State-run banks implicated in multibillion-dollar cash-for-gambling racket in Macau

Documents detailing how UnionPay is used in Macau casinos to evade currency controls raise questions about the involvement of large banks

PUBLISHED : Wednesday, 04 June, 2014, 5:08am
UPDATED : Wednesday, 04 June, 2014, 7:43am

A multibillion-dollar cash-for-gambling racket in Macau casinos that subverts China's strict currency controls is being run by a sophisticated cross-border syndicate within the state-run banking system.

As pressure mounts on Macau to crack down on the scam - which insiders say involved more than 40 billion yuan (HK$50.23 billion) in illegal cross-border transactions last year - the South China Morning Post has seen documents that explain how the China UnionPay network is used in a complex process that poses serious questions about the involvement of state-run banks.

Last month, the Post reported that China UnionPay was investigating the problem of handheld swipe-card devices being used in Macau to provide cardholders with access to cash for gambling. The racket has alarmed Beijing and hit casino stocks.

The documents show how the mobile devices are used to show cash transfers - normally disguised as the purchase of a designer watch or jewellery - as having taken place on the mainland by a third-party processing company.

According to banking industry sources, once clears the transaction and authorises the remittance of funds from mainland bank accounts, it then authorises the remittance of these payments to the Macau bank accounts of the shops involved in the transaction.

The sources say lax due diligence checks have seen these cross-border payments accepted into accounts of at least two state-run banks with operations in the former Portuguese enclave.

Despite repeated attempts, did not respond to questions from the Post.

"Such an apparently elaborate scheme to circumvent China's forex regulations and thereby undermine the country's financial security must be alarming to Beijing," said a political analyst based in Macau. "I would guess the casinos are doing everything they can to stamp this out. But it would require a lot more than frontline security. There must be someone looking into how this is happening on the back end, too."

The transactions involve three legal breaches: the use of handheld payment devices registered on the mainland for transactions in Macau; the illegitimate clearance of transactions outside Macau by a mainland third party payment company; and the acceptance of funds from the mainland from transactions conducted via these mobile devices by Macau branches of state-run banks.

The two biggest state-run banks in Macau - ICBC and Bank of China - denied any involvement in the racket.

Bank receipts seen by the Post detail payments made with UnionPay cards swiped on handheld devices credited to the state-run bank accounts of shops in Macau.

The Post has also seen records of clearing payments and recording the payments to merchants on the mainland - complete with the chop of a state-run bank - at the same time these payments were made in Macau with the same UnionPay card numbers.

China's foreign exchange regulations place limits on the transfer of cash to Macau, but casino activity shows bets far exceeding exchange limits, according to a report by FTI Consulting.

UnionPay and the Monetary Authority of Macau declined to comment.