Audit Your Customers Who Engaged in Macao Gaming...

Audit Your Customers Who Engaged in

Macao Gaming Activities

CAMS AUDIT – WONG CHI IONG

Audit Your Customers Who Engaged in Macao Gambling Activities

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Contents

1. Executive Summary ................................................................................................... 2

2. Limitation ................................................................................................................... 2

3. APG Mutual Evaluation Report ................................................................................ 2

3.1. 2017 Mutual Evaluation Report ........................................................................... 3

3.2. 2019 Follow-Up Report ....................................................................................... 3

4. DICJ Supervision ....................................................................................................... 4

5. Overview of the Macao Gaming Sector ................................................................... 8

5.1. The Six Concessionaires and Sub-Concessionaires ............................................. 8

5.2. Junket Promoters .................................................................................................. 9

5.3. Types of Gaming Players ..................................................................................... 9

6. Audit Plan Advice .................................................................................................... 10

7. Recommendations .................................................................................................... 11

7.1. Customer Due Diligence .................................................................................... 11

7.2. Source of Funds and Verification ....................................................................... 12

7.3. Transaction Monitoring ...................................................................................... 14

7.4. Training .............................................................................................................. 15

7.5. Suspicious Transactions Reporting .................................................................... 16

8. Conclusion ................................................................................................................ 16

9. Glossary .................................................................................................................... 17

10. References ................................................................................................................. 18


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1. Executive Summary

Anti-money laundering auditors might definitely think that Macao is the hotbed for money

laundering, because Macao is famous for its gaming sector, which is cash intensive and

identity is untraceable. It incurs perpetrators who use it as an important tool for money

laundering. As Kenneth Pemberton indicated in his CAMS white paper, Macao Junket

Operators Pose Financial Crime Risks to Banks—How to Identify, Assess and Address

Those Risks, Macao casinos are linked with triads, organized crime, and financial crime,

especially regarding junkets.

In 2018, total gaming revenue in Macao had reached US$3.7 billion, which is twice the

total gaming revenue of Las Vegas in the United States in the same year. Macao has already

become the largest market for the gaming sector. By using the net winning rate published

by Galaxy Casino, S.A., in 2018 as a reference to calculate the total bet amount for 2018,

it would be approximately US$15 billion. These enormous funds pump into casinos

through different channels. No matter whether players win or lose, funds eventually return

to financial institutions the players belong to, especially in Asia-Pacific regions such as

Mainland China, South Korea, and Japan. Therefore, no matter the country, financial

institutions may have customers engaged in Macao gaming activities.

Risk posed by casinos will transfer to the financial institutions because financial

institutions are the final destination for illegitimate funds. As a result, financial institutions

would be exposed to regulatory, reputational, and financial risk. Therefore, an in-depth

understanding of the casino’s operation processes and anti-money laundering and

combating financing of terrorism (AML/CFT) control is needed.

This white paper will highlight tricky points of verifying the source of funds and assist

AML auditors to better understand the risk of casino-related customers, so they can further

develop the scope in the audit program and enhance the risk control process.

2. Limitation ❖ The background of casinos in Macao will be only briefly introduced. For details,

please refer to the 2017 Mutual Evaluation Report of the Asia/Pacific Group (APG).

❖ Since the policies and procedures of concessionaires and sub-concessionaires

(casinos) are different from each other, the controls and procedures discussed in this white

paper are common practice and may not be applicable to every casino.

3. APG Mutual Evaluation Report APG has published the 2017 Mutual Evaluation Report and the 2019 follow-up report of

Macao, which was adopted by all APG members and has undergone a stringent ex-post

review process by the Financial Action Task Force (FATF) and its global members, to

ensure the quality and consistency of the evaluation standard.


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This section will outline the conclusion of these reports so we can better understand the

regulatory situation and risks of the gaming sector.

3.1. 2017 Mutual Evaluation Report

The 2017 Mutual Evaluation Report points out that the Macao gaming sector is

subject to AML/CFT supervision with resources devoted to higher-risk and material

sectors. The Gaming Supervision and Coordination Bureau (DICJ) has undertaken

adopting sound, risk-based supervisory actions so that compliance is improved.

