Thursday, Dec. 28, 2000 | 11:32 a.m.
Steve Wynn's business partner at his Desert Inn hotel-casino site has been accused of tax evasion in Japan, a development sure to draw extra scrutiny of the partner by gaming regulators.
Aruze Corp., Japan's largest manufacturer and distributor of pachinko gambling machines, has been accused of concealing about 4 billion yen in income -- about $35.1 million in U.S. dollars -- between the 1996 and 1998 fiscal years, the Kyodo news service of Japan reported today.
Kyodo quoted industry sources as saying the Tokyo Regional Taxation Bureau has imposed a penalty tax of about 1.7 billion yen ($14.9 million U.S.) on the company based in Tokyo's Koto ward.
Aruze stock fell 11 percent on the news, Dow Jones reported.
Aruze is controlled by Japanese businessman Kazuo Okada, listed by Forbes magazine as that nation's eighth wealthiest person, and a partner in Wynn's Valvino Lamore project.
Kyodo's sources said Aruze allegedly hid income by faking transactions with its Las Vegas-based affiliates. Aruze reported that its affiliate built pachinko machines -- a type of slot machine popular in Japan that resembles a pinball machine -- and exported them back to Japan. However, the tax authorities determined the transactions were bogus and that payments to the affiliate were taxable, the sources said.
Last month, Aruze announced plans to invest $260 million in Valvino Lamore, Wynn's vision of a complex that may include a hotel-casino with two 3,000-room towers 59 stories high, several casinos, noncasino hotels, condominiums and other mixed-use developments on the shores of a 30-acre man-made lake.
With the investment, Aruze would gain 50 percent control of Valvino Lamore, a privately held company named after Wynn's grandfather. Wynn paid $270 million for the Desert Inn in May and closed the hotel-casino in the summer.
Wynn's offices at the Desert Inn are closed for the holidays and representatives of his companies could not be reached for comment about the report on Aruze.
But Nevada's top gaming regulator and an analyst who covers the gaming industry say if the accusations are true, it could stand in the way of Aruze securing a Nevada gaming license.
Steve DuCharme, the retiring chairman of the state Gaming Control Board, said the regulative board has been examining Aruze's books because of its plans to acquire Universal Distributing of Nevada Inc., formerly one of the state's largest slot machine makers, but now virtually out of business.
Control board members had expressed concerns about how a series of deals raised Universal Distributing's balance sheet from $40 million in the red to $18 million in the black in five years.
DuCharme said today he's not sure how or whether the tax evasion accusations and Aruze's dealings in Nevada are related, but reports explaining some of the transactions have been forwarded from the office's general counsel to the two other control board members, Dennis Neilander and Bobby Siller.
Neilander and Siller could not be reached for comment today.
"We're not familiar with Japanese tax law," DuCharme said today. "And there are a number of transactions that occurred in Japan that we could not completely understand. The nature of the transaction, no pun intended, is foreign to us and the language barrier also has made it difficult."
DuCharme said he spoke to Neilander Wednesday and learned that he had received the general counsel report, but he said he wasn't sure if he had reviewed it.
"At first blush, those transactions left us scratching our heads," DuCharme said. "But ultimately, if they (Aruze) are found guilty (of the tax evasion charges), that would be an area of concern to us."
Daniel Davila, a gaming analyst for Hibernia Southcoast Capital, also said history has shown that gaming regulators don't look favorably at questionable behavior.
"The licensing process in Nevada and in most other jurisdictions, for that matter, is one of the most invasive and draconian processes anyone would have to go through," Davila said. "Any foul play uncovered by Nevada regulators would not be viewed kindly."
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