale for the change in the EU was to address evidence that was presented to the European Commission of vulnerabilities of Internet gambling to money laundering and terrorist financing, and in particular to ensure that organized crime does not use online gaming platforms to launder funds.”

US casinos may have to confirm source of funds for high rollers

Vetting of High Rollers

by Christine Duhaime, BA, JD, Certified Financial Crime and Anti-Money Laundering Law Specialist

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According to Reuters, FinCEN is amending anti-money laundering (AML) policies to require that casinos ascertain source of funds for large cash or wire deposits, or large bets in the United States. Before such a move takes place, FinCEN would submit the proposed rule for comment by the industry.

Any commentary that opposed the change, however, is unlikely to be considered seriously because source of funds vertification already exists for politically exposed persons in AML law in most countries, including in the US. It is also routinely done for immigration purposes in many countries with investor immigration programs that encourage immigration from Asia. Such a rule would not be any more burdensome or expensive in terms of compliance for casinos, than it is for other sectors that report to FinCEN. 

When such a rule is implemented, however,it will negativey impact the appeal of gambling in the US by Asian tourists who, as a matter of culture, will be reluctant to disclose personal information to any casino operator, particularly financial information and particularly in the gaming environment when such information will be provided to gambling regulators and FinCEN. 

Russia may be considering making Crimea "casino zone"

by Christine Duhaime, BA, JD, Certified Financial Crime and Anti-Money Laundering Law Specialist

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Russian officials are apparently considering making Crimea a regulated gambling zone in order to generate investment in the area and boost its economy. Russia only permits gambling in four areas in its country and at the moment, only two of the permitted areas have operational casinos. 

The violent ways gambling debts from Macau are collected in Hong Kong

Law Commission notes violent methods of gambling debt collection

by Christine Duhaime, BA, JD, Certified Financial Crime and Anti-Money Laundering Law Specialist

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According to a Consultation Paper prepared by the Law Reform Commission of Hong Kong, debt collection in Hong Kong is a significant and violent problem, mostly arising from gambling debts incurred locally and in Macau. Loan sharks in Macau and Hong Kong account for 21.4% of the debt collection criminal complaints to police, the largest type of complaint filed.

The Law Reform Commission looked at police reports and judicial decisions involving debt collection tactics, noting both the involvement of Triads in many cases and the large extent to which torts (false imprisonment, assault, defamation) or serious crimes (murder, attempted murder, extortion, criminal interest rates) were committed in the debt collection process.

A synopsis below of some of the cases studied by the Law Reform Commission, and several subsequent ones, shed light on the violent nature of the collection of gambling debts in Hong Kong:

