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The Sydney Morning Herald

ENTER THE DRAGON

Author: Hamish McDonald
Date: 19/03/2005
Words: 3361
Source: SMH
          Publication: Sydney Morning Herald
Section: Business
Page: 45
In dealing with Macau's Ho dynasty, the Packers may be risking the house for a place at the biggest game in Asia, writes Hamish McDonald.

For the past three months, Chinese police and central bank officials have been mounting a publicity drive to stop a hemorrhage of cash estimated at $US70 billion ($88.3 billion) a year that leaves the country through a network of underground banks, many connected to cross-border casinos.

Thousands of money launderers in 150 syndicates have been arrested and about 10 billion yuan ($1.52 billion) seized. Casinos that used to depend on Chinese trippers - some of them officials blowing embezzled or corruptly earned funds - in seedy towns and "free-trade zones" just across the borders in Burma, Vietnam, Russia and North Korea, have closed for want of customers.

But one of the main problem areas is hardly mentioned: the porous border with the tiny enclave of Macau, handed back to China in 1999 as a Hong Kong-style autonomous region after four centuries of languorous Portuguese rule. The only place in greater China where gambling is legal, the $US1.8 billion in tax paid by casinos on their cash flow provides most of the Macau government's revenue.

At Frontier Square in the neighbouring Chinese city of Zhuhai this week, it was business as usual in the underground shopping mall that funnels Chinese punters to the fast-track immigration hall standing between them and the gambling tables. Dozens of snack stands ostensibly selling cans of soft drink, tissues and cigarette packs have on their counters the kind of electronic banknote counting machine you normally see in banks.

Guided by one of dozens of middle-aged women standing around the immigration hall entrance with fold-up luggage trolleys ready for low-margin smuggling ("You want me to carry anything across for you? Whatever you've got - cameras, electronics, DVDs - anything except drugs"), the Herald found one such stall ready to change 200,000 yuan ($30,478) - the sum we suggested as needed for a gambling binge - into Hong Kong dollars across the border.

Officially, the People's Bank of China, the central bank, allows departing travellers to take out only $US4000 in foreign currency and 6000 yuan, the foreign money being obtained after a time-consuming bank visit. Here there was no limit, and a reasonably attractive rate: 1.06 yuan for the HK dollar, shaded down to 1.0595 for the larger amount we were proposing to exchange.

"You pay the Chinese money in here," said the young woman in charge, as she counted out bundles of $HK500 notes to a young Chinese man from her top drawer. "We can give you the Hong Kong dollars now, or it will be ready for you at the cashier's counter in the casino by the time you cross the border and get there. You just show your ID."

The casinos allegedly involved are the dozen operated in Macau by tycoon Dr Stanley Ho's Sociedade de Turismo e Diversoes de Macau, something acknowledged this week by one of the Chinese government's leading advisers in the anti-money-laundering campaign, Dr Liu Renwen, a criminal law researcher with the Chinese Academy of Social Sciences in Beijing. "STDM, as the biggest Macau casino group, is also one of the biggest money-laundering outlets for Chinese money," he says.

Liu outlines a system in which the casinos maintain a network of agency relationships with underground banks on the mainland, providing punters with gambling funds in the form of physical currency, gambling chips on arrival, or HK dollar cheques from the casino cashier. The potential for laundering funds beyond gambling purposes is obviously great, and court cases are starting to show that corrupt Chinese officials have been using the channel to get their illegal earnings out of China.

The Beijing legal expert is equally frank about the China's organised crime gangs, the triads, which many sources say effectively run the VIP rooms for high-roller gamblers in STDM's casinos, and run much of the money-laundering in tandem with the casino cashiers.

"It's like prostitution, which is illegal in China, when it's discovered going on in a hotel," Dr Liu says. "The top manager can say, 'It's nothing to do with me.' It's the same with Stanley Ho. He is a public figure and a very important person in Macau. If he were punished, it would bring a serious reaction. But personally I believe that Stanley Ho seriously knows what is going on."

But asked why the role of Macau in general and Ho's STDM is not mentioned in the ongoing Chinese crackdown, Liu looks a little embarrassed. "My authority said this kind of question would not be convenient for me to answer," he says.

Five years after the red and green Portuguese flag was hauled down in Macau, it seems Ho, 83, continues to enjoy political favour under the red flag of communist China - the result of decades working on his "patriotic" credentials and helpful business partnerships of equally long standing.

