The Macau Model - Chinese Organised Crime and the Mobile Capital Circulation System
The Asian Crime Century briefing 167
In the past decade the impact of the expansion of Chinese organised crime has had an increasing impact on countries around the world. Although Chinese organised crime is more well recognised, the model for this expansion requires definition to enable governments, law enforcement agencies, and corporate stakeholders in the global financial system to combat this threat.
A primary point of origin of the expansion of Chinese organised crime was Macau, a former Portuguese colony and now Special Administrative Region of the People’s Republic of China (PRC). Macau is the only place in China where casino gambling is legal. Since the ending of the monopoly on casino operations in 2001, Macau evolved into the world’s largest casino market, driven a distinctive VIP “junket” system that linked high-roller gambling, underground finance, cross-border capital controls, and organised crime.
From that gambling ecosystem emerged ‘the Macau model’, a structured system for moving, layering, and recycling capital and funding transnational Chinese organised crime that is proving to be a replicable model in other locations around the world. Macau as a money laundering and organised crime incubation hub thrived because of the casino system, but gambling is not necessarily a critical requirement of other hubs that expand based on the Macau Model.
Macau has a deep history as a hub of Chinese organised crime, institutionalised gambling business, and a gateway for capital to exit from the PRC. Macau casinos date back to the Portuguese colonial era from 1557 to 1999. From 1810, Macau introduced a charitable lottery, legalized Fan Tan (a game involving a random number of counters placed under a bowl with people gambling on how many will remain as four at a time are removed), and Pai Gow (a Chinese tile game). The government introduced gambling house franchises which became a source of revenue, and by 1961 the Governor declared that Macau was a “permanent gambling region.” This led to a public tender for the monopoly casino operating license, which in 1961 was won by Stanley Ho and his Sociedade de Turismo e Diversões de Macau (“STDM”) company (Asian Crime Century briefing 49, 17 December 2023).
Stanley Ho brought huge growth to Macau as a gambling center for Chinese customers who came from the mainland, Hong Kong, and the wider Chinese diaspora to gamble. To manage competing Chinese organised crime groups (mostly triads), Stanley Ho allowed them to thrive by subcontracting VIP rooms in STDM casinos to various groups, allowing them to have an income and maintain peace between them. This system evolved as an incubator for Chinese organised crime groups, not only from Macau but also from Taiwan, Hong Kong and other parts of the PRC. During the STDM monopoly, and then particularly after the opening up of casino licenses after 2001, Chinese organised crime groups generated astonishingly large amounts of capital. This 40 to 50 year period of capital growth for Chinese criminals enabled many to expand into new business lines and locations. From this came the Macau Model.
Chinese Characteristics of the Macau Model
The Macau Model can scale globally as a Chinese organised crime model based on features that are not apparent with American, European, or Russian organised crime groups. There are six characteristics that distinguish Chinese organised crime and the Macau Model.
First, the Chinese diaspora is the infrastructure of the Macau Model. Chinese communities exist in virtually every major city in the world, providing a resource pool for Chinese organised crime groups. Chinese criminals can move into established social and commercial structures amongst the diaspora, that provides clients, front businesses, and trust.
Second, capital movement controls in the PRC create a permanent, structural demand for mechanisms to move money out of (and sometimes back into) the country. The demand from wealthy Chinese individuals and corporations to circumvent these capital controls creates a model with permanent customers. Chinese criminals do not have to create demand for their money laundering services, as the demand is effectively created by the state.
Third, the Chinese criminal groups and underground bankers are modular and consequently adapt quickly and easily. In the past decade, when the authorities in any jurisdiction targeted Macau casino junkets, they simply shifted elsewhere. This nimbleness to relocate was illustrated by crackdowns in Australia, Cambodia, the Philippines, and also in Macau itself.
