Tiny Chinese enclave remakes gambling world, Vegas

Published on NewsOK Modified: July 7, 2013 at 7:52 pm •  Published: July 7, 2013
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LAS VEGAS (AP) — Most people still think the U.S. gambling industry is anchored in Las Vegas, with its booming Strip and 24/7 action, a place where years of alluring marketing campaigns have helped scrub away the taint of past corruption.

Yet in just a decade, the center of gambling has migrated to the other side of the world, settling in a tiny Chinese territory an hour's ferry ride from Hong Kong. The gambling mecca of Macau now handles more wagers than all U.S.-based commercial casinos put together, and many of those bets end up swelling the balance sheets of U.S. corporations.

But as U.S. gambling companies have remade Macau, Macau has also remade them.

Chasing riches, these companies have been hit with allegations of improper conduct, prompting investigations and serious questions about how closely U.S. authorities are watching the corporations' overseas dealings, and what, if any, real repercussions they could face. Could these corruption claims revive the specter of gambling's bad old days, when Sin City casinos kept mobsters flush?

"There are some countries where you either have to pay to play and break the law, or you have to not do business there," Indiana-based casino consultant Steve Norton said. "I think the jury's still out on Macau."

A few hours' flight from half the world's population, Macau is the only place in China where gambling is legal. Each month, 2.5 million tourists flood the glitzy boomtown half the size of Manhattan to try their luck in neon-drenched casinos. Most of them are nouveau-riche Chinese who sip tea and chain-smoke as they play at baccarat.

The former Portuguese colony has long been known for its gambling but used to offer a seedier experience, with small-time gambling dens crowding up against textile factories and gangs, prostitutes and money-launderers operating openly in the cobblestone streets. That was the scene in 1999 when China assumed sovereignty of Macau and opened it to outside gambling operators.

"It was a swamp," said Sheldon Adelson, CEO of Las Vegas Sands, as he looked back on his early venture in an obscure city where Chinese officials envisioned conventions and resorts. "Everybody thought that I was crazy."

Nevertheless, he and the two American competitors that tried their luck there succeeded spectacularly. Adelson's first casino opening there caused a stampede that ripped doors off their hinges. Now operating four booming casinos in Macau, he described Sands as "an Asian company" with a presence in America. He makes far more in China, a culture in which notions of luck and fate play integral roles, than in Las Vegas.

"This industry is supply-driven, like the movie 'Field of Dreams:' Build it and they will come." he said. "I believe that."

If Adelson's words and jack-o'-lantern smile suggest all is right in the globalized casino world, consider where he made these statements — on the witness stand in a Vegas courtroom this spring, defending his company against one of his former Macau consultants.

A jury in May found against Adelson, awarding the consultant $70 million for helping Sands secure a lucrative gambling license in Macau. Sands immediately appealed.

But the lawsuit may be the least of Adelson's worries. His firm is also accused of making improper payments to a Macau lawmaker and collaborating with the Chinese mafia. The U.S. Department of Justice and the U.S. Securities and Exchange Commission are investigating. The company says it's done nothing wrong.

It's not just Sands facing legal and regulatory troubles connected with Macau. Two of the other three major U.S. gambling enterprises are, too: Wynn Resorts Ltd. and MGM Resorts International. Both Sands and Wynn are facing related lawsuits from shareholders who claim Macau mismanagement has damaged the companies.

— Wynn is being investigated by the Justice Department and the SEC over a $135 million donation to the University of Macau Development Foundation in 2011. Wynn co-founder Kazuo Okada characterized the donation as "suspicious" in a 2012 letter to the SEC. He noted that the Development Foundation's lead trustee is also a member of the Macau government, and said that the donation coincided with Wynn's request for land to develop a third casino.

"I am at a complete loss as to the business justification for the donation, other than that it was an attempt to curry favor with those that have ultimate authority for issuing gaming licenses," said Okada, who is now under Department of Justice investigation himself for possible bribery in the Philippines, and has fallen out with his former Wynn colleagues. Okada denies wrongdoing.

If his claim is true, the Wynn payment could violate the Foreign Corrupt Practices Act, or FCPA — a law that bars U.S. companies from paying off officials to win business overseas. Wynn says it acted properly and had no need to buy-off authorities. Nevada regulators, in a separate investigation, found no wrongdoing.

— MGM got into trouble with New Jersey regulators when the company opened a Macau casino with Pansy Ho, the daughter of a gambling kingpin allegedly linked to Chinese gangs. The state found the partnership "unsuitable" in a 2010 report, and forced MGM to sell its stake in an Atlantic City casino. MGM denied that there was anything inappropriate about the relationship, began the process of selling its stake, and did not cut ties with Macau.

Two years later, MGM CEO Jim Murren stands by that choice. "The Macau market is now larger than the entire U.S. gaming market. Unfortunately for Atlantic City, it's gone the other way. It's smaller now than when we entered it. The fortunes of the two couldn't be more different," he said.

Last winter, New Jersey agreed to consider MGM's application for a renewed license.

— The Sands inquiries stem from a pending wrongful termination case brought by former Sands executive Steve Jacobs in 2010. Jacobs claims that Sands' China subsidiary did business with known gangsters, tacitly condoned prostitution and made inappropriate payments to an attorney who was also a Macau lawmaker. Jacobs claims Sands paid the lawmaker to help settle various regulatory issues in Sands' favor.

Sands has denied all claims, but recently said in an SEC filing that an internal audit had found possible breaches of a section of the FCPA that requires public companies to file proper financial statements and maintain a system of internal controls. In April, Sands' auditor declined to stand for re-election.

Justice Department spokesman Michael Passman declined to comment on the probe. Sands says it is cooperating with federal prosecutors. Spokesman Ron Reese said the company's dealings in Macau attract more scrutiny because it's the world's largest gambling market, but Sands is diligent wherever it operates.

Sands opened for business in Macau in 2004, at the beginning of a massive boom in China's economy that has lifted incomes for hundreds of millions of people, allowing them to afford upscale pleasures like gambling in casinos. Today, the former backwater is in the midst of one of the greatest gambling booms the world has ever known. To rival the money it takes in, Las Vegas would have to attract six times more gamblers each year than it does now— essentially every adult in America. Wynn Resorts now makes nearly three-quarters of its revenue in Macau. Sands, which owns the Venetian and Palazzo, earns two-thirds of its revenue there.

But like early Las Vegas, Macau has a long history of ties to crime syndicates — in this case secretive brotherhoods called triads that first formed on the mainland more than a century ago. Machine-gun shootouts, bombings and even assassinations of government officials were commonplace during magnate Stanley Ho's four-decade monopoly of gambling. (He is Patsy Ho's father.) In the late 1990s, a police official tried to reassure visitors by remarking that Macau had "professional killers who don't miss their targets."

The history and regulations governing the enclave continue to make it tricky for modern casinos to avoid gangs, illegal money transfers and at least the appearance of bribery.

Businesses operating there can expect allegations against them, true or not, said Bill Weidner, who was president of Sands until 2009.