Wednesday, January 30, 2008

Casino Cheats: Skimming Macau Style Side-Betting

Remember the old term "skimming" for the mob stealing money from Vegas casinos and which reminds us of the movie "Vegas" with Robert De Niro and Sharon Stone? Well, in Macau with its tremendous casino boom, mobsters have taken skimming to new heights! Over there it's called "side-betting."

Here are two articles to explain exactly how they do it:


"Let me tell you a little bit about skims. There is no casino, in this country at least, that is capable of defending itself against a skim. There are no safeties. You can't prevent a skim if a guy knows what he's doing." So warned Frank "Lefty" Rosenthal, the former boss of the Stardust casino in Las Vegas, where officials in the 1970s and '80s exposed one of the city's largest mafia skims.
The revelation that Macau may have lost more than HK$100 billion in casino winnings and HK$40 billion in tax revenue over the past five years due to side betting is reminiscent of Las Vegas before it became an American conventioneer's paradise dominated by billion-dollar resorts. The Nevada gambling hub was for decades the target of large-scale, systematic casino skimming operations ultimately directed by the country's top mafia bosses.

From the 1946 opening of notorious gangster Benjamin "Bugsy" Siegel's Flamingo casino to the '80s, when Mr Rosenthal's reign at the Stardust ended with Nevada authorities adding him to a blacklist, the mafia skimmed millions of unreported, untraced and untaxed dollars out of casinos in Las Vegas.
In the Stardust operation, documented in the book Casino by journalist Nicholas Pileggi and turned into the 1995 film of the same name with Robert De Niro playing Mr Rosenthal, the key was infiltrating the casino's supposedly secure money-counting room. Complicit staff underweighed coin winnings from slot machines and set aside bricks of paper money for mafia couriers, who simply walked it out the door.
"Even when you know what can happen, it's almost impossible to keep a casino from leaking cash," former Stardust casino manager Murray Ehrenberg, who previously worked at Steve Wynn's Golden Nugget casino, told Pileggi.
"The systems for skimming casinos are as varied as the genius of the men doing the skimming," Pileggi wrote.
While it is a different type of skimming, the Macau scam probably dwarfs anything that ever took place in Las Vegas.
Five senior executives at licensed Macau casino operators polled by the South China Morning Post (SEHK: 0583, announcements, news) estimated side-betting volumes in Macau at between 20 and 200 per cent of the officially reported market for VIP gaming.
Macau reported VIP gaming revenue of 46.88 billion patacas in the 12 months to September. Based on the lowest estimate from the Post survey, side-betting volumes in Macau were around 9 billion patacas or US$1.1 billion in the last year. At the time of the Stardust skim, which involved three other Las Vegas casinos owned by the same company, Nevada officials estimated the operation never netted more than US$20 million.
The key figures behind side betting in Macau are the players themselves and the junket operators - middlemen who bring high-rollers to casino VIP rooms, issue them credit to gamble with and collect their debts in exchange for a commission on the sales of gaming chips.


A report suggesting more than US$12 billion has been bet under the table in Macau casinos during the last five years is an exaggeration, said the director of Macau’s Gaming Inspection and Co-ordination Bureau (DICJ) yesterday.

The report in the Hong Kong newspaper, South China Morning Post said a poll of five senior executives from Macau casinos put the average total of side-betting in local venues at equivalent to 78 percent of the total VIP gaming market.

Reported VIP gaming revenue of the 12 months to September was 46.88 billion patacas.

Side betting takes place when casino junket operators, who supply VIP gamers to Macau casinos, also wager with their clients.

“I don’t believe it’s the amount the newspaper suggests, it’s almost impossible,” Manuel Joaquim das Neves, director of the DICJ told the Macau Daily Times.

“Side betting involves many risks for the player and the junket promoter, first they play on credit, if someone has bad debts you can not use any legal way to claim your money, so there is no logic to the amount in the newspaper.

“The majority of junket promoters don’t take this risk.”

