Suncity chairman's arrest could sink Macau's poker-whales

Jon Pill
Posted on: November 29, 2021 23:33 PST

Chinese authorities issued an arrest warrant for Alvin Chau this week. Chau is the CEO of the Suncity Group, a casino and junket operator. His arrest marks a major turning point in the PRC's crackdown on Macau's junket industry.

Macau is a special administrative region of China. As such it has a great deal of autonomy from mainland China. However, the Macanese police still arrested Chau along with 11 other Suncity employees in response to Beijing's arrest warrant.

The charges against Chau are money laundering, running illegal gaming activities, and being part of a criminal ring.

The Macanese Security Bureau held a press conference in which they announced Chau's arrest.

"The [Macau] SAR Government has received notification from Mainland authorities, concerning a Macao ID holder surnamed Chau," a spokesperson for the bureau said. "Who is a shareholder as well as a principal of a gaming promoter company."

The spokesperson went on to explain the nature of the charges.

"The information by mainland authorities revealed that Chau had allegedly set up a cross-boundary gambling syndicate," they said, "organizing illegally for Chinese residents to travel on VIP junkets overseen by Chau and located outside the mainland, in order to take part in cross-boundary gambling."

Chau's identity wa s confirmed in a later press release.

Suncity is, by some estimates, responsible for 40-45% of the Macanese junket industry. A fact that has made many economic forecasters pessimistic.

The junket industry

Something like this has been coming for a while. It was summer 2020 when the Chinese government first started turning the screws on the junket industry.

Macau looked on in concern as it waited to see exactly how well enforced the new rules would be. Junkets have always operated in a grey market. This is especially true when it comes to their use of credit to circumvent mainland China's strict limits on currency exchanges.

The Chinese government does not allow individuals to move more than CNY10,000 (~$1,550) outside the country in one go. The government also puts limits on overseas bank card withdrawals.

As a result, high rollers from the PRC go to junket operators, a kind of tour-guide-cum-banking service. Junket operators book hotel rooms and arrange for whales to play at specific casinos or in specific poker games. Junkets also extend lines of credit in Macanese patacas and Hong Kong dollars — the official and de facto currencies of Macau.

High rollers can then — depending on how lucky they were — cash out or cough up in yuan once back on the mainland.

In June when the crackdown kicked off, the Chinese authorities froze CNY229 billion ($32.95 billion).

"It definitely impacts liquidity," Lam Kai Kuong, director of the Macau Junket Association, said at the time.

Since then, the focus has been almost entirely on the lower levels of the junket industry. Chau's arrest changes that focus.

In a weekend note, DS Kim, Amanda Cheng, and Livy Lyu explained: "Most (if not all) of the previous arrests and detentions over the past 6+ years have focused on agents and ‘foot soldiers’ who actually carried out illegal operations. [...] Mr Chau is arguably the biggest (and certainly most famous) figure in the junket industry."

What impact will this have on Macau's poker games?

Macau has been home to some of the biggest poker games in the world. Ivey has described winning and losing eight-figure pots over Macanese backroom baize. But those games were entirely built around wealthy visitors, mostly from mainland China.

Suncity is unlikely to keep going with its junket work after this arrest. That's a 40% slash to the whale population upfront.

The example of Chau is likely to cause other junket operators to fold up or to switch to a lower key.

This is bad news for Macau's overall industry. Although not as bad as you might expect. The initial crackdowns already prompted the industry to move away from its reliance on high rollers. "VIP" players only account for about 1-4% of the industry's revenue now.

There have been plenty of signs of recovery in the last year as China and Hong Kong get a grip on the pandemic.

The industry overall may not be hit too hard. But this probably spells the end of those nosebleed poker games. Looks like Phil Ivey and Tom Dwan headed stateside just in time.

Featured image source: Flickr by Tristan Schmurr