His previous monopoly concession on gambling, enjoyed for 40 turbulent but bountiful years, may have expired in 2001 and two new concessionaires admitted - the Hong Kong K.Wah construction group's Galaxy and Las Vegas-based Wynn Resorts - on 20-year terms, but Ho remains the uncrowned king of Macau.

His casinos, aside from being the largest taxpayer, are the largest employer in the territory after the government, along with the associated empire of hotels, port and airport facilities, real estate and the jetfoil ferry links to Hong Kong. About 10,000 people - or 5 per cent of the workforce - are on his payrolls.

And as one of the three concessionaires, any would-be new entries have to consider a subconcession from STDM. Galaxy is already opening its own casinos and has given sub-concessions to US entrepreneur Sheldon Adelson's Las Vegas Sands to open two glitzy American-style casinos, involving a $US1 billion-plus punt on Macau's future. Wynn has similar plans of its own.

So it is not all that surprising that following in the footsteps of Kirk Kerkorian's MGM-Mirage casino chain, Kerry Packer's Publishing & Broadcasting Ltd has courted Stanley Ho. Last June, PBL chairman James Packer and Crown Casino chief Rowen Craigie were talking to Lawrence Ho, the elder son of Stanley Ho who runs the group's Hong Kong-listed Melco International.

In November, it was announced that PBL and Melco would become joint-venture partners for new casino investments around Asia, starting with PBL paying $US163 million for a 28 per cent stake in Macau's new Park-Hyatt hotel and casino project. In projects in China, Ho's group would keep 60 per cent stake and management control. Elsewhere in Asia, the roles would be reversed, with PBL taking the lead.

At the end of last month, the PBL-Melco partners were among more than a dozen groups who put in proposals for possibly two new casino projects being considered by Singapore as a new dimension for its structurally limited economy.

The proposals are not yet bids, because Singapore is still not yet convinced that casinos will be worth the social ills they bring: problem gambling, loan sharks, prostitution, and money laundering. It may be a year or two before Prime Minister Lee Hsien-loong, son of founding leader Lee Kuan Yew, decides whether economic growth demands a break from Singapore's notoriously strict behavioural standards.

Given this nervousness, some analysts are amazed that PBL has teamed up with Ho, who embodies all the ambiguous and shadowy image of Macau's past, to win over the Singaporeans.

"I was astounded that Packer would go into business with this gentleman," says an Australian lawyer closely involved in gaming licensing, who asked not to be identified. "The Singaporeans are squeaky clean, impeccable. It's interesting, too, that Packer would potentially prejudice his land-based assets here in Australia. Because if it blows up, it can come back and haunt him here."

Under the terms of PBL's licences for Melbourne's Crown and Perth's Burswood casino, all of its business partners have to undergo "probity" clearances from the Victorian and West Australian gaming authorities. This assessment is under way, with WA's authority leaving the actual research to the Victorian Commission for Gambling Regulation, which has Ian Dunn as chairman and Peter Cohen as chief executive.

In the early 1980s, Ho was part owner, through an investment in a Federal Hotels Group subsidiary, of the casinos in Hobart, Darwin and Launceston. But in 1986 he was forced to drop out of the Hudson Conway consortium which won the Crown concession in Melbourne. During the tender for what is now the Star City casino in Sydney's Darling Harbour, Ho was deemed to be an "unsuitable" person to hold a casino licence by NSW authorities.

What is different about Ho now? The Victorian and WA authorities can make their decision on his probity without publishing any reasons. A negative finding would scupper the PBL foray into Asia.

Could the Packer camp have made another monumentally bad choice of business partner, on the scale of the One.Tel debacle and the costly tie-up with India's notorious sharemarket manipulator Ketan Parekh and the hyped-up Himachal Futuristic group?

But not everyone is down on Ho and his empire. Last month, MGM-Mirage announced that the Mississippi Gaming Commission had given clearance for its 50-50 joint venture with Pansy Ho, elder daughter of Stanley and chief executive of his listed Hong Kong flagship, Shun Tak. The gaming authority in MGM-Mirage's home state, Nevada, has also given the green light, and construction of the huge MGM Grand Macau casino starts shortly.

PBL will be hoping that its partner, Lawrence Ho's Melco, will also be sufficiently distant from the father's controversial past.

Possibly Stanley Ho - and Macau - might be making a late-in-life transition away from the image tainted by the seedy world of STDM's casinos, memorably described four years ago as places of "hard, desperate gambling" by Macau legislator Au Chong-kit. "Either you make money at the tables or you kill yourself," Au told Hong Kong magazine Asiaweek.

