AML agreement could spell trouble for local, foreign operators: Bernstein

Bernstein Research says the recent agreement with China’s central bank and the Macau Monetary Authority over tightening anti-money laundering measures will bring Macau’s banking system in greater compliance with global AML standards and could create risks for both local and foreign casinos.

The memorandum of understanding could create further negative headwinds for Macau’s VIP business following the implementation of policies, procedures and investigative frameworks.

“A tightened control on capital flow may dampen small and medium junkets’ (and their VIP customers’) ability to move money out of China. As a consequence, we expect the consolidation in the junket industry to continue,” said analyst Vitaly Umansky in a note.

However, a bigger risk would be to foreign gaming jurisdictions with VIP business being driven by Macau based junkets, the note says.

“It is our understanding that these junkets may currently be employing Macau’s banking system to facilitate money transfers to/from these foreign jurisdictions. Such activities may likely now be under greater scrutiny resulting in more risk/concern associated with shifting VIP business from Macau to foreign jurisdictions.”

Macau’s junket industry is seen to be continuing to downsize. Jimei is said to have let go about 20 front office staff this month; AG closed its VIP room at Wynn Macau; Sai Tai Wu closed VIP rooms at Altira and StarWorld and Gold Group is rumored to close VIP rooms at Casino Lisboa, according to Bernstein.

“We believe the hyper-growth of VIP in 2013 and early 2014 was partly a bubble driven by some junkets extending gaming credit with low levels of risk management (i.e., extending credit to lower quality players).”