Fourth, corruption is systematic in the jurisdiction where the Macau Model operators establish themselves (systemic corruption can simply be an accepted means of doing business). Chinese organised crime groups build long term relationships with political, regulatory and business leaders to build upon existing inherent corruption, often using partnerships with state related individuals. This creates structural protection in the jurisdiction for these groups.
Fifth, Chinese organised crime groups take advantage of the legitimate business expansion on the Belt and Road Initiative (BRI) related projects. They invest in infrastructure, property, gambling, hospitality, or any local business opportunity, which provides legitimate cover for criminal enterprises.
Sixth, during and since the Covid-19 pandemic Chinese organised crime groups have shown technology adoption velocity by quickly integrating new technology to existing or new criminal business lines. Chinese organised crime groups have moved on from physical casinos and localised sports betting by utilising at scale online gaming platforms, online fraud compounds, digital payment systems, and cryptocurrencies. This criminal technology adoption velocity enables Chinese groups to massively scale up criminal business lines (for example online fraud and online gambling) and also easily expand into new business lines (for example cybercrime developing from online fraud).
The Macau Model does not require existing criminal infrastructure, such as casinos, entertainment and sexual service venues, but needs a location where a Chinese diaspora community exists, property markets that can be manipulated, low or no regulatory oversight, and local politicians who are susceptible to cultivation. The Macau Model is not place-specific, but is condition-specific with these characteristics. There are continually more examples of locations where the Macau Model has been established.
From Macau to Vancouver?
An early explanation of aspects of expanding Chinese organised crime was provided by Professor John Langdale of Macquarie University in his briefing on the impact of Chinese transnational crime on Australia, which included his theory of ‘The Vancouver Model’.
In 2017, Langdale delivered a presentation to a New South Wales Police conference in Australia outlining three major related issues. Firstly, southern China are the “supply side” of transnational crime (e.g. illegal drugs, counterfeit goods, and associated money laundering). Second, the major facilitators of this transnational crime are Macau and Hong Kong. Third, an outcome of this has been alliances between Chinese and other organised crime groups around the world (John Langdale, November 2017).
Langdale explained that one example of the expansion of Chinese organised crime is what he termed “the Vancouver model” as a case study. This involves a complex network of criminal alliances. Chinese criminal banks are at the heart of this criminal activity, illustrated by money laundered from Vancouver into and out of China to other locations such as Colombia and Mexico. Vancouver is also a nexus of North American illegal drug networks, supplied by Chinese and Latin American gangs. Vancouver also provides a hub for capital flight from China, with wealthy Chinese using Canadian casinos, [Macau] junkets moving money to gamble, and also investment in property in Canada.
The Vancouver Model was only one of Langdale’s case studies, and the others involved alliances between Chinese criminals and gangs in Latin America, Europe, and North Korea. The Vancouver model is not the overall explanation of the expansion of Chinese organised crime, but a part of it, and a warning at the time that Australia faced a similar threat. He was right.
Langdale’s Vancouver Model resonated especially in Canada, where the impact of expanding Chinese organised crime was becoming better understood. By 2023, the Vancouver Model had become a reference point for the government’s ‘Assessment of Inherent Risks of Money Laundering and Terrorist Financing in Canada’, which explained:
“The wealthy casino patron provides funds to an underground banker who has a business relationship with professional money launderers in British Columbia. Upon arrival in Canada, the wealthy casino patron is provided cash by Canadian professional money launderers sourced from the proceeds of crime. Once the cash is provided, the foreign underground banker releases the funds in their care to the offshore accounts of the Canadian professional money launderer, or uses them to provide payment in the form of drugs or precursors bound for Canada. The wealthy casino patron uses the cash to gamble at B.C. casinos and upon cashing out receives a casino cheque. In some instances, the casino cheques are used to purchase B.C. real estate.” (Government of Canada, March 2023)
Replication Across global hubs with the Macau Model
Over many decades, junket operators in the Macau casino industry developed settlement networks in Mainland China, Hong Kong (under British rule until 1997), and across South East Asia. These networks involved informal value transfer systems, such as fei qian (literally “flying money”) and complex channels of underground banking. By 2020, Macau junket operators had a mature underground banking network and money laundering system across cities around Asia. This is scalable and adaptable to expand globally, as the Macau Model in any city.
