Coup de grâce

In the short time since the visit of Chinese President Xi Jinping, newly inaugurated officials in Macau have proved they understand what the country’s paramount leader meant when he told them “dare to tackle difficulties”. The arrest of Alan Reginald John Ho, nephew of local casino mogul Stanley Ho Hung Sun, in a high profile prostitution ring bust demonstrates the keen determination of the Macau and mainland Chinese governments to redefine rules in the gaming industry and its related sectors, according to industry insiders and observers. “Many people were taken by surprise because, first, the industry can usually get some tip-offs when there’s an imminent police operation, particularly for large-scale operations. But this time there weren’t any leaks until the last minute,” said a hotel executive, declining to be identified because of the sensitivity of the issue. “And no-one imagined the arrest of a member of the Ho family could ever happen. It’s like Macau’s answer to the campaign of ‘striking tigers’ in mainland [China],” the executive said, referring to the corruption crackdown launched by Mr. Xi since assuming power in late 2012. China will take down both flies (low-ranking officials) and tigers (high-level state officials) to eradicate vices within the Chinese Communist Party, the president has publicly and repeatedly avowed. Alan Ho, executive director of Hotel Lisboa Macau, was among the six people arrested on January 10 on suspicion of running a prostitution syndicate at the hotel, the landmark property of his uncle’s gaming empire. Macau Judiciary Police described the probe as “the largest case of organised prostitution in Macau since the handover” with the ring making illicit gains of MOP400 million (US$50 million) for nearly two years since its inception. “The crowds of prostitutes in Hotel Lisboa don’t only exist now. It’s been like this for at least 20 years,” said Chan Chi Kit, president of the Macau Hoteliers and Innkeepers Association. “The [Macau] Government only takes action now to [comply] with the corruption crackdown on the mainland to rectify the gaming sector and its related industries. There have also been prostitution busts recently in nearby Guangdong Province.” China’s state-run news agency Xinhua reported in December that Guangdong police had arrested more than 30,000 suspects in a two-month clampdown on porn and gambling in the southern province, ‘notorious’ for its illegal sex trade. Macau is the sole Chinese territory where casino gambling is permitted. “The arrest of Alan Ho is just one example of the co-operation between Macau police and Guangdong police, focusing on the crackdown of organised cross-border crimes not limited to illegal money transfers, offshore gambling [etc.],” said analysts led by Stella Xing from Japanese brokerage Nomura Securities in a recent research note. The new Macau officials want to project a “tough image” from the operation, Mr. Chan also noted, declining to comment specifically on Alan Ho, who was once vice-president of his Association. Former director of Macau Judiciary Police Wong Sio Chak became the new Secretary for Security when the territory’s fourth-term government was sworn in on December 20. But Mr. Wong denied there was any ulterior motive behind the high-profile arrest, urging the public “not to over-interpret” the situation. The police will boost surveillance in casinos and there will be “waves of operations to combat any vices”, the city’s security chief told local media shortly after the arrest. Mr. Wong’s comments mirror the public remarks of the Chinese President in Macau on December 20 that the city should “strengthen and improve regulation and supervision over the gaming industry”. Later, on the same day Mr. Xi told Macau officials in a meeting, said Xinhua, “When [the government] encounters problems or challenges during the development of the Special Administrative Region [of Macau, it] should have the courage to take on responsibilities and dare to tackle difficulties.” Zero tolerance “Are there any other hotel executives involved in similar practices? The answer is a very likely yes. But why did the government choose to arrest Alan Ho? It follows the same logic of the anti-corruption campaign on the mainland,” said Zeng Zhonglu, professor of Gaming Teaching and Research Centre at the Macau Polytechnic Institute. “He was picked up because of his prominent family background, an ideal target to achieve chilling effects within the industry,” he said, referring to Stanley Ho, who held the Macau casino monopoly for four decades prior to the liberalisation of the industry in 2002. Prostitution is not illegal in Macau but the gambling enclave bans organised prostitution, and the practice of inciting others to engage in sexual activities in public spaces. The last time the Macau police conducted such a high profile probe into a prostitution ring in a casino-hotel possibly dates back to December 2010, when over 110 women were arrested at The Venetian Macao – a resort developed by US billionaire Sheldon Adelson’s Sands China Ltd. No hotel or casino executives were involved in the bust, while police identified 22 people suspected of controlling the women in the sex trade, according to media