In addition, the report specifically mentions that the six casinos demonstrate a sound

understanding of the ML/TF risks and AML/CFT obligations, while junket promoters

display an incomplete awareness of ML/TF risks and AML/CFT obligations. The

casinos have implemented to a large extent the DICJ instruction requirements on

CDD, determination of beneficial ownership, and politically exposed persons (PEPs)

(foreign and domestic), record keeping, and TFS, including coverage on the junket

sector. (APG, 2017, Mutual Evaluation Report, p. 11)

Casinos and their junket promoters work together to implement preventive measures,

with the former acting as both second and first lines of defense. Casinos have been

implementing standards based on their global AML/CFT compliance requirements,

which until the issuance of the revised DICJ AML/CFT guideline in 2016, were

higher than Macao, China’s requirements. (APG, 2017, Mutual Evaluation Report,

p. 11)

The report also mentions that DICJ identifies and maintains a sound understanding

of the ML/TF risks in the gaming sector as a whole, especially at the casinos' levels.

3.2. 2019 Follow-Up Report

Some lapses were identified in the 2017 Mutual Evaluation Report, and DICJ has

made some amendments to the guideline: It has improved its internal controls. But

minor deficiencies remain in DICJ AML/CFT guideline stated in the report:

❖ There is no explicit requirement for casinos to perform name screening

when hiring junior employees.

❖ There is no explicit requirement for an independent audit of the AML/CFT

system. Independent audit is currently a separate requirement of any supervisory

action or testing of the AML/CFT system.

❖ There is no explicit requirement for customer due diligence (CDD) on

occasional transactions, but there is a CDD requirement when establishing stable

business relationships, identifying suspicious transactions, or involving large-sum

transactions.


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4. DICJ Supervision

DICJ is the competent authority to supervise compliance of the AML/CFT laws and

regulations over casinos and junket promoters. DICJ published Preventive Measures for

AML and CFT in 2016 (amended and re-published by Instruction No.1/2019) in order to

enhance the supervision of AML/CFT in the gaming sector. The guideline requires casinos

to implement their AML/CFT obligations; and those who violate their obligations will be

punished.

The following table will explain the regulations of the guideline so we can understand how

the DICJ supervises the gaming sector. The guideline is consistent with FATF standards,

and that is why APG rated R28. Regulation and supervision of DNFBPs as “largely

compliant.”

DICJ Regulation FATF Recommendations

Article 4 AML/CFT Internal Control Policies and

Procedures Article 5 Scopes of the AML/CFT Internal Control

Policies and Procedures

Introduction:

Casinos should have comprehensive internal control policies and procedures. Internal

control-related rules and procedures need to be approved by the DICJ.

Article 6 Risk Assessment R1. Assessing risks and

applying a risk-based approach

Introduction:

According to the 2017 Mutual Evaluation Report, the larger casinos summarized and

demonstrated to the APG team a comprehensive risk-assessment methodology in

identifying and assessing risks associated with the gaming sector, including junket

promoters.

The assessments covered national/geographic risk, customer risk, product and service

risk, risks associated with the nature of the transactions, such as VIP, technology involved

(TITO), etc.

It was also mentioned that one of the major global casinos outlined a risk-assessment

methodology. The risk-assessment report which detailed threats, inherent risks,

vulnerabilities, and residual risks, and demonstrated impressive knowledge of the risk

environment and practices to mitigate those identified risks.


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Article 9 Identification and Verification of Identity R10. Customer due diligence

Introduction:

Casinos should perform CDD, including the obligation to identify and verify.

Junkets are also obliged to submit the information of their customers to casinos for

identification and verification.

Article 10 Reporting Large-Sum Transactions N/A

Introduction:

Any bets or repayments activity aggregated or by single time within 24-hour exceeds

MOP500,000 (USD$62,500), then a large-sum transaction report (REVO) must be filed

with DICJ.

Article 11 Reporting Suspicious Transactions R20. Reporting of suspicious

transactions

Introduction:

Obligation for casinos to summit the suspicious transactions report (STR).

The gaming sector has its indicators of money laundering using casino value instrument,

which can be divided into two types:

1. Indicators for cage is generally a suspicious source of chips, with very little or no

gaming activities. Redemption of chips without gaming records is the most

common suspicious transaction indicator.

2. Indicators for the gaming table are generally a bet against others, parallel even

money betting, etc.

Article 12 Completing and Signing the ROVEs and

STRs

Article 14 AML/CFT Reporting by Junket Promoters

N/A

Introduction:

All reports (including those submitted by the junkets) must be signed and reviewed by

the compliance officer before submission.

