U.S. and Macau (2006)
U.S. Department of States
International Narcotics Control Strategy Report -2006
Released by the Bureau for International Narcotics and Law Enforcement Affairs
March 2006
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. Macau's international gambling industry, however, remains particularly vulnerable to money laundering.
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, but still needs to pass anti-money laundering legislation and establish a financial intelligence unit (FIU). These measures will be helpful if they are passed and if the MSAR supports lead to greater enforcement of the new measures.
In 2005, the Macau Special Administrative Region Government (MSAR) submitted to the Legislative Assembly anti-money laundering legislation that would incorporate some of the aspects of the revised FATF Forty Recommendations. The legislation calls for the establishment of a financial intelligence unit (FIU); however, long-awaited details of the FIU's establishment are not included. These are expected to be finalized in implementing regulations at a later date. The 2005 money laundering bill broadened the definition of money laundering to include all serious predicate crimes that entail a maximum penalty of three years in prison, with heavier penalties for money laundering related to terrorism, illegal narcotics, and the international slave trade. The proposed legislation also allows the defendant to mitigate his criminal exposure if he "redresses" damages done to his victims prior to trial. It also mandated greater customer identification, a duty to refuse to undertake suspicious transactions, and penalties for entities failing to report suspicious transactions. However, it does not appear to criminalize "tipping off" a customer that a suspicious transaction report has been filed.
The draft legislation extended the obligation of suspicious transaction reporting to lawyers, notaries, accountants, auditors, tax consultants and offshore companies. As of December 2005, the bill was being debated in the Legislative Assembly, and the MSAR had not yet decided whether it would create a new entity as the FIU or assign new responsibilities and powers to an existing organization. In 2005, an interagency body consisting of representatives from the Monetary Authority of Macau, Macau Customs Service, Unitary Police, International Law Office, Gaming Inspection and Coordination Office, and other economic and law-enforcement agencies continued to discuss the mechanics of establishing the FIU and continued to exchange information in the FIU's absence.
In 2005, the MSAR also submitted to the Legislative Assembly a new counterterrorism bill aimed at strengthening counterterrorist financing measures. The bill, generally drafted to comply with UNSCR 1373, would make it illegal to conceal or handle finances on behalf of terrorist organizations. Individuals would be liable even if they were not members of designated terrorist organizations themselves. The legislation would also allow 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 suspicious terrorists and terrorist organizations.
While Macau's proposed laws should create a more robust legal framework to combat money laundering, it will also need to enforce these laws. In an August, 2002 IMF "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 has facilitated many of that regime's criminal activities, including circulating counterfeit U.S. currency.
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. It 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.
The gaming sector and related tourism are critical parts of Macau's economy. Taxes from gaming comprised 75 percent of government revenue in the first ten months of 2005, while revenues from gaming increased 17 percent during the first ten months of 2005, 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. The Venetian opened its first casino, the Sands, on May 18, 2004. In addition, MGM began constructing a casino in conjunction with the previous monopoly operator, Sociedade de Jogos de Macau (SJM), owned by local businessperson Stanley Ho. Wynn and MGM are scheduled to open casinos in 2006, and the Venetian will complete its flagship casino in 2007.
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 removed 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 draft 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 list, listed on the UN 1267 Sanctions Committee consolidated list 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 counterterrorist resolutions, and strengthens counterterrorist financing provisions. The UN International Convention for the Suppression of the Financing of Terrorism will apply to Macau when the PRC becomes a party to it.
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, and 109 in 2004, and 68 in the first seven months of 2005 from individuals, banks, companies, and government agencies. Of the 109 STRs received during 2004, the Judiciary Police investigated 101 cases. From July 2004 to July 2005, the Public Prosecutors Office initiated seven money laundering legal proceedings, but the Macau Government could not provide accurate data regarding how many of these or previous cases resulted in convictions. The Judiciary Police vetted eight information requests from foreign countries during this period.
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 practice 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.
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 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 pass and implement its pending 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, the regulations it has drafted on the prevention of money laundering in casinos. The MSAR should take steps to implement the new FATF Special Recommendation Nine, adopted by the FATF in October 2004, requiring countries to implement 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 it expeditiously establishes a financial intelligence unit meeting Egmont standards for information sharing. It should expedite the drafting and issuing of implementing regulations to its anti-money laundering/counterterrorist financing laws, once enacted. The Government of Macau also should be more proactive in finding and freezing accounts related to money laundering of illegal proceeds such as from weapons proliferators and counterfeiters.
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Key Government Documents
U.S. and Macau
