Plans to make service illegal

Shares of casino operators in China’s Special Administrative Region (SAR) of Macau plummeted after revelations in the media that city officials intend to “criminalize illegal money-exchange activities.”

Macau casino stocks slumped as much as 3.4% Monday

According to a Bloomberg Intelligence gauge, Macau casino stocks slumped as much as 3.4% Monday. The Macau government intends to add a provision to a gaming crimes bill that, once passed, will land those who provide gamblers with unauthorized money exchange or loan services “up to five years in prison.”

Shares in Asia-based Galaxy Entertainment declined as much as 5.7% on Hong Kong’s Hang Seng Index, while those in Las Vegas Sands subsidiary Sands China dropped by 5.2%.

China cracking down

According to Bloomberg, the move to criminalize the informal money exchange and lending market is right out of Beijing’s playbook to “clamp down on capital outflow through gambling in Macau.”

The Ministry of Public Security of China showed it meant business cracking down on Macau gambling when Chinese police arrested over 75,000 people and shuttered 2,260 illegal online gambling platforms in 2020. In 2021, China made history by arresting Macau gambling kingpin Alvin Chau on charges of money laundering, sentencing him to 18 years in prison in 2023 and effectively killing off Macau’s junket system that brought in high rollers from mainland China.

Junket operators like Chau’s Suncity Group provided credit for the VIPs while also running hundreds of Chinese agents, who were required to buy shares in Suncity in exchange for gambling credit and other assets.

banning agents from lending money or sharing revenue with casino operators

The Macau government has since passed laws banning agents from lending money or sharing revenue with casino operators like Suncity. The demise of the VIP industry took with it half of Macau’s gaming revenue.

While it’s uncertain the number of gamblers using money exchangers in Macau, media reports reveal Macau detained over 10,000 people offering such services in 2023, evidencing significant demand.

Warning note

Bloomberg cited a warning note from Citigroup analysts, including George Choi.

“This negative news could add uncertainties and hurt the already fragile investment sentiment against the Macau gaming sector,” Choi and others wrote.

The analysts added, however, that VIP gamblers were “unlikely to use these small money touts as their main fund facilitator.” China has recently been cracking down on black market money-exchange and cross-border gambling in what appears to be a drive to stop capital flight in the face of the country’s economic downturn.