Article 15 Politically Exposed Persons (PEPs) R12. Politically exposed

persons

Introduction:

The 2017 Mutual Evaluation Report recommends that DICJ should include international

PEPs in the definition of PEPs to meet FAFT standards. In 2019, DICJ has incorporated

this recommendation into the AML/CFT guidelines. Enhanced due diligence should be

applied for PEPs, their family members, and close associates of the PEPs.

Article 16 Enhanced Due Diligence Related with the

Risks of Operations R19. Higher-risk countries

Introduction:

Casinos should carry out enhanced due diligence measures for their customers, the

representatives or the beneficial owner of those patrons that are adequate and

proportionate to their risks identified, based on the nature of business relationship or type

of transaction, and also the country risk (e.g., high-risk country indicated by the FATF).


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Article 17 Business Relationships with Companies

Within the Same Economic Group

18. Internal controls and

foreign branches and

subsidiaries

Introduction:

These companies are mainly non-Macao registered companies, such as foreign gaming

companies and their related companies and gaming promoters, and they are associated

with the six casinos. The main purpose of these companies is to transfer their funds from

overseas to Macao for gaming-related activities. Such companies need to obtain DICJ's

approval if they want to have a local financial institutions account in Macao.

Casinos are requested to perform enhanced due diligence for companies within the same

economic group in order to identify the source of funds and verify the identity of the

holders and the beneficial owners.

Article 19 Wire Transfers 16. Wire transfers

Introduction:

Any domestic or cross-border wire transfers of funds through financial institutions, no

matter whether it is inward or outward, casinos need to provide the financial institution

with the sender or payee information.

Article 20 New Technologies 15. New technologies

Introduction:

When introducing and using authorized new technologies in the gaming sector, it shall be

subject to enhanced due diligence, identification, and preliminary assessment of the

inherent ML/FT risks, and exercise appropriate and effective measures to mitigate the

potential risks.

Ticket in / Ticket Out (TITO) is one of the new technologies. It is a physical settlement

note for electronic entertainment machines (such as slot machines). TITO can be divided

into registered and anonymous, depending on whether the customers have inputted their

membership number into the machine. Anonymous TITO can be used as a tool for money

laundering. For this reason, casinos set a limit to the TITO, the maximum denomination

is MOP 50,000 (USD$6,250). That is how casinos take effective measures to mitigate the

potential risks.

Article 21 Scope of the Enhanced Due Diligence N/A

Introduction:

When entering into a stable business relationship with high-risk customers, senior

management approval should be obtained. Furthermore, casinos should obtain additional

information about the customers, their representatives, or the beneficial owners; perform

enhanced monitoring over those transactions; and increase the frequency to update the

CDD information.

Article 22 Obligation to Refuse Transactions N/A

Introduction:

When front-line staff members find a transaction suspicious, they can refuse to carry out

the transaction, such as refusing to redeem the customer’s chips for cash. Afterward, an

STR should be filed.


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Article 23 Confidentiality 21. Tipping-off and

confidentiality

Introduction:

This complies with FATF recommendations 21. STR and REVO are confidential and

cannot be disclosed to third parties.

Article 24 Document Retention 11. Record keeping

Introduction:

This complies with FATF recommendations 11. All necessary records on transactions

should be maintained for at least five years.

Article 26 Due Diligence and Updating of Suspected

Terrorists Database 35. Sanctions

Introduction:

Casinos should take all the necessary measures to prevent entering into any kind of

business or commercial relationship with a person suspected of terrorism, or with those

individuals designated as terrorists by domestic or international competent authorities.

Before entering a relationship with the players and when the database is updated, a name

screening is required.

Although the requirement highlighted by the DICJ guideline included only those

suspected of terrorism, the 2017 Mutual Evaluation Report indicates that casinos have

implemented higher standards. They also include PEP lists, U.N. sanctions list, and the

FATF high-risk countries list in their database.

Article 27 Function of AML/CFT Compliance N/A

Article 28 Compliance Officer

Introduction:

Casinos should maintain an independent, permanent, and effective compliance function,

and ensure that adequate powers, means, and resources are provided to the compliance

function to perform the duties and have the authority for timely access to all relevant

information.

The compliance officer should be functionally independent to perform the AML/CFT

duties and should coordinate the implementation of all AML/CFT policies and internal

control procedures in order to prevent AML/CFT crime.