• The Queen v. Chan, CACC 311/1983 – Loan sharks burned victim with cigarettes during two day period to collect gambling debt.
• A man from Hong Kong, Tong King-yiu, borrowed money from a loan shark in Macau to gamble.
• When he failed to repay the loan, the loan shark took steps to physically pressure him into paying. Three men employed by the loan shark, Chan, Yau-hang, Ho Lai-man and Ho Su-kun, seized Mr. Tong in Kowloon, brought him to a hotel room and, over the course of a few days, beat him up and burned him with cigarettes.
• The Queen v. Chan, 231/1994 – Loan sharks attempted to collect an extra HK$15,000 from gambler for wages and expenses incurred by them to collect his gambling debt.
• A man from Hong Kong, Wong Chi-keung, borrowed money from a loan shark in Macau to repay a gambling debt.
• When he failed to repay the loan, he was forcibly detained and taken to a karaoke bar. While there, he was forced to make phone calls to raise funds to repay the debt.
• Mr. Wong owed $25,000 and was told he had to raise HK$40,000 to be set free, the extra HK$15,000 was to pay the wages and expenses of the men forcibly confining him for their time in collecting the debt for their employer.
• HKSAR v. Wong Fuk Tak, CACC 249/1999 – Triads informed debtors that they were Triads, a criminal offence in Hong Kong.
• In April 1999, sixteen men belonging to the Wo Hop Triads in Hong Kong, were convicted for being members of a prohibited gang and criminal activities related to that membership.
• Among the many offences committed, murder, a Triad explained to an undercover police officer that watching a person being chopped from the head by a young Triad was “so exciting…like shooting a movie.”
• When it was suggested at a Triad meeting that the young Triad who had committed murder be placed in hiding, the Triads objected, saying it was better for the story of how they killed someone by hacking to get out.
• Another offence for which they were convicted related to hacking up a group of 16-year-old boys “like meat” with knives.
• Among other things, the Triads were convicted of disclosing their membership in the Wo Hop. Under Hong Kong law, it is a criminal offence to say you are a member of a Triad or to say you are a Triad manager, a testiment to the fear they invoke. Whether one is a member of a Triad is irrelevant for the offence. Claiming to be a Triad officer carries a fine of HK$1 million on conviction and a term of imprisonment of up to 15 years.
• Debt collectors in Hong Kong often claim to be Triads in order to more easily extract payment.
• HKSAR v. Wong Ka-fat, DCCC 937/2008 – Triads forced a tourist to incur HK$300,000 gambling debt at Macau casinos then attempted to collect HK$650,000 from his family under threats of violence.
• A 20-year old student visited the Wynn Casino in Macau and while there, was approached by junket operators and was convinced to go with them to gamble at the Casino Lisbon.
• At the Casino Lisbon, the student was coerced into giving details about his family, then taken to a VIP Room to gamble on the promise of free tickets to show and hotel stays.
• He was given “mud chips” also known as "rolling chips" worth HK$10,000 each and one of the promoters gambled HK$30,000 of the chips for the student and lost. The student was not allowed to leave or stop gambling.
• He was taken to another casino in Macau where the junket operators continued to place bets for him, allegedly losing HK$300,000. At that point, he was taken to a restaurant and asked to sign an IOU for HK$650,000. He was detained for approximately 12 hours and finally dropped off at the Macau ferry and escorted back to Hong Kong.
• He was brought to an ATM and instructed to take out as much as he could, which was HK$20,000. His escorts brought him home and, once there, threatened his mother if she did not pay them HK$650,000. When she refused, they threatened to take her son away.
• Eventually, she called the police and notwithstanding the police investigation, the junket operator called other family members, including his elderly grandmother, to collect the alleged HK$650,000 in debt, threatening to harm them if they did not pay. Eventually, the debt collectors were arrested.
• As noted by the Court of Hong Kong, this was part of a well-known Triad “scam” perpetrated on visitors to Macau wherein they are promised numerous free casino and hotel benefits for minimal gambling, then effectively held against their will while the loan sharks gamble for them with mud chips, and run up enormous fictional debts. The gambler is told he has incurred huge gambling losses and is forced to repay fictional debts to organized crime.
• HKSAR v. See Wah Lun, CACC 370/2009 – Triads plotted to dismember and kill a Macau casino chip dealer for allowing HK$100 million casino win.
• Several Triads were convicted of disclosing membership in the Triads, being members of Triads and several other criminal offences including attempted murder. During their trial, evidence emerged of their methods for collecting gambling debts from Macau.
• In one debt collection file, the Triads plotted to kidnap Wong Kam Ming, bring him to a secret hiding place and chop off his arms and legs before killing him.
• Mr. Wong was a mud chip dealer at a Macau casino and he had allowed a person to win HK$100 million gambling at a VIP Room, when the policy was that mud chip dealers were required to ensure players lost. Mr. Wong therefore owed the Triads for the amount the casino had to pay in winnings. The alleged Triad boss, Cheung Chi Tai, allegedly had an interest in the operation of that casino.
• The gambler who won HK$100 million was accused of cheating – his house was set on fire and he was attacked numerous times.
• Among the evidence seized at the local Triad office were guns, beef knives, Japanese dagger, balaclavas, handcuffs, extra licence plates, martial arts weapons and notebooks containing particulars of the family members of people who owed debts.
• A witness who testified at the trial was allowed to testify remotely because he was a “witness in fear”, 在恐懼中的證人, fearful for his life for testifying against members of the Triads. The concept of 在恐懼中的證人 is permitted under Hong Kong law to allow for evidence in cases against organized crime.

