Side Betting in Macau
By António Ramirez and LuÍs Pessanha

Background

Side betting is increasingly an issue of concern for the gaming industry throughout the world. It unfairly exploits lawful wagers, placed in authorized casinos, to take in clandestine parallel betting. Such is made possible thanks to a side agreement between the player placing the bets and a third party who promises to cover an additional illegal parallel bet.1 What appears to be a simple bet placed at a certain casino table might represent hidden supplementary wages. Hence, a single dollar lost or won in a bet at a casino table may well correspond to two, five, 10 or even hundreds of tax-free dollars under a parallel bet agreed with a third party. Side betting is a threat to the gaming revenues, as a substantial portion of the sizeable bets placed by the premium players are conducted under the table by way of private betting agreements. Indeed, as of 2007 approximately 66.5 percent of the casino revenues of the Macau SAR were obtained in the VIP and premium gaming market. It is therefore rather obvious why this is a matter of great interest for the Macau SAR.2

Tax Implications

The local casino operations in Macau are subjected to heavy taxation on all gross gaming revenues generated, which is by far the most important source of public revenues for the local Macau government. It is a well-known fact that taxes are presently due at a rate of around 39 percent on all money collected by the local casinos. Furthermore, the applicable legislation imposes a vast number of duties and obligations on the casino operators to make sure all amounts are properly disclosed for tax purposes. However, wages placed under side betting schemes do not generate revenues for the lawful casino operators, are never disclosed, and allow for no tax to be collected. The Macau government, therefore, loses unknown millions in revenue to this type of activity.

For the gaming operators, side betting at best represents unwelcome and unfair competition, since clandestine gaming pays no taxes, lacks all forms of public supervision and eludes applicable regulations. Side betting represents nothing else than a parasitary scheme that takes advantage of the creditability and trust that the licensed casino games enjoy before the general public, siphoning away part of the operators’ revenues.

Gaming Supervision

From the point of view of gaming supervision, side betting is particularly problematic. It presents an easy route to defraud the strict restrictions concerning access to casino gaming imposed by law, potentially allowing unsavory and unsuitable parties to indirectly take part in casino betting. Considering that side betting is unlawful and even persecuted under the applicable criminal law, one should assume that such parties are fully aware that they are breaking the law and engaging in illegal activities.

The Gaming Inspection and Co-ordination Bureau (Direcção de Inspecção e Coordenação de Jogos; DICJ) must have the ability and the manpower to develop more active investigations on side betting in the near future. It is important to consider that DICJ be awarded the power to cancel, or at least elect not to renew, the operating license of a gaming promoter (legal jargon for a junket) who is suspected of participating in a side betting scheme. Side betting by any junket should be considered a breach of the applicable licensed terms and sufficient ground for the termination of the relevant gaming license. Furthermore, all parties involved in side betting should be banned from the gaming venues and blacklisted from all local casinos. Usually side betting is associated with the junkets, but the phenomenon goes further than that; it can be developed by casino employees, junkets employees, other patrons, etc.

Criminal Law Implications

The Macau lawmaker resorts to the criminal justice system to suppress all forms of underground gambling, which includes a provision that punishes unlawful gaming, even if it takes place in an authorized casino venue. Under a particularly harsh criminal law, not only is it a crime to offer unlawful bets in a authorized gaming venue (punishable by fine or a prison sentence of up to three years), but it is also a crime to place these illicit bets (punishable by fine or a prison sentence of up to six months). Therefore, in addition to a criminal law provision directed at the provider of unauthorized gaming, the Macau lawmaker also seeks to penalize whoever places such irregular bets in an authorized gaming venue. Hence, all parties involved in side betting are liable for criminal persecution.

Final Remarks

The real size of the problem is difficult to assess, as side betting agreements tend to be done in utmost secrecy. Parties involved in illicit betting agreements are aware that they have nothing to gain and everything to lose from making their arrangements public. The unlawful nature and criminal persecution of side betting makes it difficult to understand how much of Macau’s gaming market has been cannibalized by side betting.3 Moreover, it is obviously a difficult task to detect and prove that a certain player is placing side bets in a casino gaming venue. However, it is in the best interest of the industry to keep side betting out of their casinos, as it clearly represents a source of lost revenues for the lawful operators. There is an obvious incentive for the gaming industry to work together with DICJ to prevent and combat side betting.

We strongly believe that the gaming regulators, judiciary and police would benefit from a dedicated team established to investigate this phenomenon. We also recommend that a clear message be sent by canceling licenses and launching criminal lawsuits against those who are suspected of committing such crime. Without this clear message saying that the authorities are alert and will no longer tolerate such behavior, it is doubtful whether the good laws Macau has already established to prevent this activity will suffice to protect the industry.

Antonio Ramirez is the Managing Partner of Ramirez Law Firm. LuÍs Pessanha is a lecturer on the Faculty of Law at the University of Macau.

1 Under the law of Macau all such illicit bets shall be null and void, since they have been concluded to be in clear violation of mandatory legal provisions. All such parallel gaming and betting contract agreed upon by the parties shall not be enforceable before the courts. Hence, there are no legal means to compel the losing party to pay out the credits lost under such unlawful betting agreements. Nor it is expectable that the interested parties would try to enforce the collection of such debts through the courts.
2 The main bulk of the revenues obtained by the exploitation of casino gaming is generated by the VIP rooms (the game of choice is Baccarat). The gross gaming revenues of "Baccarat VIP" were of 10,790 in 2000; 12,755 in 2001; 16,340 in 2002; 22,178 in 2003; 29,783 in 2004; 28,864 in 2005; 36,783 in 2006; 55,762 in 2007 (amounts in millions of patacas, the official currency of Macau; presently $1 U.S. is approximately equal to 8 patacas) (see www.dicj.gov.mo/PT/Estat/DadosEstat/2007/estat.htm#n1).
3 There have been sporadic reports in the regional press that Macau’s casinos had lost as much as $1 billion to $2.5 billion U.S. in 2007 to side betting (see, namely, Neil Gough, Side-Bet Scams Dwarf Bad Old Days when Mafia ran Vegas, South China Morning Post, Dec. 10, 2007; Neil Gough, Macau Losing Billions from Betting Scam, South China Morning Post, Dec. 10, 2007; Nigel Huxtable, Macau Casinos are the World's Most Secure: Gaming Inspection Chief, Macau Daily Times, Jan. 29, 2008). It is difficult to know if these huge amounts are realistic or truthfully reflect the economic impact of side betting. Public officials tend to point to significantly lower figures. It is, however, clear that the casino gaming industry of Macau is well aware and rightfully considers side betting as a serious threat to its profitability.