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Report Confirms MGM Mirage’s Ties to Organized Crime (MGM)

Alex Constantine - April 12, 2010

Daily Break News on Apr 7, 2010

mgm - Report Confirms MGM Mirage’s Ties to Organized Crime (MGM)In a previously confidential report released Wednesday, New Jersey state regulators said they found that casino operator MGM Mirage (NYSE:MGM) went astray by partnering with a company for its Macau casino that it knew had links to people connected with organized crime, The Wall Street Journal reported. “From the beginning of its efforts to enter Macau, MGM pursued partnerships with persons that it knew were associated with those aspects of gaming in Macau most heavily penetrated by organized crime,” New Jersey’s Division of Gaming Enforcement wrote to the state’s Casino Control Commission. MGM Mirage disclosed the report’s existence nearly a year ago, but it had been kept confidential until a hearing Wednesday before the casino commission.


Macau giving fits to Nevada regulators

Organized crime said to run rampant where state giants do business

Bloomberg News file 

By Liz Benston  | Las Vegas Sun | April 11, 2010

  Las Vegas Sun archives

scaled 0314 met wynndivorce02 t178 - Report Confirms MGM Mirage’s Ties to Organized Crime (MGM)Steve Wynn

enewed concern about the influence of organized crime in Macau, where three Las Vegas-based gaming giants own casinos, has raised questions about the ability of Nevada regulators to monitor or act on what takes place on the other side of the world. 

Industry titans Steve Wynn and Sheldon Adelson view their companies as more Asian than American. Wynn’s Macau casino accounted for 67 percent of his company’s 2009 earnings. Adelson’s three Macau casinos accounted for 90 percent of Las Vegas Sands’ earnings last year. The companies raised $5 billion in initial public offerings of their Macau subsidiaries’ shares last fall. 

Adelson is resuming work on a resort attraction in the enclave with more than 6,000 rooms. Wynn Resorts is opening an expansion this month, also has plans for a third resort in Macau. 

Harrah’s Entertainment, which initially avoided a deal in Macau because of concerns about organized crime in the casinos, is angling for a piece of the world’s biggest and fastest-growing gambling market. Macau generated $15 billion in gaming revenue last year, a 10 percent increase. That dwarfed the $10.4 billion generated by Nevada casinos in 2009. 

Law enforcement authorities in the United States and other countries contend a lot of money flowing through Macau casinos from China is laundered cash from illicit sources. Regulatory experts say the VIP room structure, which enables casinos to farm out high-limit gambling rooms to third-party “junkets” that bring in gamblers, extend credit and comp them, enables the third parties to operate with a degree of anonymity that mostly would not be allowed elsewhere. 

Is Nevada doing enough? 

Organized crime was entrenched in Macau’s gambling industry before Nevada companies began operating there in 2004, they say. Unlike the mob, which was eventually phased out of casinos through a combination of regulatory enforcement and changes in financing rules, organized crime is alive and well in Macau, they say. New Jersey regulators say it taints MGM Mirage’s Macau operation, while Reuters news agency last month reported that an Asian mob figure ran a gambling room inside Sands Macau. 

Some critics say Nevada regulators aren’t doing their jobs when it comes to Macau operations, while regulators say they are doing as much as their jobs allow — which doesn’t include being able to dictate how Macau’s government regulates casinos. 

Though some regulators are uncomfortable with the enclave’s lax regulatory system, have little choice but to allow the state’s biggest employers and taxpayers to do business in the world’s largest gambling market, some experts say. 

“This is a Nevada variation of ‘too big to fail,’ ” says Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at UNR. “The big growth market is Asia, and if you want to be in the gaming business you need to be in Asia. Therefore, you have to do things the way they are done in Asia.” 

“If you say politics is not involved, you’re not in touch with what’s happening,” says Jeff Voyles, an associate professor of casino management at UNLV and a partner with gaming consulting firm Globalysis. “You don’t want to (tick) off the largest private employer in ... Nevada. As a regulator, do you really want to railroad a major deal, or find a way to make it work?” 