In Manila, the Macau Model was developed from around 2010 onwards. The first casino had opened in Manila in 1977, providing a settlement point for customers who gambled in Macau or elsewhere. The system expanded significantly with the opening of large scale casinos including Resorts World Manila in 2009 and Solaire in 2013, both facilitating Macau junkets to settle accounts without money moving to and from the Manila. The Philippines has a long established Chinese diaspora, a proliferation of Chinese gambling operators and criminals in the 2000s, widespread corruption amongst police and government officials, and weak anti-money laundering enforcement.
In Brisbane, Gold Coast, Melbourne, Perth, and Sydney in Australia, casinos major opened from the late 1980s but expanded in the mid 1990s. These large scale casinos became penetration points as they introduced Macau junket operators in VIP rooms and catered for large numbers of Chinese tourists as well as local residents in the diaspora. Australia has a long history of corruption that can be exploited by criminals. Poor due diligence by the casino operators allowed criminals to easily move funds through the properties, allowing Australia to become a hub for Chinese organised crime groups that attempted to introduce the Macau Model.
In Vladivostok, Russia, the Primorsky Krai gaming zone was established in 2009 and the first casino, the Tigre de Cristal, opened in 2015. The casino was owned and operated by Summit Ascent Holdings, a company controlled by Lawrence Ho. He is the son of Stanley Ho, who established the STDM casino monopoly in Macau. Tigre de Cristal utilised casino junket operators who gained a new settlement hub, the VIP room operating structure, catered for Chinese players from the north of the country, and became an entry point for Chinese capital into the Russian Federation. The Chinese diaspora in Vladivostok is relatively small at around a few thousand, but it is very fluid due to the proximity of the city to the Chinese province of Heilongjiang. Corruption is endemic in Russia, and there is certainly no interest in policing Chinese state capital controls.
In Vietnam, the largest Macau junket operator, Suncity, invested US$ 4 billion in the Hoiana casino resort near Da Nang, which opened in 2020. The location is only 550 miles from Macau and 200 miles from Hainan Island, providing a large pool of Chinese customers. The Suncity Hoiana project was intended to cater to Chinese high rollers, facilitating cross border credit and settlements, and becoming another hub for junket operators (Casino.org, 21 April 2018). There is a long established historical Chinese diaspora in Vietnam, amounting to around one million. Vietnam has systemic corruption at low and high levels of government. The country developed as a node of the Macau Model because of the strong cross-border commercial links with China and the long historical connections.
In Singapore, there is a relatively well controlled casino business, strong regulation compared to other countries in South East Asia, and very low levels of corruption. A majority of the local population is ethnically Chinese, facilitating good links with the PRC, and there was a surge in Mainland Chinese immigration into Singapore from the early 2000s. However, the influx of several hundred thousand Mainland Chinese PRC nationals into Singapore in only a decade created a new diaspora with strong personal and commercial connections to their home country. An outcome of this was an increase in money laundering through Singapore by Chinese organised crime groups, illustrated by the police case against a syndicate in 2023 that laundered at least US$ 2 billion through the city (Asian Crime Century briefing 33, 19 August 2023). The booming property market was a key part of this laundering. This involved online gambling and online fraud syndicates, many of which use the regional Macau junket system for settlement. In this regard, Singapore was at risk from becoming a node in the Macau Model.
