Casino operators dispute China corruption story

David Strow

Wednesday, March 27, 2002 | 11:44 a.m.

Over the last several years, the largest nation in the world -- the People's Republic of China -- has become an increasingly important international market for Las Vegas gambling resorts.

But is the growing torrent of business the result of growing corruption in China, as the Washington Post suggested Tuesday? Gaming industry observers and officials disputed that claim.

Courting embezzlers and corrupt officials from such a vital market would be a foolish strategy, one executive said.

"We want to develop this (China) as a long-term market," said Mike French, senior vice president of operations at the Venetian. "Why would we want to kill the goose that laid the golden egg?"

Bobby Siller, member of the state Gaming Control Board, said the allegations were "very concerning."

"We would definitely be concerned about anyone bringing money into this country illegally to participate in casino (gambling)," Siller said. "But some of these situations are very, very difficult. Occasionally, you can't know everything."

While traditional Pacific Rim economies have struggled with recession in recent years, a program of economic liberalization in China has spurred rapid economic growth. With that growth has come increasing visitor counts to Las Vegas.

In 1994, 17,000 Chinese citizens visited Las Vegas, the Las Vegas Convention and Visitors Authority reported. By 1997 -- the last year for which the LVCVA has data -- the Chinese visitor count had reached 40,000.

"Ever since they began their economic reforms, there's been tremendous growth in commercial business (in China)," French said. "As economic conditions improve in a country, as soon as they start to get extra money, they start to travel."

But there's a dynamic in China's culture that makes it different from other emerging economies around the world. Quite simply, many Chinese love to gamble.

And many aren't exactly budget players. Shannon Bybee, executive director of UNLV's International Gaming Institute, said many Chinese players will wager hundreds of thousands of dollars per hand on baccarat. A few will wager millions.

Because of these dynamics, business ties have been strengthening between Las Vegas and China in recent years. Marketing offices have been opened in Chinese cities. Las Vegas executives have made trips to the country to pitch their casinos to high-end players. Singapore Airlines will initiate a non-stop flight between Hong Kong and Las Vegas in August, the first direct connection between Las Vegas and China.

And when the former Portugese colony city of Macau -- now controlled by China -- opened its gaming market to competition, Las Vegas' largest gaming companies, including Park Place Entertainment Corp., MGM MIRAGE and Mandalay Resort Group, were among those fighting to get in. Venetian owner Sheldon Adelson and casino developer Steve Wynn were both awarded provisional licenses, and both are now negotiating with the government of Macau for a permanent license.

Macau has been the traditional home of Chinese gamblers since casinos sprung up there in the 1960s, and grabbing that business was the reason Las Vegas companies were so keenly interested.

But Macau has built something of a shady reputation over the last four decades. And in December, it was the scene of a Chinese embezzlement scandal that garnered international attention.

The deputy mayor of Shenyang -- a major city in northeast China -- was accused by Chinese officials of gambling away $4.8 million in public funds in Macau casinos. He was one of 16 public officials executed for corruption in December.

The Post suggested Tuesday that Las Vegas casinos have a similar situation on their hands. Citing unnamed U.S. officials, the paper said "much of the money Chinese bet at table in Las Vegas is hot -- embezzled from the Chinese government or state-owned businesses, or made illegally, mostly by smuggling."

The claim drew an angry retort from Alan Feldman, spokesman for MGM MIRAGE, who called the story "grossly exaggerated."

"If that's the case, those U.S. officials are being irresponsible" by speaking anonymously, Feldman said. "If the government has that evidence, they should make it known. I don't think they do."

Casino companies said universally they aren't intentionally soliciting that business, and don't want it.

"We do not knowingly cater to or invite people who have embezzled or stolen money, or who have made their money from criminal activity," said Gary Thompson, spokesman for Harrah's Entertainment Inc. "We go to great length to make sure we're not doing that."

The Post story said Harrah's was stepping up its marketing efforts in China, and planned to open an office in Beijing April 1. This would seem to be an about-face for Harrah's -- the Rio used to cater to high-end international customers, but ditched this business last year after a string of disappointing quarters.

Harrah's still solicits business from international customers who gamble in the range of $50,000 a trip, Thompson said. But he said Harrah's has no plans to open an office in Beijing.

Instead, Thompson said Harrah's works with a Chinese private investigator, who conducts background investigations on potential customers to determine if Harrah's will support their visa application.

In the instance of a tourist, the U.S. consulate looks for one critical piece of information before issuing a visa -- whether the visitor is coming the United States for a visit, or whether they're trying to get into the country permanently.

To verify this, the consulate looks for evidence of ties of China, such as assets or family in the country, French said.

"If we invite some guy who just wants to come to the states and not come back, the consulate would never listen to us again," French said.

If the prospective customer owns a business, a casino executive or agent will visit that business to verify the claim.

But being absolutely certain that the customer isn't deriving the money from illegal purposes is a nearly impossible task, executives say.

"There's no way we'd ever know that," French said. "We do all we can to check out their background."

"I don't know that any retail business makes that kind of judgment call," Feldman said. "We don't get involved in personality tests. There is no gold standard."

Screening out customers because they are public officials is not an option, Feldman said.

"There are politicians who became politicians after very successful business careers," Feldman said. "Even here, in our own state, we have politicians who are quite wealthy."

Failing to exercise proper caution in soliciting customers can be a serious offense, the control board's Siller said. In some instances, independent agents who worked for Las Vegas casinos were denied a gaming license after the board found they had failed to use proper care in determining whether a customer's funds came from illegal activities.

"We would definitely be concerned about anyone bringing money into this country illegally to participate in casinos," Siller said. "We hold the licensees, the properties and the agents accountable."

But ultimately, Siller said, the power of casinos to get information on their Chinese customers is limited.

"Casinos can do a certain amount of due diligence, but I'm not sure they can determine everything about these individuals, since they're from a country where it's difficult to get information," Siller said. "(Based on stories of embezzlement), it's difficult for even the Chinese authorities to check this."