Private Eyes Discuss Macau Risks

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Managers considering expanding operations in Macau, or making personal investments in real estate there, must remain alert to security and reputation risks in the enclave. Here I-OnAsia seeks to assess these risks by answering two questions: Â?Is Macau a violent place?Â? and Â?Are local businesses going completely legit?Â?

I - Is Macau a Violent Place?

I-OnAsia expects that the overall number of violent cases in Macau, as well as the magnitude of the cases themselves, will fall compared to a year ago.

Most likely, this is because with the local economy booming, Macanese gangsters have been far too busy making money by maintaining the peace to resort to violence. Analysis of law enforcement actions in Macau, Hong Kong, and Guangdong against organized crime in the region supports this fact.

In 2004, Hong Kong listed businesses with operations in Macau saw their stocks rise by over 500%, and property investors there have more than doubled their money. In November 2004, the South China Morning Post reported an 18.7% year on year drop in violent cases, which far outpaced the overall decline in the crime rate of 4%. During the first three quarters of 2004, there had also been far less high impact gangland conflict of the type experienced before a 1999 truce brokered between rival gangs and the subsequent incarceration of 14K Triad boss “Broken Tooth” Wan Kuok-Kui. The largest coordinated anti-triad enforcement action in 2004, which was code named Sun Rise and resulted in the arrest of an amazing 1,569 suspected triad members, was aimed at combating vice (such as prostitution, illegal bookmaking, and illicit drugs).

A year ago, I-OnAsia’s analysts expected that the opening of the first western style casinos in Macau in the second half of 2004 would have lead to increased infighting amongst gangs in Macau for the scraps of business remaining at the older establishments. While sources report that the new casinos took as much as one third of all table traffic from the likes of the Lisboa, turf battles between old and new players did not occur. In part this success may be attributed to the efforts of local law enforcement and security personnel at the new casinos. Yet, I-OnAsia anticipates that new security regimes are not robust enough to claim full credit.

Reliable sources state that local triad gangs are finding strategic advantage in delivering vice to patrons at older casinos. The most important of their services appears to be money laundering. China disclosed in March 2004 that RMB20 billion (US$4.1 billion) is being laundered through Macau casinos per annum, and the Far Eastern Economic Review reported that Stanley Ho Hung-Sun and his Sociedade Tourismo de Macau (“STDM”) was at the centre of a “huge multi-million dollar money-laundering scheme” later last year. Further intelligence suggests that Macanese triads have benefited from the disruptive forces of the Internet, and de facto liberalization of bookmaking in the region. Economic growth also appears to be stimulating demand for prostitution, illicit drugs, and counterfeit goods. When business is good, it appears, no one has time to fight.

While violent crime in Macau is at low ebb, the enclave remains a violent place, and reversion to the bad old days remains a possibility. In the first nine months of 2004, Macao Security Forces logged over 600 cases involving violence in Macau, and weapons including steel bars, clubs and knives, were seized during Sun Rise. Indeed, I-OnAsia’s directors have recently investigated subjects engaged in intimidation and extortion in Macau.

If China’s currency becomes freely convertible or if China mounts an anti-money laundering crackdown of the size and scale aimed at combating smuggling in the late 1990s, great hardship would be imposed on beneficiaries of the status quo. Likewise if property prices plunge, or other significant shocks to the economy arise. (One need only look at 2003, when SARS hurt travel and tourism in Macau and crime rose by 9.2% from the prior year, for support of this assessment.)

Separately, it is not inconceivable that personal rivalries or the rise of new players not party to the 1999 truce agreed between the local triads (e.g. the “Little Circle” gangs) could disrupt the peace. Further, future police actions could result in sharp rises in violence. In 2004 there were few tangible enforcement gains made against senior Triad leadership in Macau. Sun Rise resulted in no arrests of dragonheads, or senior office bearers. The only high profile detention was of Wan ally Tommy Li Yiu-Ming, who voluntarily surrendered. With the creation of an anti-corruption watchdog in Macau similar to Hong Kong’s ICAC, and the increased pressure brought to bear by foreign investors on local law enforcement officials to further crack down on criminal activity, it is possible to foresee a day where arrests lead to disruption of the peace agreement and a resumption of gangland violence.

II - Are Local Businesses Going Completely “Legit”?

It is often argued by some influential Macanese that local people previously engaged in illicit activities are transforming themselves into legitimate businessmen and women. With time their past misdeeds will be forgotten and a significant portion of the population will leave the underground economy completely. Therefore, the argument goes, foreign investors should overlook the past when considering business relationships with local partners in Macau.

To be sure, the long lines of applicants for limited positions at foreign businesses in Macau show the strong desire for legitimate work. However, it is I-OnAsia's assessment that many Macanese still maintain ties to organized crime. To date a large number of the very worst characters have yet to truly “go legit”.

Most recently, I-OnAsia has been noticed links between Macanese triads and brokers of Weapons of Mass Destruction, as well as the rising instance of counterfeiting (incl. counterfeit currency, not just fake consumer goods). These problems, as well as others discussed above, suggest that Macau has a long way to go before it can declare itself in the clear. Foreign investors would be well advised to carefully consider the background and reputation of any potential local partner.

About I-OnAsia

Since founding in 2001, I-OnAsia has become one of Asia's largest investigations and risk consulting companies. Its core business is the objective and discreet collection of commercial intelligence from the field, often on behalf of other investigations companies and security departments lacking an on-the-ground response capability in Asia.

I-OnAsia is Hong Kong headquartered, with resources concentrated in North Asia. The company employs over 45 full-time project managers and associates. Staff prepare both qualitative and quantitative risk assessments, vet employees, conduct pre-transaction due diligence, undertake surveillance, investigate fraud, combat intellectual property infringement and "dumping", trace assets, and gather sensitive business intelligence. I-OnAsia's case managers have experience working throughout Asia across a broad range of industries.

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James Tunkey
I-ONASIA
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