In Dubai there is no casino operating, but from around 2020 there was a reported expansion of online illegal gambling. There was a surge of people, investment and operations into unregulated activities in Dubai that involved the city becoming a hub for online gambling companies (Radio Free Asia, 11 March 2021). This started during the Covid-19 pandemic when more online gambling operators moved from the Philippines, which was severely impacted by the Covid-19 pandemic and also went through a crackdown by the authorities against online gambling operators based in the country. Thousands of ethnic Chinese technology workers (from both the PRC as well as Taiwan, Republic of China) moved to Dubai to operate online gambling platforms. The rapid surge of Chinese immigrant to Dubai created a labour pool in a city where there was no existing diaspora. Dubai provides a hub for shell companies, a safe haven for capital seeking a discretion, and a booming property market to invest proceeds of crime. There is a high risk of Dubai becoming another node in the Macau Model.
The Macau Model can exist in any major city. Wherever a Chinese diaspora community exists, real estate markets are liquid, regulatory oversight is uneven, and local political actors are susceptible to cultivation, the model can be assembled. It does not require a purpose-built casino. Online gaming platforms, online fraud operations, massage and entertainment venues, and import-export businesses have all served as substitutes for the core venue module.
The future of the Macau Model
The crackdown on the junket business in Macau from 2021 led to the arrest of the Suncity junket CEO Alvin Chau, the effective collapse of the VIP junket system, and reassertion of authority over the Macau casino sector by the PRC central government. This authority was asserted due to the role of junkets in facilitating huge capital outflow from the PRC via Macau and onwards across Asia via nodes where accounts could be settled. The junket system was centralised, but the enforcement action by the PRC authorities has led to a decentralisation of the activities of this system.
The Macau Model had been expanding from Macau for three decades, involving the development of underground banking networks, junket settlement systems, and the Chinese diaspora infrastructure. The action taken by the Chinese authorities in 2021 displaced the centralised money laundering system and pushed junkets and their related facilitators into new nodes and hubs across Asia. The online fraud epidemic with hubs in Cambodia, Myanmar, and the Philippines accelerated because of the action taken in Macau, which drove Chinese organised crime groups to distribute their systems more widely to ensure redundancy. This situation has created the Macau Model, which is likely to continue to expand for several reasons.
First, the Covid-19 pandemic accelerated digital transition for large numbers of consumers and facilitated Chinese organised crime groups that had previously used physical casinos and junket rooms as their primary interface to operate at scale through online gambling platforms, cyber-fraud compounds, and cryptocurrency networks. This digital infrastructure can be replicated anywhere in the world. If there is destruction of the online fraud compounds in Myanmar, we should assume that the networks will adapt and relocate operations elsewhere. This has already started with the migration of Chinese online criminal enterprises to Dubai.
Second, the online fraud and online gambling businesses have evolved into a huge parallel criminal economy. The semi-autonomous criminal zones in Myanmar are likely to emerge in other weak-state areas, probably in Africa and Latin America. This criminal economy operates online gambling, online fraud, money laundering, and underground banking as integrated businesses.
Third, there is a frequent nexus between the Macau Model with elements of the Chinese state and commercial interests. This occurs especially in countries on the Belt and Road Initiative where Chinese organised crime groups use legitimate commercial enterprises as a cover for criminal business lines. It will be increasingly complicated for authorities in jurisdictions where there are substantial BRI projects to distinguish between criminal and legitimate enterprises.
The Macau Model is here to stay, and law enforcement agencies must find ways to combat the problem. There is currently no global response. Regulatory and/or law enforcement action in one jurisdiction simply displaces criminal activity to another node. Many national governments and their law enforcement agencies are aware of the threat, but they are not equipped to respond.
The fundamental problem that has created the Macau Model remains. China’s capital controls continue to generate demand for the movement of funds through underground banking and alternative settlement channels. The Chinese diaspora provides global infrastructure. This is Chinese students who out of necessity need to move more funds out of China than capital controls allow, or wealthy people who simply want to get their money to somewhere safer.
The Macau Model is the structure for criminal digital enterprise in the 21st century, and presents a great danger of becoming a permanent financial architecture that insinuates itself into global capital flows. Solutions to this threat require a coordinated international response that is part of the management of the global financial systems.