But Nevada regulators say it’s wrong to assume the state’s treatment of Nevada-owned casinos in Asia is driven by politics or economics. The regulators say they are following the letter of the state’s “foreign gaming” law. That law hasn’t changed since 1997, when it was amended to make it easier for companies to expand outside Nevada. That was when Nevada-style casinos were spreading to other states rather than locales with different political structures and cultural norms. 

For many years, the state prevented Nevada operators from opening out-of-state casinos. It was a blatantly protectionist stance by a state that wanted to keep the casino windfall to itself. 

But as gambling spread to other states, Nevada companies sought a piece of the action. 

New Jersey voters approved casino gambling in 1976 — and the next year, responding to industry pressure, the Nevada Legislature lifted the expansion prohibition. It allowed casino operators to set up shop elsewhere, with a catch: They had to obtain Nevada’s approval first. 

Lawmakers said then that condition was aimed at upholding the Nevada industry’s reputation and preventing embarrassment down the road. But legislators had ulterior motives, regulatory experts say. 

“There were all sorts of fears. People weren’t sure what to expect when gaming expanded to other regions. They were scared about losing the goose that laid the golden egg, so to speak,” says Greg Giordano, a Las Vegas gaming attorney who oversaw the Gaming Control Board’s corporate securities division that reviews foreign gaming applications. 

When casinos spread to other states in the 1990s, Nevada companies argued the foreign gaming law put them at a disadvantage by unreasonably delaying business deals. It required Nevada regulators, after an in-depth review that could take months or even years, to pass judgment on other states’ or countries’ regulatory systems. 

For example, Nevada regulators in 1985 approved Hilton Hotels’ application to own a minority stake in the Jupiters Casino in Queensland, Australia, after a two-year investigation of that country’s regulatory controls, which were deemed “at least as effective as Nevada’s.” 

In 1987, legislators removed that requirement. Although this favored expansion efforts, regulators acknowledged that it relieved them from making subjective calls that could lead to diplomatic problems. At the time, governments around the world were seeking regulatory advice from Nevada — a task thought to benefit local companies poised for international expansion. 

“It’s pretty tough to tell someone ‘Your system stinks, but we want to help you do a better job,’ ” says Bill Bible, a MGM Mirage board member and a former Nevada Resort Association president who was Gaming Control Board chairman in the 1990s. 

The 1987 revision did not remove the requirement that Nevada companies get regulatory approval before they set up outside the state, however. That made it difficult to compete against non-Nevada companies for a finite number of casino licenses in other states. 

Revising the foreign gaming law was a hot-button issue. Some lawmakers feared that Las Vegas would lose its place as the gambling capital of the world. Industry and regulators argued in favor of allowing Nevada companies more leeway in an increasingly global marketplace. 

Some regulators said the restriction might be unconstitutional because it could be construed as prohibiting free trade. 

So in 1993, regulators dropped that requirement, too, opting to let the deals go through and monitor them. Nevada companies have to notify state regulators within 30 days of signing an out-of-state deal. Also, companies have to submit periodic reports on non-Nevada operations, including any major changes in ownership or operations and on regulatory concerns such as arrests or complaints from regulators in other states or countries. 

‘Finding of suitability’ 

In 1997, Nevada regulators began requiring companies doing business outside the state to file an application for a “finding of suitability.” Companies would be investigated if regulators suspected a business deal violated state law because it involved prohibited activities or “unsuitable” partners. The amendment allows companies to voluntarily seek such a finding for business associates, which is what MGM Mirage did after it signed a partnership agreement with Pansy Ho, daughter of Macau casino magnate Stanley Ho, in 2004. 

By the time MGM Mirage submitted its application, Wynn Resorts and Las Vegas Sands were operating in Macau. Both had notified regulators and submitted quarterly and annual reports on their business activities there. But the Pansy Ho deal was the first time regulators would make a suitability finding, so it was the first full test of the updated law. 