Article 29 Compliance Culture N/A

Introduction:

Casinos need to build up a companywide culture for AML/CFT. These duties should be

specifically the obligation of the board of directors for legal persons, or the holders of

gaming licenses in case of natural persons.

Article 30 Duty of Employee Training N/A

Introduction:

Each casino has its own AML/CFT training manual for its employees. The training plan

needs to be evaluated and approved by DICJ. Some casinos even require their staffs to

meet the international AML/CFT standard.

Casinos conduct AML/CFT evaluation annually to ensure their staff members keep a

good understanding of their AML/CFT obligation. Staff who fail the evaluation are not

allowed to perform front-line operations.


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Not Simplified Due Diligent Is Allowed N/A

Introduction:

According to the 2017 Mutual Evaluation Report, simplified measures are not provided

for in the DICJ AML/CFT guideline for the gaming sector as it is high risk.

(DICJ Instruction No.1/2019 English Version, P4-21)

We can rely on the relevant documents issued by the gaming sector as a source of

information to identify customer risk because they have implemented comprehensive

controls to mitigate the ML/TF risk.

5. Overview of the Macao Gaming Sector

CDD is a fundamental part of AML/CFT controls. In order to mitigate the risk of customers

engaged in gaming activities, the best way is to have a deep understanding of the

background and operation of the gaming sector, including the six casinos and junkets. Then

we will discuss the types of gaming customers that might be encountered and briefly

introduce their characteristics and gaming behavior. Finally presented are the additional

services provided by the gaming sector which are closely related to customers engaged in

gaming activities.

5.1. The Six Concessionaires and Sub-Concessionaires

In 2002, the Macao SAR government issued three gambling licenses (commonly

known as "concessionaires") through international bid. Subsequently, the Macao

government had made an alteration on the concession contract and allowed three

more companies to have a sub-concession relationship with the three concessionaires

(commonly known as "sub-concessionaires").

Therefore, there are a total of six casinos:

1) SJM Holdings Limited (Macao local company), concessionaire

2) MGM Grand Paradise Ltd. (international company) entered into a sub-concession

contract with SJM.

3) Wynn Macao Limited (international company), concessionaire

4) Melco PBL Gaming (Macao) Limited (Macao local company), entered into a sub-

concession contract with Wynn

5) Galaxy Casino, S.A. (Macao local company), concessionaire

6) Venetian Macao Ltd. (international company), entered into a sub-concession

contract with Galaxy

At year-end 2018, there were a total of 41 casinos in Macao. Among the total number,

SJM has 22 casinos; MGM has 2 casinos; Wynn has 2 casinos; Melco PBL has 4

casinos; Galaxy has 6 casinos; and the Venetian has 5 casinos.

The six casino companies are directly supervised by the DICJ. Three of them are

international companies, required to implement more rigorous AML/CFT control.


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5.2. Junket Promoters

Junket promoters are not owned by the casinos; they contract with casinos. Casinos

would offer the promoters venues, gaming tables, and staff (mainly dealers and

security). Junket promoters are responsible for ushering the wealthy players to Macao

by offering luxury travel and accommodation promotions (Duggan, 2017).

VIP junket promoters have two types of remuneration models. The commission

model is a fixed rate of VIP rolling chip turnover, and the win rate model is when

VIP junket operators share the gross gaming win/loss with casinos (Master, 2011).

5.3. Types of Gaming Players

The gaming sector in Macao categorizes the customers into two main types: mass

gaming players and VIP players.

5.3.1. Mass Gaming Players

Mass gaming players are generally occasional players, who play table games and

slot machines on the mass gaming floors. The amount of wagering is small, and

additional services may not be used by the mass gaming players.

CDD does not necessarily need to be done unless players conduct large-sum

transactions (more than MOP 500,000 [USD$62,500]) or a lower threshold per

casino’s risk appetite). Customer service staff will approach the players and

persuade them to have a membership in order to trace their gaming activities.

Membership of the mass gaming players is a hierarchical structure, and the

membership level reflects the degree of the customers' participation in gaming.

5.3.2. VIP Players

VIP players are large-value betting customers (the betting threshold is MOP

500,000 [USD$62,500]). Casinos and junkets would pay additional attention and

must conduct CDD for VIP players. VIP players generally do not bring cash with

them; instead, they use markers when they are gaming. VIP players used to have

one kind of membership card, and there is no hierarchy structure within the VIP

membership.