It may not be as exciting to gamble in Las Vegas, but it appears to be much safer.

Hong Kong tycoon guilty of money laundering

By Christine Duhaime, B.A., J.D., Gaming Attorney & Certified Anti-Money Laundering Specialist

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Guilty of Money Laundering

Hong Kong tycoon and former Birmingham City Football Club owner, Carson Yeung, was found guilty of money laundering in a Hong Kong Court today. The prosecution alleged that he laundered $73 million from 2001 to 2007 through two Hong Kong banks for a Macau junket operator, Neptune Group. In October, Mr. Yeung admitted in Court that he accepted 12 wire transfers totalling approximately $2 million from a Macau casino sent by Cheung Chi Tai, an alleged leader of the Hong Kong based Wo Hop To, a Triad gang. Mr. Yeung maintained that he acquired his wealth from being a hair dresser and trading in penny stocks. 

Las Vegas Sands personal information on gamblers taken in cyber-attack

By Christine Duhaime, B.A., J.D., Gaming Attorney & Certified Anti-Money Laundering Specialist

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Casino Patron Data Allegedly Stolen in Cyber-Attack

Several weeks after reporting that its websites were attacked by political hackers, the Las Vegas Sands Corp. reported that the personal information of some gamblers and hotel guests (and possibly some employees) was stolen in the attack. The cyber-attack was allegedly motivated by comments CEO Sheldon Adelson made about Iran. The cyber-attack affected Las Vegas Sands Corp. corporate website and several of its casinos. The most high profile (and material breaches if any) appear to those from the casinos in Macau, Singapore and Las Vegas. It is unknown whether the personal information of high rollers and prominent persons who frequent high-end casinos, their nightclubs and casino hotels was taken.

It is public knowledge that casinos have significantly more personal information collected, retained and stored on gamblers, night club and hotel guests than most businesses because of the nature of the services and the heightened financial crime risks in which casinos operate, including client ID and financial transaction records, credit reports, bank records, Bank Secrecy Act reports, problem gambling reports and video surveillance records associated with gamblers. Some casino data is extremely sensitive. It is the probably the one sector, more than any other, where customer, operational and financial privacy is vitally important and maintaining its secrecy is essential to the integrity of gaming.

On its website, the Las Vegas Sands Corp. seems to confirm that credit and financial information provided by patrons was taken by the hackers. There is even a YouTube page that shows the hacking results and it contains the Social Security Numbers, emails and names of hundreds of people purportedly from several casino locations.

The FBI, US Secret Service and gambling regulators in several jurisdictions are no doubt involved in the investigation into the cyber-attack. Casino operators can expect this incident to result in significant changes to cyber-security protection in the gaming sector. 

The reason the nature of the personal information and the extent of video surveillance collected and retained on casino patrons (including those that visit casino hotels, lobbies and night clubs) is public knowledge is, in part, from several decisions in Canada and elsewhere before,  among others, privacy tribunals which disclosed casino operational information. 

Bit by (Bit)coin in Asia Gambling Brief

By Christine Duhaime, B.A., J.D., Gaming Attorney & Certified Anti-Money Laundering Specialist

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Bit by Bit(Coin)

Recent headlines on the digital currency phenomenon, bitcoin, haven’t been entirely positive, with news of regulatory clampdowns, the hacking of exchanges and the arrest of key market players over alleged money laundering.

Despite recent negative publicity, bitcoin is being accepted by an increasing number of merchants around the world. That includes two Las Vegas casinos – D Las Vegas Casino Hotel and the Golden Gate Hotel & Casino – that recently said their hotel and gift shops would accept the currency, although not for gambling.

