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Background on gaming and junkets in Macau

BN Lawyers

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Macau September 6 2017

Background on gaming and junkets in Macau

 

Gaming in Macau has existed for centuries and was legalised in the mid nineteenth century. In 2002 the forty-year monopoly of STDM ended following the approval of Law no. 16/2001 (a legal framework for games of fortune and chance in a casino). Thus far, six gaming licences have been granted: Sociedade de Jogos de Macau (SJM), Wynn Resorts, Galaxy Entertainment Group, Las Vegas Sands, MGM Mirage/Pansy Ho and Melco/PBL1.

 

Currently 33 casinos operate in Macau, with a total of 4811 tables and 14,503 slot machines. This inventory has just delivered the most profitable quarter ever in the casino history of Macau with gross revenues amounting to of almost 41 billion patacas2. Of these revenues almost 70% derive from the VIP segment, where the biggest contributors are the junkets.

 

Macau’s system of contractual deals in VIP gaming was established in the mid 1980s, during STDM’s gaming monopoly concession. Although contracts between junket agents and casino operators assumed at that time an important role in the supply of VIP players to the casinos, limited government regulation was in place to control junket activity. The principal reason for this was that there was only one gaming concessionaire. The regulation was mainly to authorisation and general control of the junkets by the Gaming Inspection and Coordination Bureau. The contracts themselves were private agreements between junket and operator operated within the general framework of Macau commercial law.

 

Study of legal history in most cultures suggests commercial custom comes first and regulation follows after. That’s especially the case if commercial custom is perceived as becoming too skewed towards the businesses involved and too far removed from the interests of society as a whole.

 

Following the liberalisation of the gaming sector as it had been operating up to 2001, the Macau government assessed the situation. It decided that the concentration of Macau’s gaming revenues on the high-stakes gaming sector (and the taxes thereof) was closely linked to the junkets’ activities and that therefore specific regulation was justified.

 

Administrative Regulation no. 6/2002 (amended by Administrative Regulation no. 27/2009) was thus approved to regulate the activity of promoting games of luck and chance and other casino games in Macau. It covers the licensing and verification procedures related to the suitability (ethically and commercially) of the applicants, their registration with the gaming concessionaires and sub concessionaires, and the payments of commissions or any other kind of payouts to them.

 

This legislation–drafted in Portuguese and Chinese the–two official languages of Macau– starts by defining, in Article 2, junket activity as the activity of promoting games of fortune and chance or other games in casinos to players, through the granting of facilities (transportation, accommodation, meals and entertainment) in return for a commission or other type of compensation by the gaming operator. Article 3 determines that this activity can only be carried out by those licensed by the DICJ for the purpose. By the end of 20093, the DICJ had licensed 169 junkets, 129 being companies and the remaining 40, individuals.

 

This first of two articles analyses the licensing procedure and the junket’s main obligations.  A second article will focus on the famous commission cap, its enforcement, and comparison with nearby jurisdictions and what the future may hold for the junket system.

 

The licensing procedure

 

To obtain a junket license the applicant must undergo a licensing procedure that aims mainly to confirm their suitability and that of their shareholders, directors and principal employees or collaborators. The current regulation places a great emphasis on the fact that the procedure and subsequent investigations after the licence is granted are aimed to determine whether or not the applicant or the licence holder is fit to develop the junket activity.

 

If the applicant is a company, Article 4, no. 1, requires that their corporate purpose is solely the junket activity and that their registered capital is only held by individuals and not companies. This is in order to allow the authorities to identify the ultimate beneficiary of the junket business transacted.

 

For companies to apply for a licence, Articles 7, 8, 10 and 11 determine that:

 

1) A company must be incorporated and the registration of the company at the Business Registry follows only after the license is granted by the DICJ.

 

2) The applicant, shareholders with more than 5% of the share capital, directors who are not shareholders, and principal employees, must complete Forms no. I and II (covering disclosure of background and personal information) and submit them to the DICJ with the application and a criminal record certificate issued by their place of residence.

 

Junket licence holders need to repeat this process every six years, although the authorities also have the power to make interim checks.

 

3) The applicant must guarantee a deposit of MOP100,000.00, in benefit of the DICJ, to cover expenses incurred in the application procedure (e.g. preparation of risk assessments reports on the applicant or of its shareholders). The balance of the deposit is returned upon dissolution of the junket.

 

4) An applicant must have the support of one of the six licensed gaming concessionaires and sub concessionaires. The operator must file a declaration stating their willingness to work with the applicant.

