Thursday, 8 May 2014

Attempting to Stem the Flow

UnionPay is China's popular form of bank payment that has spread to casinos
Perhaps it was going to happen sooner or later, but after the reports of Macau's casinos taking in even more money than before, Beijing is cracking down on funds being illegally transferred to the former Portuguese enclave.

China's state-backed bank payment card UnionPay has announced a series of measures to "combat overseas money laundering, capital flight and other illegal bank card use" in Macau.

At the heart of the issue are the illegal hand-held payment devices that are used in and around the casinos for gamblers to access money back home. Analysts say the amount could be more than 40 billion yuan last year.

Casinos have made lots of money from UnionPay payments
Mobile UnionPay payment devices have illegally entered Macau and used for unauthorized dealings that look like domestic transactions, thereby circumventing currency controls.

By using these devices the users can also evade tax on the mainland, which is why authorization is needed.

While Macau police have orchestrated a few raids in recent months, seizing payment devices and cash, it has hardly made a dent into the amount of money flowing into the casino city.

"the growth in payment cards is huge, because of China's corruption crackdown. Mainland gamblers in Macau don't want to reveal how much they gamble, so they use cards," said one analyst. This could mean gambling revenue figures are under-reported.

The official amount is $45 billion last year, but the analyst thinks a further $90 billion was unreported.

Interestingly, if pawnbrokers are not part of this UnionPay device circuit, then they are losing out, as some 200 billion yuan in transactions are conducted through UnionPay cards in the pawnshop industry, about 20 percent of them through these mobile devices.

Traditionally gamblers who were in the red would pawn off their valuables, but now they just had to swipe their card and input a PIN number.

What happens in the next few months will be interesting to watch -- will the torrent of yuan barreling into Macau halt to a trickle? Or will gamblers and their Macau enablers find some other way to carry the billions of yuan over to play on the tables?

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