China is again reportedly set to launch a major crackdown to restrict illegal money transfers from mainland China to Macau. This is expected to further hit Macau casino revenues. Per South China Morning Post, China will launch a new security drive that will allow it to access all transfers through the state-backed UnionPay credit card, thereby helping it to identify distrustful transactions in Macau. The current move marks the latest step to stop illicit fund transfers from the country.
The crackdown comes at a time when leading casino companies operating in Macau like Wynn Resorts Ltd. (WYNN), MGM Resorts International (MGM), Las Vegas Sands Corp. (LVS) and Melco Crown Entertainment Limited (MPEL) are already feeling the heat of China’s anti-corruption campaign. Share prices of these companies have plunged in response on concerns that the Chinese Economic Crimes Investigation Bureau will begin monitoring all money transfers that use the China UnionPay payment system.
This anti-corruption drive began in May 2014 after a Reuters article in March stated that a number of people in China are using the UnionPay card to illegally send billions of dollars abroad, particularly through the world's biggest gambling hub, Macau.
Per Chinese law, visitors from mainland China are allowed to bring in $3,200 to Macau and can also withdraw an additional $1,600 per day from ATM’s. The players are legally allowed to use debit cards of state-backed payment card companies like UnionPay to buy goods at a pawnshop and then trade them for local currency at the same store. However, according to Macau officials, players have been found using mobile card-swiping devices in order to get hold of more local currency, which is illegal. The payment card agency believes that this way billions of dollars are being siphoned off illegally from mainland China to Macau.
Therefore, since then, in order to check money laundering, illegal cash flow and other illegal bank card use, UnionPay International has implemented certain risk prevention measures. It has tightened visa rules for visitors from China and tracks non-registered point-of-sale machines, which are used to withdraw cash from UnionPay credit cards. These measures are helping to keep a track of large transactions undertaken by merchants and share all information with law enforcement bodies.
Consequences of these restrictions have been enormous so far. After declining in single digits for three consecutive months beginning June, Macau gambling revenues declined 11.7%, 23.2% and 19.6% in Sep, Oct and Nov 2014, respectively. Restrictions like limiting the use of state-backed payment processor UnionPay is making it harder for players to obtain cash to gamble. In fact, Macau gaming regulators believe that 2014 will be the first year of disappointing Macau gaming data results.
Unfortunately, the worst is not yet over with analysts expecting a double-digit decline this month and further declines in 2015. Moreover, given the timing of the Chinese New Year, which is on Feb 19, 2015 versus Jan 31 in 2014, some analysts expect a double-digit decline in the first month of the New Year as well. In fact, no improvement is expected until the second quarter of 2015.
The companies are trying their best to bolster revenues. We on our part can only wait and see how long the slowdown in Macau lasts and impacts the companies operating in the region.
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