Ho's life has been a struggle to emerge with profit and dignity from the shadows of Southern China's rich and ruthless Pearl River estuary, flanked by the former foreign trading posts of Hong Kong and Macau.

Born in 1921 to a son of Ho Fuk, a comprador to the former Scottish opium trading house Jardine Matheson, and a Portuguese mother, Stanley Ho grew up in wealth and privilege, a tall and handsome Eurasian who became an adept ballroom dancer, in between-the-wars Hong Kong. But the family fortune disappeared in the 1930s stockmarket crash. His father fled with his debts to Saigon.

Two uncles committed suicide. Stanley Ho struggled on a scholarship at Hong Kong University, then escaped to neutral Macau when the Japanese seized Hong Kong at the end of 1941. In this enclave, Ho found his feet, working with a Japanese-owned trading company to swap Macau's stock of scrap metal, ships, spare parts, gold and gems for the food its refugee-swollen population needed for survival. The trade was dangerous, involving at least one sea battle with pirates in the Pearl delta as he brought goods out of Japanese-occupied Guangdong.

At the end of the war, Ho returned to Hong Kong with a considerable fortune and a Portuguese wife, who died a year ago and was given a funeral in Macau worthy of royalty. Ho started the Shun Tak property and transport group, building barracks for the returning British garrison. The tango-dancing Ho became a celebrity in Hong Kong's nightlife as well, eventually taking three other wives or concubines and siring a total of 17 children.

In 1962, he made a spectacular return to Macau when his STDM won the colony's gambling monopoly with a then astonishing bid of $US460,000. Partners included Henry Fok, a trader who made his fortune shipping embargoed goods to communist China during the Korean War and the later Cold War years, and who remains Beijing's grey eminence in Hong Kong's legislature.

The oddly shaped Hotel Lisboa casino - designed, it is said, on feng shui principles aimed at keeping money flowing one way, inwards - became a cash cow, returning some 35 to 40 per cent of its cash flow in profits. A string of themed casinos followed. As well as controlling the transport links that brought Hong Kong punters to his tables, Ho spread his investments and philanthropic donations around Macau, including to the University of East Asia which conferred the honorary doctorate he uses for his moniker.

The investments in building up Macau's infrastructure helped get him a 15-year extension to the gambling monopoly in 1986, but by then a frenetic mood had set into the colony - as in Hong Kong - as the countdown started to the end of colonial rule.

In 1982, Ho set up the first VIP room in one of his casinos. According to Beijing law researcher Dr Liu, there are now 61 such rooms in STDM casinos, providing about 80 per cent of the group's gambling profit. But the VIP rooms were informally subcontracted to the triads, as outlined by Hong Kong criminologist Angela Veng Mei Leong. She says a "lawless" space was created for the triads, where the rules were enforced by the muscle of the 14K, Wo On Lok, Wo Shing Wo and Big Circle gangs.

Although the triad members running the VIP rooms sometimes victimised their clients through loan sharking, prostitution and blackmail, the gangs brought a kind of order in a society where the local people often turned for justice to the triads rather than the police and the mysterious Portuguese judicial system. Indeed, the estimated 13,000 triads vastly outnumbered the 5000 police. "The triads were allowed in the casinos because they were highly productive and did not interfere with the system," Leung wrote in her master's thesis.

Things got out of hand as the December 1999 handover to China approached. An unruly triad leader and VIP room operator known as Broken Tooth Koi unleashed gang warfare in the streets. Chinese police mounted a crackdown on Macau gang activities across the border, and local police finally arrested Koi in mid-1999, putting him away for 15 years. A massive Chinese army show of force at the handover pushed the triads back into the shadows.

"They know how to behave," says Harald Bruning, a German journalist based in Macau for many years. "In their way, they are patriotic, too. Before it was all right to challenge the foreign Portuguese. They won't take on the Chinese Government, and many are shifting into legal businesses."

Macau, too, is trying to clean up its act. The new American casinos are designed to bring a different kind of gambling, where flutters at the tables and machines are accompanied by Las Vegas-style luxury accommodation, themed shopping malls, lavish buffets, and top-name entertainers. Almost a year into the new era, the revenue flow is up 20 to 30 per cent.

The sleazy atmosphere of diehard gambling, illegally obtained money, and lingering vice has hardly been dispelled. But a new customer base is also being created as a result of China's relaxation of cross-border travel, the wealth of its middle-class and small entrepreneurs, and the ongoing relaxation of currency controls as it moves to convertibility of the yuan.

