Las Vegas Sands FCPA Probe Sheds Light on Macau’s Murky Gaming Industry
By Christopher M. Matthews | March 4, 2011 4:37 pm

The disclosure Monday by Las Vegas Sands Corp. that it is under investigation for potential violations of a U.S. foreign bribery law underscored the murky, and often risky, nature of doing business in Macau’s booming gaming industry.

Since being handed over to China in 1999, Macau has emerged as one of the largest gambling centers in the world. It has also become an alleged money laundering center for Chinese government officials, with a reputation as a bastion of organized crime and a place where a bribe can help to move things along.

Steve Jacobs at a 2009 ceremony at the Hong Kong Stock Exchange to mark the first day of trading of Sands China Ltd.

The U.S. government investigation into potential violations of the Foreign Corrupt Practices Act by Las Vegas Sands stem from allegations made by the former head of the company’s Macau operations, Steve Jacobs. In a private breach of contract, Jacobs claimed that Las Vegas Sands chief executive Sheldon Adelson pushed him to illegally retain the services of an elected Macau official and use “improper ‘leverage’” against senior government officials of Macau, among other things.

Adelson, who is worth over $9 billion, is a major Republican Party financier. A spokesman for Las Vegas Sands told Just Anti-Corruption that Jacobs’ allegations were “baseless and inflammatory.”

A March 2010 report by Reuters and the Investigative Reporting Program at the University of California, Berkeley shed light on the links between Macau’s gambling industry and China’s secretive organized crime groups, known as triads. The report also revealed Las Vegas Sands’ reliance on triad-affiliated so-called “junket companies” to fill its Macau casinos with high rollers, the majority of which come from mainland China.

In addition to bringing in VIP gamers, Macau’s highly profitable junket companies are often used by the casinos to collect gambling debts, which are not collectible under Chinese law. According to 2009 report by the U.S. State Department, the VIP rooms have catered to clients seeking anonymity and minimal official scrutiny. “As a result, the gaming industry provided an avenue for the laundering of illicit funds and served as a conduit for the unmonitored transfer of funds out of China.”

Lowell Bergman, who heads Berkeley’s Investigative Reporting Program, said that Nevada-headquartered casinos operating in Macau must comply with the state’s laws prohibiting “unsuitable” associations that “discredit” the gaming industry. Macau has similar rules, Bergman said, but enforcement of them is not very strict.

“The realities on the ground are that you need some kind of interaction with the junket companies to fill up the VIP rooms, which is a huge problem for a  publicly traded country,” Bergman said.

In 2010, Macau’s gaming industry brought in four times more revenue than Las Vegas. Las Vegas Sands has three casinos in Macau, which accounted for more than half of the company’s revenue over the past two years.  Sands’ major competitor, Wynn Resorts, also has operations in Macau.

Las Vegas Sands said in its its annual report Monday that the U.S. Securities and Exchange Commission and the Department of Justice are investigating the company for potential violations of the FCPA, which prohibits bribes to foreign officials to obtain or retain business. The casino operator said it received a subpoena on Feb. 9 from the SEC and that it was advised the DOJ is also conducting an investigation.

The Wall Street Journal reported that the Nevada Gaming Control Board has initiated an investigation into the same matter.

The Chinese legislature recently passed an amendment making it a crime to bribe government officials who are not with the People’s Republic, and to bribe officials of international organizations. It remains unclear how vigorously the law will be enforced.

In the wake of disclosing the FCPA investigation, Las Vegas Sands shares have lost nearly 7 percent over the last three days, equivalent to a market value decline of more than $2.1 billion.

Jacobs filed the state suit in Nevada in October, alleging that he was fired after refusing to carry out illegal demands made by Adelson. Jacobs’ suit only only makes one FCPA-specific allegation, but some of his other accusations could also run afoul of the law:

“Adelson’s demands that (Sand China Ltd.) continue to use the legal services of Macau attorney Leonel Alves despite concerns that Mr. Alves’ retention posed serious risks under the criminal provisions of the United States code commonly known as the Foreign Corrupt Practices Act (“FCPA”).”

Adelson’s direction to Jacobs to have investigative reports prepared on Macau government officials as well as certain junket representatives reputed to have ties to Chinese gangs known as Triads;

Adelson’s demands that Jacobs use improper “leverage” against senior government officials of Macau in order to obtain Strata-Title for the Four Seasons Apartments in Macau;

Adelson’s demands that Jacobs threaten to withhold (Sand China Ltd.) business from prominent Chinese banks unless they agreed to use influence with the newly-elected senior government officials of Macau in order to obtain Strata-Title for the Four Seasons Apartments and favorable treatment with regards to labor quotas and table limits.”

Jacobs’ lawyers, Donald Campbell and Colby Williams, declined to comment. Campbell previously represented three men who sued Las Vegas Sands over payment for their assistance in helping the company acquire a Macau gaming license in 2002. The company paid the men $42.5 million to settle a lawsuit in 2009.

Patricia Glaser, a partner at Glaser, Weil, Fink, Jacobs, Howard, Avchen & Shapiro LLP who is representing the Las Vegas Sands Corp., referred calls to a company spokesman.

Bergman said the situation in Macau is not dissimilar to the 1960s and 70’s in Las Vegas, when the mafia held sway over the casinos. It took a series of FBI cases in Nevada to change the climate there, Bergman said.

“The problem that the federal government and the Nevada regulators will have to confront at some point, is that doing business in Macau in the gaming business is not the same as doing it in the United States or anywhere there is some kind of real regulatory oversight,” Bergman said.

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