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China targets PH in offshore gambling crackdown

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By Bloomberg, Ellson Quismorio, and Bernie Cahiles-Magkilat

China is stepping up a crackdown on gambling activity by its citizens offshore, threatening what has become a lucrative industry for gaming operators in the Philippines.

(Photo by Sanjit Das / Bloomberg / MANILA BULLETIN)

(Photo by Sanjit Das / Bloomberg / MANILA BULLETIN)

China’s embassy in Manila put out a strongly worded statement Thursday, saying casinos in the Southeast Asian nation are targeting its citizens, and that any form of gambling by Chinese people in overseas casinos – including online and via phone – is illegal.

The Chinese embassy statement, which said that a “huge amount” of gambling-related funds is flowing illegally out of China and into the Philippines, follows a run of Chinese state media coverage critical of Internet and phone gambling over the past month. In a Xinhua story July 12, China’s minister for public security, Zhao Kezhi, said it was necessary to crack down on the “cross-border online gambling problem” because of public concern.

The gaming regulator in Macau, the only place in China where casinos are legal, has also forbidden junket operators licensed there from using the territory as a settling platform for gambling services provided elsewhere, according to people familiar with the matter.

Online and phone betting in the Philippines and other Southeast Asian countries by Chinese customers many miles away has exploded in the last few years.

The demand comes largely from two types of activity. In online gambling, small-time bettors wager as little as 10 yuan each time while watching live streams of the proceedings on their smart phones. Then there is proxy betting, its richer, better-dressed cousin, where high rollers communicate with staffers wearing headsets at baccarat tables in offshore casinos. Proxy betting now accounts for 40 percent of the $1 billion VIP gaming market in the Philippines, according to brokerage CICC.

Illegal Flows

“A conservative estimate shows that gambling-related funds flowing illegally out of China and into the Philippines amounts to hundreds of millions of yuan every year,” said the Chinese embassy statement. “There are analysts who believe that part of the illegal gambling funds has flown into local real estate markets and other sectors in the Philippines.”

China’s pushback comes as Macau grapples with a drop in high rollers, which account for 55 percent of the world’s biggest gambling hub’s $40 billion in annual revenue. Many of them have taken their business to Southeast Asian nations like the Philippines, where proxy gambling is permitted, although it is banned in Macau, Singapore and Australia.

The Chinese embassy statement said that the rise of online gambling has resulted in an increase in crimes and social problems in China. Online gambling connected with telecom fraud has “caused huge losses to the victims and their families,” the statement said.

Proxy betting is a channel for money laundering, according to a 2017 US government report, because the practice allows players to conceal their identities. Some Philippines lawmakers want casinos to be placed on a list of institutions monitored for money laundering due to high profile incidents, like a 2016 heist of $81 million from Bangladesh’s foreign reserves, which were routed through a Philippine casino, a junket operator and a gaming-room promoter.

READ MORE: China crackdown on PH casinos to hit property sharesChinese gov’t reacts to plans of confining gambling workers in ‘self-contained’ hubs

Money-laundering tool?

Surigao del Norte 2nd District Rep. Robert Ace Barbers expressed concern Thursday over the possibility that so-called offshore online gaming firms are being used by local and foreign drug syndicates as a money-laundering tool.

Barbers said that while the Philippine government, particularly the Bureau of Internal Revenue (BIR) and Pagcor only see the economic benefits of e-gaming, they are apparently blind to the possibility that it may be utilized by drug syndicates and other crime groups.

READ MORE: Barbers wary of money laundering via offshore online gaming

“I have read reports on how the Italian and Sicilian mafias have used the online gaming as a tool or scheme to launder their illegally obtained monies. They invested funds in Malta to operate huge on-line gaming firms where they launder their money,” he said.

“Under this scheme, the Italy and Sicily-based syndicates would bet huge amounts of money on the on-line gaming firms which they themselves set up in Malta. And via long or short-term on-line betting games, they would of course win, in millions of dollars or in Euros. They would be issued receipts or other proofs that they’ve won by their own dummy online gaming firms, and voila, their illicit or laundered money now becomes clean money,” said Barbers, who chairs the House Committee on Dangerous Drugs.

He said this is similar to the modus operandi previously employed by drug syndicates and other crime groups whose money are “shipped” via chartered planes in some of the country’s airports, and later brought to the Pagcor-operated casinos.

“At the casinos, they will have them converted to chips. They will play with some of the chips, but not all. Days later, they will withdraw it as cash, with proper receipts from the casino. They will bring the money back to their country and say they won it in the casino. They’ve successfully laundered and cleaned their drug money,” Barbers said in Filipino.

Business group backs crackdown

The Chamber of Commerce of the Philippine Islands (CCPI), the country’s oldest business organization, stressed the need to put controls on the entry of Chinese workers in the country, particularly in the online gaming sector.

Jose Luis Yulo Jr., CCPI president, said this as he threw full support on the government’s move to impose stricter controls on the entry of foreign workers, notably of young Chinese nationals, working in the online gaming.
“Filipinos must always be given priority for any kind of work within the country,” said Yulo.

He further stated, “If no Filipinos are available for certain jobs, their foreign consultants/workers can be contracted on the condition that Filipino workers must work alongside foreign experts to apprentice and integrate new skills or technology.”

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