The online gambling, or iGaming industry, is no different. More and more online gambling websites are investing in technological changes to accept bitcoin bets. And it’s easy to see why.

According to the American Gaming Association, the iGaming industry worldwide is worth $30 billion annually. Bitcoin offers business advantages to gaming entrepreneurs that they can’t get with any other payment method. Those include payment finality (inability of players to demand chargebacks, whether from fraud, dissatisfaction or error), low to no transactional costs, ease of funds transfers, privacy protection and freedom from prohibitively expensive Know Your Customer rules.

On the other hand, gambling with bitcoin raises unique legal issues – it provides little consumer protection to players and, like cash, is susceptible to risks of money laundering and terrorist financing. It also has no mechanism to prevent underage gambling and deter problem gambling – issues that are paramount to upholding the integrity of gambling.

These issues create a dilemma for gaming regulators in regulated iGaming jurisdictions that want to facilitate innovation and growth in the iGaming industry but are prevented from doing so because the anonymous nature of bitcoin makes it impossible to supervise financial transactions and identify gamblers.



What is bitcoin?


Bitcoin is a digital currency, i.e., one that exists purely online in cyberspace. It was started in 2009 by a person known only by the pseudonym Satoshi Nakamoto. It is unique in many ways. Unlike traditional currencies that are issued and controlled by central banks, bitcoin has no central monetary authority and is not backed by any authority or government.

The "crack cocaine of gambling" - Recurring battle of using gambling to support horseracing in UK and Ontario

 

 

 

 

 

 

 

By Christine Duhaime, B.A., J.D., Gaming Attorney & Certified Anti-Money Laundering Specialist

Follow @cduhaime

Horseracing industry in U.K. in jeopardy if FOBTs cut

The U.K. government is suggesting the elimination or restriction of Fixed Odds Betting Terminals ('FOBT"), the so-called "crack cocaine of gambling", in order to manage a perceived increase in problem gambling. FOBTs, introduced in 2002, allow bets of £100 per spin and have grown in popularity and number in betting shops. Over 8 million people in the U.K. gamble on FOBTs annually. 

Funds from FOBT wagers are used to preserve the horseracing industry in the U.K., and an elimination of them would necessarily negatively impact the industry. Betting shop owners and gaming operators say that restricting or cancelling FOBTs will "kill the horses" and, as happened in Ontario, essentially kill the entire horse industry with it.

Slots & racinos in Ontario

The same issue arose in Ontario, where slot machine were introduced in casinos and at race tracks (racinos) for the express purpose of preserving the horseracing industry in early 1999. Money from slot revenues was earmarked for horseracing and $4 billion was provided to the industry over 15 years. 

Two years ago, the Ontario government pulled the plug on the slot machine revenue-sharing deal and the horseracing industry tanked. It was one of Ontario's major agricultural industries. 

Ontario agricultural horse industry lost 9,000 jobs

Almost two years later, the government reversed its position and announced a new deal for horseracing, committing $400 million over five years to reverse the decline, less than 25% of what horseracing used to receive. But it was too late - by August, 2013, over 9,000 jobs in Ontario's horseracing industry had been permanently lost and most of the top thoroughbred horses had been sold in U.S. sales to American breeders. 

It's unfortunate because horseracing is a sport that spans three diverse and important sectors in Ontario - sport, gambling and the rural agriculture. Worldwide, more than 200 million people attend horseracing events and over $100 billion is gambled on races each year. One of the issues in Ontario seems to be the lack of a strong lobby group for the industry and the lack of awareness of the benefits, economically-speaking, of a strong horseracing industry which should have commissioned an economic impact statement of Canadian racing years ago. 

In the U.K., the gambling industry has stepped up lobbying efforts to preserve horseracing and will likely be more successful given the greater importance to horseracing historically there than in Ontario. The U.K. racing industry is one of the largest and most sophisticated in the world, and among U.K. sports, is second only to football in terms of attendances, jobs supported, tax contribution and capital investment.

