How international governments are trying to prevent money laundering at casinos

January 23, 2024

Daniel C. Silva, Shareholder with Buchalter, and Jarod Baker, Co-Founder of Pacific Economics, discuss international government inquiries into money laundering at casinos.

Although cryptocurrencies and sanctions have consumed the focus of anti-money laundering (AML) regulators recently, there has been another, less high-profile global crackdown happening in gaming. Junkets, their transactions and the shadowy figures controlling them sit at the centre of inquiries and prosecutions in Asia, North America and the wider Pacific region.

The threats found within the inquiries and prosecutions go beyond the laundering of criminal proceeds. Transnational organised crime, long-rumored to pull the strings in various locations, has increasingly been identified as operating globally – largely through casinos. These organisations have their own transnational clients, including the world’s most problematic governments and political movements.

Even worse, the transactions take place through underground transactions that slip through the traditional financial system across junkets, casinos and their affiliates as well as digital finance. In contrast to cryptocurrencies operating on a public ledger (e.g., the blockchain), the junkets’ global financial network is more difficult to either trace, associate with a person/business or identify as existing at all.

How junkets inserted themselves into global crime

In broad terms, the words “junket” or “junketeers” have origins in Chinese, where jun literally means “introducing” and ke means “customers.” Introducing customers became a standard method of casino marketing during the late 1930s in Macau, China's gaming industry. Over time, junkets evolved into a generally accepted practice in global gaming.

Junkets originally served to transfer funds and value from mainland China, where gambling is illegal, to Macau and Hong Kong, where gambling is legal. Junket activity has steadily increased over the past several decades alongside: China’s economic rise; the growth of international gaming conglomerates; the more recent need to move money out of China covertly in light of President Xi Jinping’s anti-graft campaign that began in 2012; and in connection with China’s strict financial controls, which cap the amount of funds individuals can convert to foreign currencies at $50,000. Naturally for organised crime, the transfer networks take place off the financial grid, hidden from AML global regulations and scrutiny through “mirrored transactions” in cash or casino chips.

As casinos expand their presence both globally and online, money is able to move just as far and just as fast. Win or lose, gamblers skirt China’s financial controls and covertly move their money overseas. The Cullen Commission in British Columbia recently identified how billions of dollars were laundered through local casinos every year in these underground junket transactions: "Wealthy casino patrons were provided vast sums of illicit cash by “cash facilitators” who were affiliated with [local] criminal organisations. Typically, these patrons were not themselves involved in the criminal activity that generated these funds. Some held significant wealth in China but were unable to access that wealth [internationally] because of Chinese currency export restrictions, so they resorted to cash facilitators to get money to gamble in [the local jurisdiction].

"These patrons would genuinely use this cash to gamble. They often lost it. But whether they won or lost, they would repay the cash advance to the criminal organisation in a form other than cash, often via an electronic funds transfer in another jurisdiction. This arrangement enabled wealthy casino patrons to gamble in [the local jurisdiction] without running afoul (or at least without appearing to run afoul) of Chinese currency export restrictions, while allowing criminal organisations in [the local jurisdiction] to launder their illicit cash. They did so by converting it into a different medium of exchange, transferring it to another jurisdiction and obscuring its illicit origins."

The source of the junkets’ funds has been linked to unlawful sources all over the world. With the rise of digital finance, a patron can be in another continent and still send money from their bank account in China to the junkets’ designated account in China using mobile banking applications – effectively buying cash in one country and paying for it in China. As a result, the foreign funds are cleaned, the casinos collect their debt from the patron and the patron’s funds never left China in violation of its capital controls.

Global exposure of junket and organised crime at casinos

The Bergin Inquiry was the first major public inquiry into the role junkets play in international money laundering. Led by former Supreme Court Judge Patricia Bergin SC, the two-volume report explored deep and wide money-laundering practices, with links to organised crime and inadequate AML governance at Crown Resorts' Australian casinos.

Most strikingly, the Bergin Inquiry highlighted the operations of Macau-based junkets that “function as part of an underground banking system” that spanned the Pacific. Without more robust AML practices, the Bergin Inquiry found that casinos struggled to “understand ownership structures, beneficial ownership or who is ultimately behind that corporate entity of a junket.” This was not an isolated problem.

The Gotterson Inquiry tackled similar issues in another region of Australia, as carried out at The Star Entertainment Group. The examination explored how integrated the junkets were within the casino industry. The Star confirmed the complex and unmanageable AML risks by “permanently exiting” the use of junkets altogether. As mentioned above, the Cullen Commission analysed money laundering in British Columbian casinos. It concluded that the nation’s AML regime was “not effective.” Describing what became known as the “Vancouver Model,” these same techniques appeared in several criminal prosecutions in the US in and around the same time.

The prosecutions in the US have largely targeted these networks as either an “informal value transfer system,” underground banks or as unlicensed money transmitting businesses (MTBs). MTBs have proven to be a haven for money launderers, providing a complex web of transactions that are challenging to trace across international borders, digital platforms, currencies and assets. The concealment of the source, purpose and existence of junket transactions has proved extremely effective and adaptable. Latin American cartels have used similar tactics to launder narcotics proceeds. The Financial Times recently exposed how organised crime and “underground banks” allowed “gambling tycoons” to help North Korea launder the proceeds of cyberattacks and evade international sanctions, further emphasising the need for robust enforcement and regulatory measures.

The Financial Times’ investigation further exposed all the hallmarks of international money laundering: “a complex tale traced through shell companies, triad networks, underground financing channels and sprawling family connections” that allow North Korea’s regime to be “propped up by murky intelligence and financing operations in the Chinese special administrative regions of Hong Kong and Macau.” These operations are, according to James Byrne, Director of the open-source intelligence and analysis research group at the Royal United Services Institute, “central to North Korea’s ability to continue to function and threaten the world with nuclear war.”

China has not been idle. Alvin Chau, the Chairman, CEO and Founder of Suncity Group – previously Macau’s biggest junket operator – was sentenced to 18 years in jail. The Bergin and Gotterson Inquiries indicated that Chau had extensive dealings with both Crown Resorts and The Star Entertainment through his junket-affiliated money laundering ring.Chau had for some time been linked to the Chinese Triad mafia and Wan Kuok Koi (aka Broken Tooth), sanctioned by the US Treasury Department in 2019 for corruption and money laundering. As a member of the Communist Party of China’s Chinese People’s Political Consultative Conference, Chau’s network of junkets and casinos spanned Africa, Southeast Asia and the Pacific.

The need to enhance AML scrutiny

Collectively, these inquiries, prosecutions and penalties indicate a clear intent by governments worldwide to protect every onramp to the financial system. To meet their AML obligations and protect the financial system, casinos must differentiate between the types of financial crime in various regions while gathering as much information from patrons as possible about the source of their funds (not just the source of their wealth). Authorities will expect casinos to maintain a robust AML and risk management program that can quickly determine the key information needed from customers, especially ones who use intermediaries.

Online casinos are proliferating and have managed to find a way to work with junkets. Compounding the risks, many online casinos accept cryptocurrency for chips that can be cashed out for fiat currency. While junkets may continue as an enduring component of gaming, their use of underground funds transfer networks should not. They have operated in the shadows for too long, for the benefit of transnational organised crime and rogue states. The world's prosecutors, regulators and independent investigators show no signs of letting this continue.


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