Macau’s gambling hub is taking a hard line on unlicensed currency traders

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Macau is cracking down on unlicensed currency traders who help players evade China’s strict capital controls, sparking fears of a new regulatory crackdown that could hurt megacasinos on the Chinese soil.

Macau is the world’s biggest gambling hub, with the government forecasting total gambling revenue of 216 billion patacas ($27 billion) in 2024, likely well ahead of the entire state of Nevada.

The former Portuguese colony operates a separate legal system from that of the mainland and is the only place in China where casino gambling is legal. Casinos in the territory rely on the business of tens of millions of visitors from mainland China each year.

Unlicensed currency traders have long been an important part of the financial infrastructure of Macau’s gambling industry, allowing tourists visiting from mainland China – which strictly limits how much money citizens can move abroad annually – to exchange onshore renminbi for dollars from Hong Kong used in casinos.

Politicians in the Chinese semi-autonomous city’s parliament said last week they would make it a criminal offense to provide unauthorized currency exchange services on the premises of a casino or its associated facilities, with those caught facing up to five years in prison and a possible ban of up to 10 years from gambling sites.

A cross-border crackdown on currency traders has weighed on shares of the territory’s six casino operators, with a Bloomberg Intelligence gauge of Macau casino stocks down about 7 percent over the past month.

The crackdown raised fears of a renewal of a Beijing-led regulatory campaign that rocked the industry in 2021, when authorities clamped down on huge underground financing networks that run out of the city to facilitate capital flight.

“First they took action against the big fish, and now they’re going after the little ones,” said Ben Lee, managing partner of Macau-based consultancy IGamiX, ​​adding that policymakers are particularly sensitive to trade given the slowdown China’s economy. “All these illegal sellers taking money out of China is something they will not tolerate.”

In June, China’s Ministry of Public Security called for a “high-pressure crackdown” to “destroy criminal gangs along the entire chain.”

In July, the ministry said it was working with police across China and Macau to crack down on cross-border foreign exchange trading gangs in Zhuhai, the mainland city that borders Macau, and other cities.

“Money-changing gangs are not a new phenomenon, but in the past they were considered less of a concern than money laundering and underground banking,” said David Green of Newpage Consulting, a former adviser to the Macau government.

In 2021, as part of a crackdown on capital flight, authorities launched a crackdown on junkets, promoters that Macau’s casinos once relied on to attract high-spending mainland players, sometimes arresting went after the bosses of the city’s two biggest junkets, accusing them of running vast. underground financial mechanisms. “Now that the junket operations have been reduced. . . Unlicensed forex operators have increased their visibility,” said Green.

Analysts at JPMorgan estimated that players representing no more than 10 percent of the city’s gambling revenue used unlicensed money-changing services in the casino.

Any crackdown would likely push players to other “loophole” funding routes, including using mainland bank cards to withdraw cash from local pawn shops or currency exchanges outside resort premises, they warned.

Citi analysts George Choi and Ryan Cheung noted that some stocks, such as Sands China and Galaxy Entertainment, were trading near or below Covid-era lows. “Although most players have their own legitimate ways of getting their funds to Macau. . . we fear this negative news could add to uncertainties and hurt the already fragile investment sentiment against Macau’s gaming sector,” they added.