Hellenic Business

It could easily be mistaken for Chinese territory. On the 36th floor of the Venetian hotel and casino sits the "Paiza," a unique gambling salon and suites for high rollers from Asia, adorned with traditional serene Chinese paintings and a karaoke room. Gambling tables accommodate as few as one player, for patrons who prefer more privacy.

The area is named after a passport given centuries ago to important Chinese officials and guests. And the importance of the guests is certainly not in question: These "whales" of gambling are betting anywhere from $10,000 to $400,000—per hand.

For Las Vegas Sands Corp., owner of the Venetian, and a handful of other casino companies in Las Vegas, this select niche has become a godsend for an industry stuck in a financial losing streak for much of the past four years. Jumping on a business that is virtually invisible to most casino goers, industry giants like Sands, MGM Resorts International and Wynn Resorts Ltd., are rolling out the red carpet for an elite group of gamblers, and scoring some remarkable jackpots.

In a single night during the Lunar New Year last year, Wynn's Las Vegas resort won $16 million in table gambling, the biggest tables-game night in its history. Asked at an investor conference about the Chinese business in Las Vegas, Sands' CEO Sheldon Adelson described gambling as a "linchpin" of the Chinese culture. "In my second life, I'm coming back as Chinese," he said.

But while this Asian connection is a potential gold mine, it is quietly attracting a related and controversial business that has drawn the attention of federal authorities. China allows residents to take only $50,000 in currency abroad a year, so some high rollers rely on foreign tour operators, known as "junkets," to provide access to far greater sums. Based in the Chinese gambling mecca of Macau, it is an industry U.S. law enforcement officials and diplomats have long suspected of money laundering and organized crime.

Now as the big U.S. companies are upping the ante on their Chinese business, the U.S. Treasury enforcement arm is focusing on whether some junket operators are importing a new layer of money laundering to Las Vegas by obscuring the source of their funding, the method for transferring it to high rollers and the identities of the gamblers themselves. As part of that focus, the Treasury's Financial Crimes Enforcement Network last month issued a web alert to casinos advising them to monitor junket operations and junket patrons and report "all available information" on any suspicious activity.

The alert isn't the only headache Las Vegas may face from the world of junkets. According to documents reviewed by The Wall Street Journal, at least two alleged Chinese organized crime figures are operating in Las Vegas through Macau-based junkets; both have been members of Sands' high roller "Chairman's Club." Law enforcement authorities say they are concerned about casinos transferring junket deposits across international borders for patron gambling; without the same scrutiny banks provide, those fund movements carry a high risk of money laundering, they say.

People close to the junket industry also provided the Journal with names of four operators who have been registered to do business in Nevada—but who were found unsuitable last year by outside investigators for Singapore's gambling authority. Three of the four are still registered in Nevada, including one who investigators said had hundreds of millions of dollars in unaccounted for cash and assets, the people said. Nevada and Singapore gambling officials declined to comment.

Spokesmen for Sands, MGM and Wynn declined to discuss the specifics of their junket partnerships, but casino officials say they have been able to limit junket presence in Las Vegas by working directly with Chinese patrons. Indeed, while their ranks are growing, the number of VIP gamblers from the mainland who are making the trip to Las Vegas is still a relatively small group. The casinos also said their operations comply with all laws and that their junket partners haven't been charged with any serious crimes. "We can't be held to account for something that legal authorities have yet to resolve," said Alan Feldman, a spokesman for MGM.

Las Vegas' interest in the Chinese sector is the latest example of U.S. companies noticing—and trying to capitalize on—increasing flows of assets leaving mainland China. Of course, that interest by Las Vegas isn't entirely new, dating back to at least the 1980s, when Caesars Palace famously placed a Buddhist shrine in front of its casino. Lunar New Year has long been a big event in town, and some casino hotels avoid rooms with the number "4," considered unlucky by some Chinese. Still, attracting travelers from mainland China was rare, since travel was limited and casino companies had few inroads into the complex gambling scene in Macau, the heart of Chinese gambling.

In recent years, though, MGM, Wynn and Sands have opened casinos in Macau, which has catapulted into the world's largest gambling center, with a remarkable $34 billion in gambling revenue last year, more than five times the size of the Vegas Strip. The success the companies have had there—Wynn relied on Macau for 72% of its revenue last year—has given them a new incentive to create a home-away-from-home for Chinese mainlanders. Sands alone poured $25 million into upgrading just one "Paiza" gambling center in Las Vegas, while other casinos have been similarly generous, creating ultra luxury gambling salons with Chinese TV and Chinese food delicacies.

"Guests can have anything they want anytime," Greg Shulman, a vice president for marketing for MGM's Bellagio hotel, said on a tour earlier this year of that casino's salon, decorated with gold and red hues and private spaces. He called the adjacent dim sum and noodle joint "one of the most important restaurants in the entire building."

In all, the number of mainland Chinese and Hong Kong tourists to Las Vegas has shot up almost 80% over five years, to 188,000 last year. But for casinos, the most important payout has come at its baccarat tables, the game favored by Chinese high rollers. Revenue from that game rose 49% through July this year, compared with the same time period five years ago, even as overall gambling revenue on the Strip fell almost 10%. Because of baccarat's growth, the game has jumped to more than one fifth of all Vegas Strip gambling revenues, up from 13%.

"The baccarat growth is entirely driven by mainland Chinese travelers," said Ben Lee, a casino consultant who has written extensively about the junket market. "What you have is a small number of people making a big impact."

A good part of that growth, insiders say, wouldn't have been possible without the junket industry. Entrenched in Macau casinos since the 1980s, junkets are essential to many Chinese high rollers because China has tight restrictions on how much currency residents can carry abroad in a year. The country doesn't recognize gambling debt either.