 

Following the approval, a junket licence is issued and the business registration is concluded. The junket licence is valid for a calendar year from 1st January to 31st December. Any request for renewal for a further year must be submitted by 30th September.

 

The junket company is then able to operate according with the applicable laws and the terms and conditions set forth in the agreement signed with the gaming operator.

 

Article 24 determines that this contract must be in written form and notarised. It must determine the amount and way of payment of any commission or other compensation. It should state the way the junket will operate in the casino, specific spaces assigned to the junket operator and any guarantees made by the junket. The contract should also state that these operational matters will all be submitted to the exclusive jurisdiction of Macau’s law and courts. One copy of this agreement and any changes to it must be filed with the DICJ, within 15 days of its execution. This is to enable the DICJ to assess the agreement for compliance with the junket regulations.

 

Any changes to the shareholder’s or director’s structure and assignment of shares, must be notified to the DICJ, along with relevant documentation. Failure to do so nullifies the legal validity of the changes to the contract.

 

Any violation of the legal provisions that regulate the junket activity will be taken into consideration in the assessment as to whether the junket is fit to carry out the activity.

 

 

The junket activity itself

 

Junket activity is regulated by Administrative Regulation no. 6/2002 and Law no. 5/2004 (the legal regime of concession of credit for gaming or betting), the Commercial Code of Macau and also by, Law no. 16/2001 (known popularly as the Gaming Law) and its complementary regulation.

 

The junket activity is not by nature exercised exclusively for a specific casino operator unless otherwise contractually agreed with that operator. Initially the gaming concessionaires and sub concessionaires did request exclusivity

 

In order to better control junket activity, legislators have introduced the concept of joint liability. Article 29 of Administrative Regulation no. 6/2002 says casino operators are jointly liable for any infringement of regulations by the junkets and for the junket’s activity in casinos. In addition Article 30 states that gaming concessionaires and sub concessionaires must:

 

o        Submit to the DICJ, within a specific reporting timetable, a list of all payments of commissions or compensations, the withheld tax and all information needed to calculate such commissions;

 

o        Submit to the DICJ, every three months, a list of all the junket’s corporate bodies, their principal employees or collaborators;

 

o        Inform the DICJ of any fact that affects the solvency of the junket;

 

o        Keep updated the junket’s commercial bookkeeping;

 

o        Supervise the junket’s activity, especially the compliance with the applicable regulations;

 

o        Communicate to the relevant authorities any situation that might represent a criminal conduct by the junkets, namely money laundering;

 

o        Promptly pay the commissions and compensations due to the junkets.

 

The gaming concessionaires and sub concessionaires are also required to assist the DICJ in its supervisory duties.

 

 

Junkets must fulfil the following obligations:

 

o        Allow the DICJ’s supervision and inspection and provide it with any documentation and information requested;

 

o        Comply with all legislation and instructions given by the DICJ;

 

o        Allow any audits by the DICJ or the Finance Services Bureau;

 

o        Comply with all the contractual terms entered with the gaming concessionaires and sub concessionaires and their instructions, provided their autonomy is not impaired.

 

The Chief Executive of the Macau SAR government, or under delegated authority, the Secretary of Economy and Finance, has the power to impose sanctions on rule breakers under Article 32-A and 32-B:

 

o        A fine ranging from MOP100,000 (US$12,470) to MOP500,000 (US$62,345) 4, if a commission was paid in violation of the junket commission cap (applicable to junkets and casino operators alike) determined by the Secretary for Economy and Finance under the new Article 27 (introduced by Administrative Regulation no. 27/2009) 5.

 

o        A fine ranging from MOP50,000 (US$6,235) to MOP250,000 (US$31,173), if the casino operator does not provide the DICJ with the lists of all payments of commissions or compensations, the withheld tax and all information needed to calculate such commissions;

 

o        Suspension of the junket’s licence for six months or revocation of the licence;

 

o        Publication of the decision on the DICJ’s website and in two daily newspapers for five consecutive days. Rule breakers will bear all costs of these announcements.

 

When taking all of the above rules into consideration, and comparing Macau to other gaming jurisdictions where junkets exist, one can see that claims in the media and elsewhere that Macau has a lack of regulation or light touch regulation are largely exaggerated. Such claims derive mainly from the lack of knowledge of the provisions in place in Macau. Enforcement of the rules is a separate issue, which we will discuss in the second article.

 

 

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Filed under

  • Macau
  • Leisure & Tourism
  • BN Lawyers

Tagged with

  • Casino
  • Las Vegas Sands
  • Gaming control board
  • Gaming law

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Dave Vallance
Corporate Counsel
Helicopter Services BOP Ltd
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