VIP players are further divided into premium players and junket players.

Premium players are brought into casinos through direct marketing by casinos.

These players are often granted gaming credits by casinos after considering the

financial capabilities of the players. Junket players are referred to the casinos by

junket promoters. (APG, 2017, Mutual Evaluation Report, p. 17)

In order to earn a commission, VIP players usually need to join the rolling

program. They must use non-negotiable chips rather than cash chips.

Commission is based on the volume of conversion to non-negotiable chips and

deducted by volume of conversion to cash.


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Because junkets are under the supervision of casinos and have poor awareness

of AML/CFT, the identification of the junket and the reporting of suspicious

transactions are less effective. That is why junket players pose greater ML/FT

risk than premium players,

5.4. Additional Services Provided by the Casinos

Casinos will issue a slip when the following transactions are finished; the players

can request to reprint the slip a few days later.

5.4.1. Deposits and Withdrawals

The casinos allow players to make deposits as long as they are members. The

form of deposits and withdrawals can be cash or chips, and there is no limitation

for the deposit/withdraw amount.

5.4.2. Credit Line

Based on its understanding of the VIP players, casinos could issue a credit line

to the VIP players, commonly known as “marker.” Marker is short-term, interest-

free, and for gaming purposes only. In order to prevent customers from using it

for non-gaming purposes, marker is issued as "non-negotiable chips." It means

players cannot cash out the non-negotiable chip if the marker remains unpaid.

In addition, the casinos would ask players to offer a cashier order or remittance

in advance as collateral.

5.4.3. Foreign Currency Exchange

Players need to exchange foreign currency into Hong Kong dollars cash or chips

(also Macao dollars, but it is rare because the Hong Kong dollar is much more

tradable) in order to engage in gaming activities. It is a one-way exchange, which

means it is impossible to exchange back to its original currency.

VIP players can use a foreign currency preservation service so they can get the

equivalent chips. Then they can be partially or fully redeemed in the foreign

currency at the same exchange rate within a certain period of time.

6. Audit Plan Advice

First of all, auditors should also review the risk-assessment report to see whether the report

has already identified the Macao casino risk. The CDD section of the report may not

necessarily reveal the risk because everyone can engage in the gaming activities, but

auditors should check the emerging trend section of the report. That specific risk is the

trend that can be discovered in the transaction pattern.

Once that risk is identified, then auditors should determine the audit objective and the audit

scope. The audit objective should be checking whether there is sufficient control


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implemented to mitigate the risk posed by the customers who engaged in Macao gaming

activities.

In practice, many customers claim that their funds are derived from gaming. However, a

casino’s operation is complex and diverse, and there is no way to discern whether

customers are telling the truth. So, the audit scope should focus on transaction monitoring

and how the front-line staff deals with the customers.

The risk is definitely related to the front-line department, and the auditor should hold a

meeting with the department head. Auditors should ask if the head realizes the bank is

exposed to the risk, and if there are any controls to mitigate the risk. Auditors should also

have interviews with the front-line staff to find out whether they know how to deal with

that customer or not. The audit questionnaire should include the CDD process and source

of funds verification.

Auditors should sample some related transactions to ensure that sufficient supporting

documentation has been obtained. They should also ensure that the documentation is

credible enough to support the transaction and that the purpose of the transaction is

reasonable.

The following section will provide some corrective action recommendations that auditors

may give to the AML compliance department in order to improve the AML program.

7. Recommendations

7.1. Customer Due Diligence

When customers are engaged in Macao gaming activities, the following information

needs to be updated:

7.1.1. The casino at which they gamble: The degree of monitoring

controls varies from casino to casino, while international gaming companies

implement more stringent measures.

7.1.2. What kind of player they are: VIP players pose more risk than

mass gaming players; and junket players are the most at risk. DICJ relies on

casinos to carry out supervision of junkets, which makes the degree of

supervision relatively low.

Membership cards may be the best supporting documents to prove which

casino the customers gamble at and what kind of player they are.


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7.1.3. Which gaming activities they engage in: Based on the time

consuming, cost and rebate, we would know the money-laundering risk of each

gaming activity. Baccarat has the characteristic of high-betting amounts, fast

speed, low cost, and high rebates, making it the best tool for money laundering.