Yesterday’s report suggested the practice was wide spread in Macau with the five unnamed executives putting the total of the side-betting market in Macau at between 20 and 200 percent of� total VIP revenue.

An executive of a licensed Macau casino told the Macau Daily Times he was not surprised by the report.

“I think side betting is going on in every casino and every VIP room in Macau,” he said, wishing to remain anonymous.

One of the most common forms of the under-the-table betting is when operators offer the high-rollers a multiple of what happens on the casino tables.

An often used method is to offer players the value of bets in another currency, for example US dollars.

The two parties agree that the value of the chips on the table is multiplied, for example by a factor of 7.8 if the US dollar value is used.

If a player bets HKD10,000 in chips, the real bet between the player and junket operator is HKD78,000.

Side-betting removes the casino’s take from the turnover and the 40 percent government tax from the gaming equation, leaving all of the revenue with the players and operators.

Mr Neves admitted their was no way his bureau could know the extent of the practice in Macau casinos.

“We take some measures with the Judiciary Police (JP), but nobody tells if they are taking side-betting, it’s impossible to prove it,” he said.

“If I go with you to a casino and bet with you according to the result of the table, nobody knows if you don’t tell.”

Stephen Weaver, Asian region president of Las Vegas Sands, owner of the two largest casinos in Macau, Sands Macao and Venetian Macao, said he did not believe side betting was prevalent in the company’s venues.

“We are not aware of it going on, on an ongoing basis, in our operations but I’m not sure how you would know because of the nature of how that practice would be conducted,” he said.

“I would have thought the government regulators carefully regulate the industry and if it was possible to discern the existence of side betting, the government has a bigger stake in it than we do given the rate of taxation.”

Junket operators have the opportunity to run side-betting scams because of the access they get to VIP gaming rooms in Macau.

Each room is leased by the casino license holder to a third party operator. The operator reportedly pays a deposit upwards of HKD100 million to secure a 15 table room and must provide at least the same amount in working capital. The control the operator has over the room depends on the license holder. In all rooms the dealers and pit-bosses are supplied by the casino, however in rooms provided by Galaxy Entertainment Group and Sociedade de Jogos de Macau, the operator also runs the room’s cage, or chip cashier. This allows the junket operator to keep track of each players chip volume and therefore multiply any side-bets.

The operators also employ marketing agents, who are generally female, to accompany players and track their level of play.

Players also receive other benefits from the junket operators, such as a discount of chips if they bet over a certain level.

All debts and payments are then taken care of once the operators and players return to the mainland.

Macau casino operators with venues in other jurisdictions in the USA and Australia are prevented from turning over control of a room’s cage due to the overseas regulations that extend to all of the company’s venues.
Prior cases

Proving alleged side betting is even more difficult than catching suspects, suggests Mr Neves. Although no charges have been laid since the handover in 1999, two previous cases were dismissed because of a lack of evidence.

Prior to 1999 Mr Neves recalls two cases where players were caught discussing a side bet at a table.

“The Judiciary Police and my bureau put two cases in the court and nothing happened because there was not enough proof,” he said.

The JP also regularly undertake sweeps of casinos where customers, including those in VIP rooms are questioned.

One such action occurred the week before the opening of the Asian Indoor Games in October.

“Sometimes the police go to a casino and check many people and certain people in the VIP rooms they ask about side betting or if anyone tells you to do side betting,” said Mr Neves.

“… until now nobody has said anything about side betting.”
Necessary evil

The practice of side-betting appears to be an accepted cost of doing business in Macau. Removing the junket operators, who provide credit to Chinese VIPs who could not otherwise take currency outside of the mainland, would collapse the market.

“Junket’s bring in positive benefits for the gaming industry in Macau because it brings in the high rollers,” said Mr Neves.

The practice is also not restricted to Macau, he believes.

“This happens in all jurisdictions. I talk with my colleagues from other jurisdictions such as Nevada, they believe they have side betting but it’s difficult or impossible if nobody tells.”