reports at the time. In an ongoing wrongful-termination lawsuit filed by former Sands China chief executive Steve Jacobs against his former employer Las Vegas Sands Corp., he claimed there were documents outlining the company’s strategy to allow prostitutes into its casino-resorts in Macau to entice customers. The parent company of Sands China responded at the time that the claims were ‘reckless’ and ‘false’. “It’s the same in resorts everywhere, that it’s inevitable to have practices of commercial sex take place in the properties,” Ricardo Siu Chi Sen, associate professor of business economics at the University of Macau, said. “The extent [the government] will go to regulate the practices depends on how much these will affect Macau developing into a family entertainment destination,” said the professor, who is an expert in gaming and tourism, after Mr. Xi urged Macau again on December 20 to diversify its economy from gaming. Macau Judiciary Police say they will continue to investigate the case of the prostitution ring in Hotel Lisboa to determine if any others are involved. Among the five people arrested with Alan Ho were three managers of the hotel and two individuals from mainland China. The prostitutes were said to have paid the syndicate a ‘membership fee’ of RMB150,000 a year with a MOP10,000 monthly ‘protection fee’ for using the hotel rooms to service clients. Mr. Chan of the hotel association claimed that such practices had become history in the territory, which now generates seven times the gaming revenue of Las Vegas. “Many hotels reserved rooms for sex workers before 1999 as the business environment at that time was not good and the women could attract customers. But right now business is so good that we don’t even have room for the visitors. We don’t need them [the sex workers],” he said, adding the probe this time is “good for the image of Macau’s tourism.” Macau welcomed 31.5 million visitors last year compared to 7.44 million in 1999, according to official figures, whilst hotel occupancy stayed at 87.1 per cent for 27,800 hotel rooms in the city as of November 2014 versus 53.4 per cent for nearly 9,470 rooms in 1999. “It’s just a special case this time that [a hotel] executive was involved in a prostitution ring. The [hotel] management here usually just turn a blind eye to the practices and won’t ask them [the prostitutes] to leave as long as their actions do not cross the boundaries,” said the hotel executive, speaking on condition of anonymity. “But this arrest sends a clear message to the industry: what was tolerated in the past will not be tolerated now,” said the executive. “Hotel Lisboa has been too flagrant in what it was doing.” Angela Leong On Kei, executive director of SJM Holdings Ltd. and fourth wife of Stanley Ho, did not directly comment on the case, citing as reasons the pending legal procedures of her nephew-in-law and that Hotel Lisboa is not directly under SJM control. “I believe this [arrest] has reminded our security and our senior management to reassess our accountability and management on how to do better in the future,” she told local media a week after the arrest. The hotel is directly owned by Sociedade de Turismo e Diversões de Macau SA, a conglomerate also founded by Stanley Ho, which holds a 54.9-per cent share in SJM. Tightening the reins The Nomura analysts said that the downfall of Alan Ho could mean an environment of “a more powerful government versus local tycoons” in the future. But Mr. Zeng of the Macau Polytechnic Institute said bringing down Alan Ho is only an individual case, which does not signify that the government will further target members of the Ho family or SJM as long as “they abide by the rules”. The arrest is only one of the latest measures seen as initiatives by Beijing to tighten the reins in the territory’s casinos to crack down on illicit money channelled out of China via the gambling enclave, causing the city’s gaming revenue to post its first annual decline on record, some 2.6 per cent in 2014. The turmoil is far from over. Xinhua quoted the Chinese President as saying in January that “more work must be done to truly cure the ills of corruption” and that “the task of reshaping China’s political environment should always be in motion”. However, the director of the Chinese Liaison Office in Macau, Li Gang, tries to play down the impact of the anti-corruption campaign upon Macau. The slowing mainland economy and regional gaming competition figure among other reasons behind the decreases in gaming revenue, he told local reporters in January, adding, though, that the Macau gaming industry “should be further regulated.” “Such a high-profile arrest leads us to think that China wants a ‘New Normal’ for Macau where long-established local practices may be challenged,” Karen Tang of Deutsche Bank AG wrote in a research note in January. “We think the Macau Government may announce new regulatory policies after the Chief Executive’s visit to Beijing during the National People’s Congress in March 2015.” Mr. Siu of the University of Macau shares a similar perspective, saying, “It’s a macro trend that the governments will keep pushing measures to rectify the gaming industry and its related sectors to clear out undesirable practices.”