Type Risk Level

Baccarat High

Fantan, Cussec, Roulette Medium

Blackjack, Paikao, Fortune 8,

Texas Holdem Poker, Mahjong Low

However, according to DICJ 2018 gaming statistics, 88.7% of the gaming

revenue was made from baccarat (this section is for reference only).

7.2. Source of Funds and Verification

The simplest way to launder dirty

money is gaming illicit funds for the

purpose of generating certifiable

winnings. The source of funds

should be verified based on two

parts: 1) source of initial stakes, and

2) winnings. As usual, if account

activity is not commensurate with

the customer’s known profile (e.g.,

age, occupation, income), financial

institutions should obtain further

information from the customer on

the source of funds, especially for

large cash transactions.

7.2.1. Source of Initial Stakes

In this section, initial stakes that casinos are willing to receive will be

summarized. We would further discuss the upstream risks.

7.2.1.1. Cash

❖ Cross-border Transportation: According to Law No. 6/2017 Control

of Cross-Border Transportation of Cash and Bearer Negotiable

Instruments, travelers bringing in to Macao currency or bearer negotiable

instruments equal to or exceeding MOP 120,000.00 (USD $15,000), or its

equivalent in another currency, are legally bound to declare the funds.

Funds that have not been declared are suspected as illegal funds. It would


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be rated as a high risk for a source of funds.

ATM cross-border withdrawal: It was the most commonly used

illegal source in the past because perpetrators could use numerous

financial institutions cards to withdraw cash, and their identity is hard to

define.

However, as a result of the implementation of KYC ATM measures,

since 2017, players need to pass the biometric verification, so it is no

longer possible to be a source of large amounts of cash. It would be rated

as a high risk for a source of funds.

❖ Encashment: Use of overseas debit cards for encashment is done

from jewelry/watch shops, pawnshops, and mobile phone retail shops. The

discount of encashment would be treated as a handling fee. In fact, it is

used to avoid capital control. It would be rated as a high risk for a source

of funds.

❖ Borrowing: In order to avoid the capital control, many overseas

players would like to borrow from underground banking. These sources of

funds are suspicious, and the borrowing activity itself is illegal.

It is the riskiest source of funds.

7.2.1.2. Credit Cards: Withdrawal cash from a credit card has an

upper limit, and funds flow is traceable. Casinos would verify whether

the player is the card owner before purchasing chips. Customers can keep

their receipts as supporting documents for transactions. It would be rated

as a low risk for a source of funds.

7.2.1.3. Traveler's Cheque: This is a relatively small amount, and it

is hard to use in a large volumes. Traveler’s cheques would be treated as

foreign currency when purchasing casino chips. It would be rated as a

low risk for a source of funds.

7.2.2. How to Identify Winnings

7.2.2.1. Proof of Winnings

Casinos record customers' gaming activities in the unit of “trip”. Trip is a

continuous and uninterrupted period of gaming, which can last for several

days. Casinos use trip to determine whether customers have gaming

activity within the casinos and whether the cash-out activity involves

money laundering.

For the winnings during trip, the casinos are willing to issue a winning

letter to customers.


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7.2.2.2. Issuance of Winning Cheque

Perpetrators may purchase chips from other money launderers or un-

associated casino patrons with “clean” backgrounds. This is done at a

price greater than the chips' face value. That is why we have to verify the

winnings.

The six casinos are willing to issue cheques to players only for their

winnings. Casinos are also responsible to issue winning cheques for junket

players.

The initial stakes cannot be included in the winning cheque to prevent the

transfer of suspicious funds into legitimate funds. The payee of a winning

cheque can only be the player himself.

There are multiple steps to issuing a winning cheque. Cage would settle

winnings for the players. Then it would ask the gaming table operation

department to verify the winnings and make sure that the players have

gaming activities on the gaming table. If necessary, it will also confirm

with the surveillance department. The compliance department will

perform name screening again to ensure no designated terrorist suspect is

involved. Finally, a winning cheque will be issued by the finance

department.

If a player does not request to issue a winning cheque at the moment of

cash out, he/she will no longer be able to ask for a winning cheque.

If the initial stakes are transferred into the casinos by remittance, the initial

stakes and winnings can also be requested to be remitted at the same time.

