21 September, 2023

Daniela Guerreiro: AML measures in Macau

Daniela Guerreiro, Associate at MdME, discusses the prevention of money laundering in Macau casinos.

It is no secret that the gaming sector has been called out as being especially vulnerable to the dangers of money laundering. Casino activity is known for being cash intensive and involving high volumes of fast-paced transactions. In other words: music to the ears of money launderers. Macau, being a vast gaming hub, is no exception. Up until recently, Macau was well known for its ‘junket model.’ Junkets (or ‘gaming promoters’) were vital to luring high rollers to casinos, by offering free accommodation, travel and other perks. Most importantly, gaming promoters were also allowed to provide credit facilities and collect debts. This would mean the junket program allows movement of funds to and from the casino, allowing the concealment of potential dirty funds and identity of money launderers.

The new Macau gaming law has shut down the typical junket model as we knew it. With the new restrictions – including the rule of exclusivity (gaming promoters may only be engaged by one gaming concessionaire) and prohibition of revenue sharing arrangements – junkets still operating in Macau are facing a difficult time. Additionally, to enhance the safeguarding of national security and to address further money-laundering and illegal cross-border flow of capital, the new law now prohibits junkets from depositing chips or funds (by itself or on behalf of others) – to further curb the movement of illegal assets.

The amendments introduced by the new law seem to be on the right track to respond to money laundering concerns. In fact, the changes show Macau’s promise to maintain its technical compliance with the Financial Action Task Force’s (FATF) 40 Recommendations, as previously echoed in the Asia Pacific Group on Money Laundering’s (APG) Mutual Evaluation Follow-up Report, published in 2019. But is it enough?

The anti-money laundering (AML) landscape is constantly changing and should continue to evolve to respond to new, and potentially more sophisticated, means to launder money. With new AML-related rules, such as those mentioned above, criminals will also adopt newer strategies to avoid being detected. Although junkets can no longer be a participant in the movement of funds, money launderers still have a variety of schemes to choose from, including structuring operations, refining techniques, colluding with other players and buying other players’ winnings, etc.

Macau authorities understand the need for an update of AML laws, regulations and guidelines, especially in the gaming sector, which continues to be the meal ticket of Macau’s economy. During the first Interdepartmental AML/CFT Working Group Plenary Meeting in 2023, coordinated by the Macau Financial Intelligence Office, the Working Group has developed a Strategic Plan, highlighting the goal of continuous improvement of relevant legal and institutional framework. Moreover, the Working Group also agrees that fostering local and international partnerships is key to combatting money laundering.

What can we expect? In strengthening the AML legal framework, Macau will most likely take inspiration in what the other jurisdictions are doing.

For instance, reviews on Macau AML/CFT legislation could lead to a restriction of cash payments and move towards cashless and digital payments – which is a possibility in land-based casinos in several US states. In fact, digital payments could greatly aid casinos in the enforcement of their compliance programs. Digital payments in casinos can improve patron identification and verification of source of wealth – thus enabling a proper risk profiling of patrons, as well as allowing traceability of funds/monitoring of transactions.

However, digital payments in land-based casinos could lead to some responsible gaming issues, as cash could be a better option to maintain control over gambling spend. Notwithstanding, as a solution, a limit could be implemented on the payment platform to ensure the patron remains within the established budget.Another possibility to enhance the current AML/CFT rules in the gaming sector is to lower the casino transaction threshold.

Currently, among other situations in which due diligence is required, the gaming sector is required to identify patrons, beneficiaries of gaming credits, representatives and agents whenever they engage in large-sum transactions – which is currently set at MOP$500,000 ($61,972). Lowering the threshold could mean a bigger compliance cost – however, it may be necessary to mitigate the vulnerabilities of the gaming sector.

On another note, the amendments to the current AML/CFT legal framework in the gaming sector could see a re-definition and expansion of the regulator’s obligations and powers, and even the creation of enforcement tools, to deter future breaches. In conclusion, gaming operators should stay current on regulatory compliance measures. When Macau AML/CFT legislation gets reviewed, the gaming sector should seek to update respective compliance programs and procedures, and organise immediate training of staff.