U.S. and Macau (2007)
U.S. Department of State
International Narcotics Control Strategy Report - 2007
Released by the Bureau of International Narcotics and Law Enforcement Affairs
March 2007
Volume II: Money Laundering and Financial Crimes
Country Reports
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Macau
Under the one country-two systems principle that underlies Macau's 1999 reversion to the People's Republic of China, Macau has substantial autonomy in all areas except defense and foreign affairs. Macau's free port, lack of foreign exchange controls, and significant gambling industry create an environment that can be exploited for money laundering purposes. In addition, Macau is a gateway to China, and can be used as a transit point to remit funds and criminal proceeds to and from China. Macau has a small economy heavily dependent on gaming, but is emerging as a financial center. Its offshore financial sector is not fully developed.
Main money laundering methods in the financial system are wire transfers; currency exchange/cash conversion; the use of casinos to remit or launder money; and the use of nominees, trusts, family members, or third parties to transfer cash. Macau has taken several steps over the past three years to improve its institutional capacity to tackle money laundering. On March 23, 2006, the Macau Special Administrative Region (MSAR) Government passed a 12-article bill on the prevention and repression of money laundering that incorporates aspects of the revised FATF Forty Recommendations. The law expands the number of sectors covered by Macau's previous anti-money laundering (AML) legislation, calls for the establishment of a financial intelligence unit (FIU), and includes provisions on due diligence. The 2006 anti-money laundering law broadened the definition of money laundering to include all serious predicate crimes. The law provides for 2-8 years imprisonment for money laundering offenses, and if a criminal is involved in organized crime or triad-related money laundering, the penalties would increase by one-half. The new law also allows for fines to be added to the time served and eliminated a provision reducing time served for good behavior.
The 2006 law also extended the obligation of suspicious transaction reporting to lawyers, notaries, accountants, auditors, tax consultants and offshore companies. Covered businesses and individuals must meet various obligations, such as the duty to confirm the identity of their clients and the nature of their transactions. Businesses must reject clients that refuse to reveal their identities or type of business dealings. The law obliges covered entities to send suspicious transaction reports (STRs) to the relevant authorities and cooperate in any follow-up investigations. This law also requires casinos to submit STRs.
On March 30, 2006, the MSAR also passed new counterterrorism legislation aimed at strengthening measures to combat the financing of terrorism (CFT). The law generally complies with UNSCR 1373, making it illegal to conceal or handle finances on behalf of terrorist organizations. Individuals are liable even if they are not members of designated terrorist organizations themselves. The legislation also allows prosecution of persons who commit terrorist acts outside of Macau in certain cases, and would mandate stiffer penalties. However, the draft legislation does not mention how to freeze without delay terrorist assets, nor does it discuss international cooperation on terrorism financing. In January 2005, the Monetary Authority of Macau issued a circular to all banks and other authorized institutions requiring them to maintain a database of suspected terrorists and terrorist organizations.
While Macau's new AML and CTF laws should create a more robust legal framework to combat money laundering, Macau will also need to enforce these laws. In an August 2002 "Assessment of the Regulation and Supervision of the Financial Sector of Macao", the IMF concluded that Macau was "materially noncompliant" with the Basel Committee's anti-money laundering principles, and recommended a number of improvements. On September 15, 2005, the U.S. Department of Treasury designated Macau-based Banco Delta Asia as a primary money laundering concern under the USA PATRIOT Act. According to the U.S. Treasury Department, Banco Delta Asia provided financial services for more than 20 years to North Korea and facilitated many of that regime's criminal activities, including circulating counterfeit U.S. currency. Macau's Monetary Authority has taken control of Banco Delta Asia and is cooperating with the U.S. Treasury Department in an ongoing investigation of the bank.
Macau's financial system is governed by the 1993 Financial System Act and amendments, which lay out regulations to prevent use of the banking system for money laundering. The Act imposes requirements for the mandatory identification and registration of financial institution shareholders, customer identification, and external audits that include reviews of compliance with anti-money laundering statutes. The 1997 Law on Organized Crime criminalizes money laundering for the proceeds of all domestic and foreign criminal activities, and contains provisions for the freezing of suspect assets and instrumentalities of crime. Legal entities may be civilly liable for money laundering offenses, and their employees may be criminally liable.
