Opinion

Could cashless casinos solve China’s money laundering problems?

By Richard Malish

Are cashless casinos the answers to the money laundering problems in China? How will the authorities balance and resolve the issues of making gambling more accessible by making it more digital versus the benefit of making laundered monies easier to discover

  • Gaming in China is still built on the age-old foundations that have made them targets for financial crime
  • China began an anti-corruption campaign in 2012 that resulted in more than 100,000 indictments and led many Chinese officials and businessmen to tone down their luxury buying habits and steer clear of Macau
  • But eliminating cash from casinos entirely would permit regulators to more easily discover dirty cash and reconcile casino and patron cash flows

Recently it was reported that at least five Chinese-owned resorts are again attempting to introduce entertainment bars in the luxury resort island of Hainan which pay out winnings in the form of points that can be redeemed in local shops, restaurants and hotels. Given the massive shift towards cashless payments in China, it raises an interesting question as to whether it is possible for all of China’s casinos to go cashless and thereby reduce their money laundering and capital flight problem.

China is nearly a cashless society. Alipay and WeChat Pay are now the preferred payment methods for China’s super rich in comparison to cards, and is often the only accepted payment method at vegetable markets and other small vendors. After reports of many tech-savvy vendors rejecting cash, the Central Bank announced a rule recently that businesses must accept cash payments. As of July 1, these online payment providers must funnel all of their transactions through the Online Settlement Platform for Non-Bank Payment Institutions clearinghouse, which allows the People’s Bank of China to track all capital flows and potentially monitor for money laundering and fraud on a scale not seen in other economies.

But gaming in China is still built on the age-old foundations that have made them targets for financial crime. Casinos provide cash-intensive services in which large cash transactions are tolerated, if not encouraged. The variety, frequency and volume of transactions, combined with the multiple physical locations and methods of interacting with cashiers and dealers, make surveillance and investigation incredibly difficult.  And staff is often seasonal and ill-prepared to detect complex money laundering threats.

In Macau, Mainland VIP “big whales” are courted by junkets to play baccarat in VIP gaming rooms. Despite capital controls limiting the amount of RMB that can be withdrawn from local ATMs, the junkets often extend financing which is settled in Hong Kong dollars if the VIP wins or Chinese yuan if he loses.   Smaller fish may get around the capital controls by buying goods from pawn shops with a debit card and then selling it back for cash.

China began an anti-corruption campaign in 2012 that resulted in more than 100,000 indictments and led many Chinese officials and businessmen to tone down their luxury buying habits and steer clear of Macau.  Many junkets went out of business and Macau casino profits took a large hit.  Macau regulations implemented since 2016, such as the requirement to hire compliance officers who must sign off on high-value transactions, enhanced due diligence of politically-exposed persons and ultimate beneficial ownership requirements, have also attempted to tamp down illicit activities on the island.

New technologies have already been implemented on the island to curb financial crime. Mainland-issued China Union Pay bank cards have had their daily caps reduced since 2016 and over the last year most of the island’s ATMs have been equipped with facial recognition technology to validate UnionPay card users. 

But eliminating cash from casinos entirely would permit regulators to more easily discover dirty cash and reconcile casino and patron cash flows.  Under a purely cashless model, monetary winnings would go directly back to the digital payment account, and regulators could flag discrepancies.  The regulator would also be able to track future payments which appear to be repayment of loans to junket operators, and the cross-border cash declaration requirement could also easily be reduced from its current $15,000 without materially impacting the casino industry. Gaming operators would benefit from offering a frictionless customer experience and reduce security and internal theft risks.

Many regulators around the globe have discouraged cashless payment methods because they believe that it makes it easier to lose large sums without any change in the size of your wallet.  China would not have to worry about this because it could force the major payment providers to enforce the capital flight restrictions across all payment providers and cut off the patron. 

Anyone living outside of China is arguably a cash-using luddite who might not be in the best position to prognosticate on the gaming industry’s future in that region. But China is changing fast, so don’t be surprised if someone is already prepping for a purely cashless casino in Macau, and on the blockchain at that.

Richard Malish has over 15 years of experience advising major financial institutions, broker-dealers and corporates on regulatory, M&A, finance and technology matters, including a stint as Chief Counsel, Greater China for Nielsen in Shanghai. He is currently General Counsel and Head of Partnerships at NICE Actimize.



Keywords: Casino, Cashless Payments, Money-laundering, Blockchain
Institution: People’s Bank Of China, Alipay, WeChat Pay, Unionpay
Country: China
Region: East Asia
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