7.3. Transaction Monitoring

7.3.1. Cash/Cheque Deposit

Cash or cheque deposit is the most

important step for criminals to legalize

funds. Casinos generally do not obtain

relevant evidence for the source of

funds, and they rely on the self-

certification made by the players, so

their source of funds may remain

doubtful.

Deposits and withdrawal slips issued

by casinos can only be used as a

reference and cannot be treated as

proof of the source of funds. Therefore, financial institutions need to further

verify the source of funds for the upstream.


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Customers are advised to ask casinos to issue a winning cheque instead of

cash. Be careful, a junket would issue a cheque but not a winning cheque.

Cheques issued by the six casinos are the most credible.

If customers insist on depositing cash, it is recommended that customers

request that the casinos issue a winning letter as a supporting document. Even

if the customers do not request it when they cash out at the casinos, they can

ask the casinos to issue it even after the trip is over.

If customers indicate that it is only a temporary deposit and will soon be

withdrawn for gaming, it is recommended they use the casino's deposit service

to avoid excessive cash withdrawal records at the financial institutions.

When customers deposit in non-HKD, auditors need to pay attention to how

they exchange back to foreign currency, because Macao casinos generally use

the Hong Kong dollar for settlement unless they use the foreign currency

preservation service.

7.3.2. Remittance

7.3.2.1. Outward Remittance: Remittance to casinos is used for

gaming or as collateral to issue a marker or repayment for marker.

Remittances to the six casinos are more reasonable and credible. Pay

attention to whether the remittance is to repay the customers’ own marker

because repayment by a third party is also a common suspicious

transaction indicator.

7.3.2.2. Inward Remittance: Casinos are willing to remit the

winnings and initial stakes by the original route and beneficiary. Pay

attention to whether the customers have remitted to the casinos before.

7.3.3. Promissory Notes

Usually issued by local financial institutions, a promissory note is used to issue

a marker or repay the existing marker. Afterward, it is better to ask for a marker

slip as a supporting document.

7.3.4. Clean Collection

Because the cheques issued by casinos are all issued by local financial

institutions in Macao, if players bring it back to their home countries, they need

to use the clean collection service. Since the cheque itself is the best support

for the transaction, there is no need to ask customers for further information.

7.4. Training

Financial institutions should provide frontline staff with training related to gaming

customers, and assist them to develop a better understanding so they can focus on

customer due diligence and determine which documentation they should obtain.


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In addition to educating frontline staff, customers should also be educated. They are

advised to keep relevant documents of gaming. Since the documents issued by the

six casinos are more credible evidence if there are any winnings, try to ask them to

issue a cheque or ask for a winning letter.

7.5. Suspicious Transactions Reporting

Relevant information obtained through the CDD process and transaction

monitoring process should be mentioned in suspicious transactions reports (STRs).

Information should include which casino, which gaming activity, gaming amount,

whether suspicious funds are from the initial stakes or winnings, and whether

marker repayment involves a third party.

8. Conclusion

From the APG Mutual Evaluation Report and DICJ guidelines, we can know that the

Macao government is not letting its gaming sector become a money-laundering hotbed;

instead, it has adopted various measures to make sure Macao meets the international

standards. After understanding the regulation and operation of the gaming sector, auditors

are able to find out which portion of customers is vulnerable to money laundering. We

should focus on the residual risk and take corresponding control to mitigate the risk.

According to Kacy Drury’s CAMS white paper, Casinos Are Financial Institutions?, we

can understand the banking sector and the gaming sector have something in common: They

are both regulated and required to perform customer due diligence, transaction monitoring,

and suspicious transactions reporting, as well as have their own compliance officer to

manage various money-laundering risks. It is not only banks that want to mitigate the AML

risk, but also the casinos. We should know that we are not competitors, but rather

companions. We should learn from each other.

This white paper has unveiled the mystery of the gaming sector, and assisted auditors to

improve the audit plan and enhance the audit process. Although the gaming sector is a high-

risk industry for money laundering, its risks are not irreversible. I hope AML auditors can

become inspired and improve the AML audit program.


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9. Glossary Casino(s)

CDD

DICJ

FATF

ML/TF

PEP

ROVE

STR

Concessionaire(s)/Sub-Concessionaire(s)

Customer Due Diligence

Gaming Inspection and Coordination Bureau

Financial Action Task Force

Money Laundering and Terrorist Financing

Politically Exposed Person

Report of Large Amount Transaction

Suspicious Transactions Report


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