It appears to be facing an even bigger test now. 

Last month, New Jersey regulators released results of their multiyear investigation of MGM’s partnership with Pansy Ho, concluding she was an “unsuitable” partner because of her father’s reputed ties to organized crime. Rather than appeal, MGM Mirage is exiting the state, selling its 50 percent stake in the Borgata. Although New Jersey lacks a foreign gaming law, it requires companies to renew their licenses every five years, which gives regulators a chance to pass judgment on business matters. 

On March 29, Reuters reported that a man alleged to have been running a VIP room at Sands Macau is a member of organized crime and the mastermind of a murder-for-hire conspiracy that resulted in last year’s convictions of four men. 

Nevada regulators say they are reviewing the allegations but could not take action unless they have solid evidence that a Nevada company violated laws of the state or any other place in which it operates. 

Therein lies the problem, some experts say. 

Nevada law requires continuous monitoring of the goings-on of Nevada companies’ operations outside the state. That monitoring includes reading Securities and Exchange Commission filings, newspaper stories, investigations and reports by law enforcement agencies worldwide, and other countries’ gaming regulatory documents. By law, Nevada regulators have to review the allegations in New Jersey’s report and Reuters’ story. 

The Control Board’s corporate securities division, which oversees this process, assigns agents to specific companies to keep up with a fire hose flow of information. Agents, some fluent in foreign languages and others with translators in tow, take fact-finding trips to U.S. and foreign casinos and manufacturing plants and interview local businesspeople, regulators and law enforcement sources. 

“We have regulatory and law enforcement contacts around the globe and are constantly receiving intelligence information from within the industry as well as outside the industry,” Control Board member Randall Sayre says. “We have people focused on Asia who keep in contact with sources there so we don’t get caught off guard. Some (casino operators) may be engaged in a relationship that’s problematic that they don’t even know about.” 

In 1993, the foreign gaming law was amended to require companies to deposit in a bank at least $10,000 so regulators (who requested the change) could investigate operations outside of Nevada. 

Companies must keep the money on deposit for use by the Gaming Control Board at all times and replenish it after any has been used. 

MGM Mirage and Harrah’s Entertainment, the largest gaming companies, each fund a revolving account worth $100,000. Las Vegas Sands and Wynn Resorts, which have extensive casino operations in Macau, yet only two resorts each in Las Vegas, have revolving accounts worth $25,000 each. Dubai World, a 50 percent partner with MGM Mirage in the $8.5 billion CityCenter and the first government-affiliated entity to obtain a Nevada gaming license, has the largest revolving account, worth $150,000. 

Regulators are reluctant to disclose details of such trips because they don’t want to tip off the companies they regulate. However, Control Board Chairman Dennis Neilander said agents typically travel to Macau at least twice a year to review Nevada operators there, with side trips to Singapore, Japan and other Asian countries where Nevada companies are doing business. 

But experts say a handful of brief trips to Macau probably isn’t enough to uncover evidence of what is common knowledge among U.S. regulators but well-hidden by organized crime frontmen who are considered upstanding businessmen in Asia. 

A thorough investigation of Macau’s VIP rooms and the flow of money could cost millions of dollars and would require the expertise of Chinese lawyers and undercover officers, according to a former Nevada regulator, who declined to be identified. 

Any such efforts could run into objections from Nevada companies footing the bill and from Macau regulators who would say the state is overstepping its authority. 

“There’s a fine line here,” says one Nevada gaming attorney, who declined to be identified. “From a public policy standpoint, the Gaming Control Board and Commission are supposed to ensure that gaming is conducted honestly and is free from corruptive influences.” 


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  1. Steve Wynn has Yakuza connections too, but the thing with Asian culture is that ALL gambling is linked to organized crime because crime, politics, and big business are all sort of interconnected through guan-xi connections that obligate you to always take each other into consideration when considering my business interests.

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