U.S. and Macau (2008)

U.S. Department of State

International Narcotics Control Strategy Report - 2008

Released by the Bureau of International Narcotics and Law Enforcement Affairs
March 2008

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 of governance except defense and foreign affairs. Macau's free port, a lack of foreign exchange controls, limited institutional capacity and a rapidly expanding economy based on gambling and tourism create an environment that can be exploited for money laundering purposes. 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's economy is heavily dependent on gaming. The gaming sector continues to be a significant vulnerability. Macau's offshore financial sector is not fully developed.

The primary money laundering methods in Macau's financial system are wire transfers; currency exchange/cash conversion; bulk movement of cash; the use of casinos to remit or launder money; and the use of nominees, trusts, family members, or third parties to transfer cash. Most of these cases are related to financial fraud, bribery, embezzlement, organized crime, counterfeiting, and drug-related crimes. There have been no reported instances of terrorism-related financial crimes. Crimes related to financial fraud appear to be increasing, while drug-related crimes are becoming less common.

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, includes provisions on due diligence, and broadens the definition of money laundering to include all serious predicate crimes. The AML law also authorizes the establishment of a financial intelligence unit (FIU), which began operations in November 2006. 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, increases the penalties by one-half. The new law also allows for fines to be added to the time served and eliminates a provision reducing time served for good behavior.

The 2006 law also extends 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, including casinos, to send suspicious transaction reports (STRs) to the relevant authorities and cooperate in any follow-up investigations.

On March 30, 2006, the MSAR also passed new counterterrorism legislation aimed at strengthening measures to counter terrorist financing (CTF). The law partially implements UNSCR 1373 by 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 stiff penalties. However, the legislation does not authorize the freezing of terrorist assets outside normal legal channels, nor does it discuss international cooperation on terrorist 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.

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 to receive suspicious transaction reports (STRs) in Macau and to undertake subsequent investigations. In 2006, the newly established Financial Intelligence Unit (FIU) assumed responsibility for receiving STRs and forwarding actionable reports to the Judiciary Police for investigation. 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.

On September 15, 2005, the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN) designated Macau-based Banco Delta Asia (BDA) as a primary money laundering concern under Section 311 of the USA PATRIOT Act and issued a proposed rule regarding the bank, In its designation of BDA as a primary money laundering concern, FinCEN cited in the Federal Register that "the involvement of North Korean Government agencies and front companies in a wide variety of illegal activities, including drug trafficking and the counterfeiting of goods and currency" and noted that North Korea has been positively linked to nearly 50 drug seizures in 20 different countries since 1990. Following an investigation of BDA conducted with the cooperation of the Macanese authorities, Treasury finalized the Section 311 rule in March 2007, prohibiting U.S. financial institutions from opening or maintaining correspondent accounts for or on behalf of BDA. This rule remains in effect.

Shortly after the U.S. designation, The Monetary Authority took control of Banco Delta Asia and froze approximately U.S. $25 million in accounts linked to North Korea. The Government of Macau announced in March 2007 that it would continue to maintain control over Banco Delta Asia for at least six more months to resolve the Banco Delta Asia situation. In April, 2007, the Macanese authorities released the $25 million North Korean-related funds frozen at BDA. In September, 2007, The Treasury Department's Financial Crimes Enforcement Network denied two petitions filed on behalf of BDA and its owners to lift the Section 311 Final Rule designating BDA as a "primary money laundering concern." On September 30, 2007 Macau Monetary Authority announced that Banco Delta Asia would be returned immediately to its shareholders, but continued international restrictions on BDA and its subsidiaries outside of Macau that limit BDA to pataca currency business in Macau.

A Macau Monetary Authority official serves as the head of the FIU. As of October 2007, 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 works with the Macau Judicial Police on investigation of suspicious transaction reports (STRs) and with the Public Prosecutors Office on prosecution of offenders. The FIU moved into permanent office space in January 2007 and is accepting STRs from banks, financial institutions and the Gaming Inspectorate.

The gaming sector and related tourism are critical parts of Macau's economy. Taxes from gaming in the first eleven months of 2007 increased by 48.3 percent from the same period in 2006 and comprised 71percent of government revenue in the first eleven months of 2007. Gaming revenue in the first nine months of 2007 exceeded the 2006 total and account for well over 50 percent of Macau's GDP. The MSAR ended a long-standing gaming monopoly early in 2002 when it awarded concessions to two additional operators, the U.S.-based Las Vegas Sands and Wynn Corporations. Macau now effectively has six separate casino licensees operating 28 casinos: three concession holders Sociedade de Jogos de Macau (SJM), Galaxy and Wynn: and three sub concession holders: Las Vegas Sands, MGM and PBL/Melco. Las Vegas Sands opened its first casino, the Sands, on May 18, 2004 and its second the Venetian-Macao in September 2007. MGM opened its first Macau casino in December 2007. Wynn opened its casino in September 2006. A consortium including Australia's PBL and Macau's Melco operates the Crown casino, which opened in May 2007 and runs several slot machine rooms in Macau. Rapid expansion of the gaming industry in Macau continues; several additional casinos are expected to open in the next few years.