Photo: Christine Duhaime, Woodbine Racetrack, Toronto.

Junket operators diversifying even more

By Christine Duhaime, B.A., J.D., Gaming Attorney & Certified Anti-Money Laundering Specialist

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Junket operators continue diversification

Bloomberg has an interesting story that expands upon our previous story in Asia Gambling Brief on the further diversification of junket operators in Macau here.

According to the story, junkets are setting up high roller, or VIP clubs in South Korea and the Philippines where gambling businesses are growing. Larger junket operators such as Suncity Group, have branched out into other areas altogther including immigration services, movies and music production.

The majority of casino revenues in Macau are from VIPs that junkets deliver to Macau from Mainland China who gamble in private rooms operated by the junkets within casino premises. This creates a problem for the US, Macau and China in terms of money laundering and financial crime compliance because the VIP rooms are not regulated for anti-money laundering compliance on any serious level. The reasons for this are based on legislative, policy and cultural issues between Macau and China. VIP rooms in Macau casinos are not part of  casino operations and junkets run their own cash cages. 

American registered casinos in Macau have been trying to foster relationships with VIP clients, with the goal of ultimately cutting out the junket middleman but that will never happen. Among other things, VIP clients have family, cultural and other ties to the junket operators in China which would be impossible for American registered casinos to overcome. Moreover, the junket system is a type of shadow banking wherein the junkets move funds out of China, circumventing the currency restrictions in place for Mainlanders. Those funds are provided to VIPs to gamble in Macau by way of loans and lines of credit, and subsequently collected with interest in the Mainland.

Each facet of those activities are illegal in China (the lending of funds for gambling, the removal of funds from China above currency restriction amounts and the collection of gambling debts in China), and the proceeds of the gambling debts collection render those funds de facto proceeds of crime, thus American-registered casinos could not, in any event, participate in those activities. 

Our earlier stories which explain the gaming and anti-money laundering law issues are here ("Macau casino junket operators use trade show to polish image") and here ("Macau casinos face regulatory balancing act").

Is Canada planning to be the next I-gambling worldwide operator?

By Christine Duhaime, B.A., J.D., Gaming Attorney & Certified Anti-Money Laundering Specialist

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Canada to be the next i-gambling worldwide operator?

The 2014 budget for the Canadian province of British Columbia was released today, and buried deep in addendums to the budget, the state-owned lottery corporation suggested that it plans to partner with other jurisdictions beyond Canada to provide Internet gambling services.

 

Although not many details were provided, the British Columbia Lottery Corporation (the "BCLC") stated that it has been contacted by potential clients from around the world as provinces and US states seek to repatriate funds from gamblers that are funneled to offshore gambling websites and that it has legal and operational advantages that offshore Internet gambling websites do not have.

 

The BCLC statement referred to the fact that it is looking to leverage economies of scale by partnering with other jurisdictions, presumably overseas, in offering its Internet gambling service, known as PlayNow.com. 

 

The statement was prompted in part by what the BCLC said was increasing competition from land-based casinos in Macau and Nevada, and from over 2,000 I-gaming sites worldwide for Canadian gamblers.

 

Christine Duhaime is a Gaming Attorney and Certified Financial Crime & Anti-Money Laundering Expert based in Hong Kong and Canada.

Vietnam trying to lure casino investors back

By Christine Duhaime, B.A., J.D., Gaming Attorney & Certified Anti-Money Laundering Specialist

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Vietnam losing $800M a year in tax revenues

After chasing away casino investors such as MGM Resorts last year over regulatory and administrative changes to gambling, Vietnam is now trying to turn the tide and lure casino investment back to the country. By all accounts, it loses about $800 million a year in lost gambling tax revenues to Cambodia. Existing casinos in Vietnam are for foreigners only but they are of such poor quality that foreigners prefer to gamble elsewhere. 

If Vietnam manages to turn things around, experts project revenues could be as much as $3 billion a year. 

You can read more on Reuters here.