The 1998 Ordinance on Money Laundering sets forth requirements for reporting suspicious transactions to the Judiciary Police and other appropriate supervisory authorities. These reporting requirements apply to all legal entities supervised by the regulatory agencies of the MSAR, including pawnbrokers, antique dealers, art dealers, jewelers, and real estate agents. In October 2002 the Judiciary Police set up the Fraud Investigation Section. One of its key functions is to receive all suspicious transaction reports (STRs) in Macau and to undertake subsequent investigations. In November 2003, the Monetary Authority of Macau issued a circular to banks, requiring that STRs be accompanied by a table specifying the transaction types and money laundering methods, in line with the collection categories identified by the Asia/Pacific Group on Money Laundering. Macau law provides for forfeiture of cash and assets that assist in or are intended for the commission of a crime. There is no significant difference between the regulation and supervision of onshore and of offshore financial activities.
Macau is in the process of establishing a Financial Intelligence Unit (FIU). A Macau Monetary Authority official has been designated to head the FIU. As of October 2006, in addition to the FIU Head, the staff consisted of two officials (seconded from the Insurance Bureau and the Monetary Authority), a judiciary police official, and two information technology staff. The FIU is working on creating an operations manual, and is working with the Macau Police on dissemination of suspicious transaction reports (STRs) and with the Public Prosecutors Office on prosecution of cases. The FIU is currently working out of temporary office space but plans to move into permanent office space in January 2007 when it will begin accepting STRs.
The gaming sector and related tourism are critical parts of Macau's economy. Taxes from gaming comprised 73 percent of government revenue in the first eight months of 2006. Gaming revenue increased 12.6 percent during the first eight months of 2006, compared with a year earlier. The MSAR ended a long-standing gaming monopoly early in 2002 when it awarded concessions to two additional operators, the U.S.-based Venetian and Wynn Corporations. . Macau now effectively has six separate casino licenses, three concession holders Sociedade de Jogos de Macau (SJM), Galaxy and Wynn and three subconcession holders Las Vegas Sands, MGM and PBL/Melco. Las Vegas Sands opened its first casino, the Sands, on May 18, 2004. In addition, MGM began constructing a casino in conjunction with Pansy Ho, the daughter of local businessperson Stanley Ho, the largest casino operator in Macau, whose company, Sociedade de Jogos de Macau (SJM), previously held a monopoly on casino operations. Wynn opened its casino in September 2006 and MGM and the Venetian are scheduled to open casinos in 2007. A consortium between Australia's PBL and Macau's Melco, led by Stanley Ho's son Lawrence Ho, as yet operates no casinos, but runs several slot machine rooms in Macau.
Under the old monopoly framework, organized crime groups were, and continue to be, associated with the gaming industry through their control of VIP gaming rooms and activities such as racketeering, loan sharking, and prostitution. The VIP rooms catered to clients seeking anonymity within Macau's gambling establishments, and were shielded from official scrutiny. As a result, the gaming industry provided an avenue for the laundering of illicit funds and served as a conduit for the unmonitored transfer of funds out of China. Unlike SJM and new entrant Galaxy, the Sands does not cede control of its VIP gaming facilities to outside organizations. This approach impedes organized crime's ability to penetrate the Sands operation.
The MSAR's money laundering legislation includes provisions designed to prevent money laundering in the gambling industry. The legislation aims to make money laundering by casinos more difficult, improve oversight, and tighten reporting requirements. On June 7, 2004, Macau's Legislative Assembly passed legislation allowing casinos and junket operators to make loans, in chips, to customers, in an effort to prevent loan-sharking by outsiders. The law requires both casinos and junket operators to register with the government.
Terrorist financing is criminalized under the Macau criminal code (Decree Law 58/95/M of November 14, 1995, Articles 22, 26, 27, and 286). The MSAR has the authority to freeze terrorist assets, although a judicial order is required. Macau financial authorities directed the institutions they supervise to conduct searches for terrorist assets, using the consolidated list provided by the UN 1267 Sanctions Committee and the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224. No assets were identified in 2005.
The Macau legislature passed a counterterrorism law in April 2002 that is intended to assist with Macau's compliance with UNSCR 1373. The legislation criminalizes violations of UN Security Council resolutions, including counterterrorism resolutions, and strengthens counterterrorist financing provisions. China signed the UN International Convention for the Suppression of the Financing of Terrorism on November 13, 2001, and the Standing Committee of the 10th National People's Congress ratified it in February 2006. The Instrument of Ratification was delivered to the UN on April 21, 2006, and stipulated that in accordance with Article 138 of the Basic Law of the Macao Special Administrative Region of the People's Republic of China, the Government of the People's Republic of China had decided that the Convention shall apply to the MSAR.
