Inside Asian Gaming

INSIDE ASIAN GAMING | April 2011 10 and the investment the concessionaire has already made.” No one is seriously suggesting Sands China and LVS face the withdrawal of its Macau operating licence because of these events. But the fact LVS—in common with a number of other Macau casino operators— has exposure to several casino markets across the world, makes investors fret that regulatory complications in one market could have implications in others. In the case of LVS, that’s Nevada, Pennsylvania and Singapore. MGMMIRAGE (nowMGM Resorts International) has already found out how regulatory issues in one market (New Jersey) can have an impact in another (Macau and the company’s joint venture with Pansy Ho at MGM Macau). And multiple US federal investigations into criminal allegations are hardly something to advertise in lights on the side of your Asian casino properties. In the first quarter of this year, Resorts World Sentosa, Genting’s casino resort in Singapore, reportedly established a significant lead in terms of volume of VIP roll over LVS’s Singapore resort, Marina Bay Sands—US$20 billion per quarter for RWS versus US$10 billion for MBS. In previous quarters, the properties had been roughly neck and neck in the high roller segment. The sudden lead of RWS could be a function of more aggressive pricing on VIP rolling chip commissions. A contributory factor could also be that some VIP gamblers would rather not lodge large amounts of money with a casino whose parent company is under close regulatory scrutiny in the US and Hong Kong. In the situation facing Sands China, investors quite reasonably want some insight not simply into the worst case scenario—loss of the Macau sub- concession—but into the most likely one. Not even the US federal bodies involved in the inquiries may be in a position to answer that question at this stage. It’s unlikely, though, that US investigators will be given free rein in Macau to make on the ground inquiries and interview potential witnesses in the way the FBI led the investigation on the ground into the bombing of the US Embassy in Nairobi in 1998. The two inquiries are of course not comparable in terms of the gravity of the allegations. The Nairobi investigation involved major loss of life for US and Kenyan civilians and military. The wider point is that China is a big, powerful country vying with the US for global supremacy. Kenya is a poor, relatively weak country dependent on Western goodwill for aid and economic and political stability. There’s no political benefit accruing to China in allowing US investigators jurisdiction on Chinese soil. So what we’re left with in that case is a necessarily incomplete inquiry conducted at arm’s length, with the power of subpoena only over US citizens. Arm’s length A criminal investigation into Sands China by a body such as the FBI would require the gathering of evidence that would need to be tested in court in front of a US jury. That could be difficult if the inquiry is done at arm’s length, as not all the parties that the investigators might wish to speak to will necessarily be US citizens. Evidence gathered by an SEC investigation, however, would not necessarily need to be tested in court. The SEC has the civil power to impose fines on US-listed companies allegedly breaching the terms of the Foreign Corrupt Practices Act, without putting those allegations to the test in front of a jury. As an illustration of the sort of powers available to the SEC, the US Securities Exchange Act 1934, as amended in October 2010, allows for a securities issuer to be fined a maximum of US$2 million for breaching either of two provisions under Section 30A of the Act, headlined ‘Prohibited Foreign Trade Practices by Issuers’. Section a) (2)(A) of the Act forbids “any officer, director, employee, or agent of such issuer or any stockholder thereof” from “influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage,” on behalf of the US-listed company. As an example of what can happen, International Business Machines Corp (IBM), an American multinational technology and consulting firm, recently settled a decade- long Foreign Corrupt Practices Act inquiry with the US federal government for US$10 million. The case related to alleged illegal payments and gifts by then employees of IBM subsidiaries to government officials in South Korea and China between 1998 and 2009. IBM did not formally admit or deny the allegations but agreed in a settlement with the SEC to pay US$5.3 million in ‘disgorgement’ (a legal technical term relating to repayment of improperly acquired income); as well as US$2.7 million in pre-judgment interest and a US$2 million civil penalty. IBM’s gross revenues in 2010 were US$99.9 billion, according to an SEC filing, so the fine represented only 0.001% of annual revenue. LVS’s gross revenues in 2010 were US$7.3 billion, according to its annual report. Immediately after IBM settled the SEC case, its stock rose 1.1%, closing at US$155.89 on the New York Stock Exchange. Mr Adelson is 77 years old. His Macau sub-concession technically runs until 26th June 2022, by which time he’ll be 88—only a year younger than Dr Stanley Ho is now. A lot can happen during that time. Under the terms of the agreement with the Macau authorities, however, from 26th December 2017 the government can redeem the sub- concession by giving at least one year’s notice and paying compensation. Given the current growth rate of the Macau gaming market, investors will be hoping LVS spends more time in the business headlines and less time in the news headlines between now and the next Year of the Rooster. Powerful line up—four bodies investigating LVS business in Macau In Focus Happy ending—IBM’s shares went up after settling Foreign Corrupt Practices Act allegations