Under the old monopoly framework, organized crime groups were closely 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 received minimal 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. VIP rooms continue to operate and are the primary revenue generators for Macau's casinos. Although the arrival of international gaming companies has improved management and governance in all aspects of casino operations, concerns about organized crime groups and poorly regulated junket operators associations with VIP rooms remain. The MSAR's money laundering legislation aims to make money laundering by casinos more difficult by improving oversight, and tightening 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. The law requires both casinos and junket operators to register with the government.

The Macau criminal code (Decree Law 58/95/M of November 14, 1995, Articles 22, 26, 27, and 286) criminalizes terrorist financing. Macau does not have any provision or procedures for freezing terrorist related funds or assets to fully implement UNSCRs 1267 and 1373. However, although no special mechanism exists and a judicial order is required, the general framework of seizure and forfeiture of funds and assets under the Criminal Code and Criminal Procedure Code do provide the MSAR the authority to freeze terrorist assets. Macau financial authorities direct 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 terrorist assets were identified in 2007.

The Macau legislature passed a counter-terrorism law in April 2002 to facilitate Macau's compliance with UNSCR 1373. The legislation criminalizes violations of UN Security Council resolutions, including counterterrorism resolutions, and strengthens counter-terrorist financing provisions. When China ratified the UN International Convention for the Suppression of the Financing of Terrorism, China stipulated that the Convention would apply to the MSAR

Increased attention 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 relatively low. Macau's Judiciary Police received 109 STRs in 2004, 194 in 2005, 396 STRs from January to September 2006, and 557 STRs from January to September 2007. In 2004 Macau opened ten money laundering cases but prosecuted none. In 2005 Macau opened nine money laundering cases and prosecuted two. Since the entry into force of the new AML law in April 2006, the Macau Public Prosecutions office has received 23 suspected cases of money laundering from the FIU. Of these, 14 have been referred for investigation by the Judicial Police or the Commission Against Corruption. Since 2005, the Judicial Police have referred three money laundering cases to the Public Prosecutions office.

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, moneychangers, and remittance agents, addressing record keeping and suspicious transaction reporting for cash transactions over U.S. $2,500. For such transactions, banks, insurance companies, and moneychangers must perform customer due diligence. However for casinos, Macau requires customer due diligence only for transactions above U.S. $62,500. In 2003, the Macau Monetary Authority examined all moneychangers 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. There is no requirement to report large sums of cash carried into Macau. The Macau Customs Service has the authority to conduct physical searches and detain suspicious persons and executes random checks on cross-border movement of cash, including record keeping when the amount of cash carried over the border exceeds US$38,500. However, there is no central database for such reports. Mainland China does restrict the transport of RMB out of China. Persons may carry no more than RMB 20,000 (approximately U.S. $2,750) per day out of China. According to the Macau Prosecutors Office, this Chinese requirement limits the number of people carrying large amounts of cash into Macau.

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. Macau's FIU has not yet established MOUs on information sharing with other jurisdictions but is currently negotiating with FIUs from Hong Kong, China, Portugal, Japan, Korea, and Sri Lanka.

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 ratifying the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption China in each case specified that the treaty would apply to the MSAR. Macau officials have taken a number of steps in the past three years to raise industry awareness of money laundering. The Macau Monetary Authority trains banks on anti-money laundering measures on a regular basis.

In December 2006, the Asia Pacific Group (APG) and Offshore Group of Banking Supervisors (OGBS) conducted a joint Mutual Evaluation of the anti-money laundering and combating the financing of terrorism measures in place in Macau The Mutual Evaluation Report stated that Macau was noncompliant with FATF Special Recommendation IX, in that Macau should have measures in place to detect the physical cross border transport of currency and bearer-negotiable instruments. Macau does not require reporting of the movement of currency above any threshold level across its borders, or reporting of large currency transactions above any threshold level. Macau's AML/CTF regime is also deficient in a number of other respects, including: the lack of a mechanism to confiscate, freeze, and forfeit proceeds of crime independent of criminal process; the lack of ability to freeze terrorist funds; failure to establish an independent FIU, which was established only as a special project entity with a term of three years; the lack of requirements for financial institutions to verify the identify of persons on whose behalf a customer is acting to understand the ownership and control structure of customers, or to examine the background and purpose of transactions with no economic or visible lawful purpose; the failure to develop a risk assessment of, and risk based approach to the gaming sector; and the lack of adequate legal framework for requiring Designated Non-Financial Business and Professions, including casinos and gaming concessionaires to report suspicious transactions.

Macau should continue to improve its ability to implement and enforce existing laws and regulations. Macau should ensure that regulations, structures, and training are adequate to prevent money laundering in the gaming industry, including implementing regulations to prevent money laundering in casinos, especially regulations to improve oversight of VIP rooms. The MSAR should take steps to implement the new FATF Special Recommendation IX, 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 establish asset freezing mechanisms and procedures to fully implement UN Security Council Resolutions 1267 and 1373. This process should not be linked to the criminal process and should include the ability to freeze terrorist assets without delay. Macau should increase public awareness of the money laundering problem, improve interagency coordination and training, and boost cooperation between the MSAR and the private sector in combating money laundering. Macau should institutionalize its Financial Intelligence Unit by making it a permanent, statutory body and ensure the FIU meets Egmont Group standards for information sharing. Macau's Judicial Police have limited resources devoted to AML/CTF investigations. Additional manpower would allow for more investigations and enforcement action.

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