The increased attention paid to financial crimes in Macau since the events of September 11, 2001, has led to a general increase in the number of suspicious transaction reports (STRs); however, the number of STRs remains low. Macau's Judiciary Police received 107 STRs in 2003, 109 in 2004, 194 in 2005, and 396 STRs from January to September of 2006, from individuals, banks, companies, and government agencies. In 2003 Macau opened two money laundering cases and prosecuted one. In 2004 Macau opened ten money laundering cases and prosecuted zero. In 2005 Macau opened nine money laundering cases and prosecuted two. In the first half of 2006 Macau opened twelve money laundering cases and prosecuted one. In May 2002, the Macau Monetary Authority revised its anti-money laundering regulations for banks to bring them into greater conformity with international practices. Guidance also was issued for banks, money changers, and remittance agents, addressing record keeping and suspicious transaction reporting for cash transactions over $2,500. For such transactions, banks, insurance companies, and moneychangers must perform customer due diligence. In 2003, the Macau Monetary Authority examined all money changers and remittance companies to determine their compliance with these regulations. The Monetary Authority of Macau, in coordination with the IMF, updated its bank inspection manuals to strengthen anti-money laundering provisions. The Monetary Authority inspects banks every two years, including their adherence to anti-money laundering regulations.
The United States has no law enforcement cooperation agreements with Macau, though informal cooperation between the United States and Macau routinely takes place. The Judiciary Police have been cooperating with law enforcement authorities in other jurisdictions through the Macau branch of Interpol, to suppress cross-border money laundering. In addition to Interpol, the Fraud Investigation Section of the Judiciary Police has established direct communication and information sharing with authorities in Hong Kong and mainland China. In July 2006, the MSAR enacted the Law on Judicial Cooperation in Criminal Matters, enabling the MSAR to enter into more formal judicial and law enforcement cooperation relationships with other countries. The law became effective in November 2006.
The Monetary Authority of Macau also cooperates internationally with other financial authorities. It has signed memoranda of understanding with the People's Bank of China, China's Central Bank, the China Insurance Regulatory Commission, the China Banking Regulatory Commission, the Hong Kong Monetary Authority, the Hong Kong Securities and Futures Commission, the Insurance Authority of Hong Kong, and Portuguese bodies including the Bank of Portugal, the Banco de Cabo Verde and the Instituto de Seguros de Portugal.
Macau's Monetary Authorities are cooperating with the U.S. Treasury Department investigation of Banco Delta Asia. The Monetary Authorities have taken control of Banco Delta Asia and have frozen accounts linked to North Korea worth approximately US$ 24 million. The Government of Macau announced in September 2006 that it would continue to maintain control over Banco Delta Asia for at least six more months as the Banco Delta Asia investigation continues.
Macau participates in a number of regional and international organizations. It is a member of the Asia/Pacific Group on Money Laundering (APG), the Offshore Group of Banking Supervisors, the International Association of Insurance Supervisors, the Offshore Group of Insurance Supervisors, the Asian Association of Insurance Commissioners, the International Association of Insurance Fraud Agencies, and the South East Asia, New Zealand and Australia Forum of Banking Supervisors (SEAZA). In 2003, Macau hosted the annual meeting of the APG, which adopted the revised FATF Forty Recommendations and a strategic plan for anti-money laundering efforts in the region from 2003 to 2006. In September 2003, Macau became a party to the UN Convention against Transnational Organized Crime as a result of China's ratification. Macau also became a party to the 1988 UN Drug Convention through China's ratification. Macau has taken a number of steps in the past three years to raise industry awareness of money laundering. During a March 2004 IMF technical assistance mission, the IMF and Monetary Authority of Macau organized a seminar for financial sector representatives on the FATF Revised Forty Recommendations. The Macau Monetary Authority trains banks on anti-money laundering measures on a regular basis.
Macau should implement and enforce existing laws and regulations, and ensure effective implementation of its new legislation. Macau should ensure that regulations, structures, and training are put in place to prevent money laundering in the gaming industry, including implementing as quickly as possible regulations to prevent money laundering in casinos, including the VIP rooms. The MSAR should take steps to implement the new FATF Special Recommendation Nine, adopted by the FATF in October 2004, requiring countries to put in place detection and declaration systems for cross-border bulk currency movement. Macau should increase public awareness of the money laundering problem, improve interagency coordination, and boost cooperation between the MSAR and the private sector in combating money laundering. The Government of Macau should ensure that its financial intelligence unit meets Egmont Group standards for information sharing. It should expedite the drafting and issuance of implementing regulations to its new AML and CTF laws. The Government of Macau also should be more proactive in identifying and freezing accounts related to money laundering by weapons proliferators and counterfeiters.
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Key Government Documents
U.S. and Macau