In Hong Kong and Macau, the name Stanley Ho, or "brother Sun" from his Chinese personal name Hung-sun, still evokes undertones of fear and menace.

"Everyone is so petrified of him, the only thing they'll say is what a generous donor to charities he is," says one former newspaper editor.

"Stanley is respected, but in a Chinese kind of way," says Bertil Lintner, Swedish writer of Blood Brothers, a book on crime, business and political links in Asia. It has a long chapter on Macau. "Everyone knows that he's connected with the triads, especially Kai-Sze Wai (Wai Ng) of the 14K, but it's not talked about openly. So Stanley is both feared and respected, but he's getting old, and he's not as active as he used to be. But he's still well-connected in China, which explains why everyone ducks the question of his involvement with organised crime."

"He is seen as a charitable businessman," says criminologist Angela Leung. "Although some people are kind of, a little bit nervous between him and triads - but it's not that often we talk about it. But on paper everything seems to be legitimate."

Ho courteously declined an interview for this article, but in the past has vigorously denied any links with triads, or involvement of his casinos in illegal activity.

While stories - possibly urban myths - circulate Hong Kong about the terrible fate and humiliations of those who seriously insult or oppose him, Ho himself lives in fear of violence, surrounded by one of the biggest security screens of any Asian businessman. He has been targeted in two kidnapping attempts. In 1987, one of Ho's key lieutenants was slashed behind the knees with a meat chopper (a favourite triad weapon) and bled to death.

The empire itself is unravelling from within. Ho's estranged sister Winnie, 82, is battling him for what she claims is her fair stake in STDM, put by one report in 2001 at 7 per cent, both for herself and her son, Michael Mak Shun-ming. She recently revealed that Mak was born of a secret love affair with her cousin (and Ho's), the philanthropist Sir Eric Hotung.

Sir Eric has meanwhile been sued by three of his eight children, after he tried to revoke two trusts set up for them in 1979 because they "didn't match up". He lost the case in the Hong Kong High Court on March 4.

The two disputes have opened up the lives of one of Hong Kong's wealthiest and most reclusive families, keeping Hong Kong newspapers enthralled for several years. But Winnie Ho's battle with brother Stanley has seen some damaging dirt thrown that authorities may find hard to ignore.

This includes material suggesting STDM's casinos have illegally given credit to known criminals. More recently, Winnie Ho was reported by the Asian Wall Street Journal to have complained to the Hong Kong Securities and Futures Commission that in a corporate reshuffle in 2002, STDM put 80 per cent of its casino assets into a Macau subsidiary called Sociedade de Jogos de Macau. The other 20 per cent was allegedly placed with Ho and some of his associates for a fraction of the $US1.3 billion that some reports say the stake is worth.

The shuffle diluted the ownership of Hong Kong-listed Shun Tak in the gambling operation in a way that Winnie Ho is said to deem unfavourable to other shareholders than Ho and associates - although Shun Tak chief executive Pansy Ho called the move "reasonable" at a Shun Tak general meeting last year.

PBL's direct partner Melco also got into some hot water last November, shortly before the joint-venture announcement, when the HK Stock Exchange suspended trading in its shares after Stanley Ho was quoted suggesting Macau gaming assets could be injected into Melco. He issued a denial of the statement after eight days of sharply zigzagging share prices.

Whether PBL actually gets a share of the casino at the Park-Hyatt development is yet to be seen. The Australian side's $US163 million has so far got it a share in the hotel. Becoming a subconcession holder in the casino still requires consent of the Macau Gaming Inspection and Co-ordination Bureau. After approving the MGM-Mirage subconcession from STDM, the bureau may pause before approving more entrants.

Whether Ho is more acceptable than he was in Sydney in 1986 will be apparent soon in the probity check by the Victorian gaming commission, and in whom Singapore invites to a formal round of bidding, if it goes ahead with casino plans.

In Kuala Lumpur, Edward Ong, an analyst with Macquarie Research, has watched the Singapore process carefully, partly because of a proposal by Malaysia's Genting casino. Asked if there would be any amber lights flashing at the name Stanley Ho, Ong pauses.

"I reckon that the Singapore Government would have done its own homework, and given that the casino will be built on Singapore soil, they would have the ability to pass legislation to enforce what they wanted," he says.

"Therefore I would suggest that while it is ideal to have people who pass the fit and proper test by the highest standards, perhaps the people backing the casino need not be as important as the systems that have to be implemented. It could be just the financial backing at the end of the day."

 
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