To assist high-rollers, junkets give players extensive credit lines to gamble and then collect debts when the losses pile up. Some allow high rollers to merely sign IOUs before they go abroad—but exactly how junkets get around Chinese regulations is shrouded in mystery, regulators say. "I still to this day have not had anyone be able to show me how the money leaves mainland China and ends up in Macau," said Mark Lipparelli, the outgoing chairman of the Nevada Gaming Control Board, which has sweeping authority over Nevada casinos and their partners. "I have yet to have anyone explain this to me in a coherent manner."

Analysts estimate there are as many as 10,000 people working in some capacity for the junket industry, which runs from single-man shops to formal firms. Many are tied to so-called "super junkets," conglomerates that operate a wide range of junket activity and in some cases, end up with quirky assets from years of debt collecting. According to one former junket employee, Steve Karoul, a Mystic, Conn., casino consultant who now advises investors on the industry, the parking lot of one junket he worked for in the 1990s looked like a used car dealership, because it had seized so many cars from gamblers unable to pay debts. The company also seized real-estate assets, including a 400-room hotel. "It's all gray market," he said.

One operator who talked to the Journal said the industry has been trying to change its reputation, and now has some firms listed on foreign stock exchanges. "Junkets are becoming more corporate," said Hoffman Ma, deputy chairman of Success Universe Group Ltd., which has been in the junket business since the 1990s. He said some Macau junkets still have links with organized crime in China, but described that activity as lessening, with junkets trying to make "more loans legitimate" and realizing that "violence isn't going to work in Macau anymore."

Mr. Lipparelli, at the Nevada gaming board, said that while those links may occur in Macau, his office has found no evidence of junkets introducing organized crime to Las Vegas. "There's nothing that would indicate that," he said. Still, according to two people knowledgeable about junkets in Asia, private investigators working for the Casino Regulatory Authority of Singapore reviewed the application of a junket operator registered in Nevada—and recommended he not be approved because he failed to disclose ties to a suspected organized crime figure. The same investigators found another Nevada-approved operator, Chan Ting Lai, unsuitable because he listed more than $250 million in cash and assets he couldn't account for, according to the two people.

Reached in Hong Kong, Mr. Chan, owner of a large interior design firm who has occasionally appeared at local entertainment industry events, said he was still waiting for news on his application from the regulatory authority in Singapore.

Nevada and Singapore regulators typically share information, but a spokesman for the Nevada Gaming Control Board wouldn't comment on whether the agency knew about the outside investigators' report for Singapore. Agency officials say that with hundreds of casino partnerships to monitor, it doesn't typically do extensive reviews on applications for smaller operators. The gaming board did recently increase registration fees, from $750 to $2,000, to fund more thorough checks, but critics say it still needs to step up scrutiny of Macau-based operators. "Macau is a real potential source of embarrassment and difficulty for the Nevada regulators," said Bill Eadington, a professor at the University of Nevada Reno who has studied Macau junkets.

On the federal level, fund transfers between Macau and Las Vegas that casinos handle for junkets have attracted the attention of the Treasury Department. Chip Poncy, head of a Treasury Department policy office, said such transfers are "a vulnerability we've seen for quite some time" and that authorities are working with casinos and regulators to address "the specific exploitation of it." Such transfers have long been a concern for regulators internationally. "You've got these layers of anonymity building up and building up so the player can hide between quite a few layers of transactions," said Rachael Horton, a former New Zealand casino regulator who wrote a 2009 report for the Financial Action Task Force, an anti-money-laundering group based in Paris.

Casino officials for Sands, MGM and Wynn say they comply with all federal requirements and have policies guarding against money laundering; gamblers, they say, aren't allowed to cash transferred funds in Las Vegas, just the winnings they make from them. "Our company has a detailed compliance program that is submitted to regulators," said Ron Reese, a Sands spokesman.

Details on the movement of funds for Chinese high rollers into Las Vegas—and some of the more controversial figures who may be involved—have also emerged since a high-profile, wrongful-termination suit was filed in 2010 by Steve Jacobs, the former head of Macau operations for Sands. In the suit, Mr. Jacobs filed copies of a Sands ledger showing intracompany transactions between Macau and Las Vegas with junket and individual names blocked out; the Journal has now seen the names. Two people with past alleged ties to Chinese organized crime groups known as triads are either listed in the ledger—or are business partners of junkets on the document.

The two men—Cheung Chi Tai and Charles Heung—have each been identified as high-ranking triad figures in a 1992 U.S. Senate subcommittee report on Asian organized crime; the report, which followed a series of triad-related arrests by the FBI, drew its findings from law enforcement authorities and informants. More recently, a Hong Kong appeals court judgment in March 2011 said Mr. Cheung was a "triad leader" who ordered the death of a casino dealer. He wasn't charged in the case, but a subordinate was sentenced for conspiracy to commit murder.

Neither Mr. Cheung nor Mr. Heung has been convicted of triad activity, and Mr. Heung has publicly denied being involved in organized crime; when contacted, representatives of the two men declined to comment. According to people with knowledge of the company, both have also been members of Sands' "Chairman's Club." The club is a select group of high-rollers given exclusive access to Sands' most luxurious suites, six-figure monthly expense accounts and extensive credit lines, according to a court filing by Mr. Jacobs, who, through his attorney, has declined to discuss his case.

For their part, Treasury and other law enforcement authorities who have seen or are familiar with the Sands ledger say they are alarmed by the size of some of the activity. Although the reasons for the fund movements aren't known, the Journal found more than two dozen junket operators on the ledger transferring a total of about $28 million from 2006 to 2010. One junket operator alone transferred $3.6 million in two days between Macau and Las Vegas in 2009; another transferred $2.4 million in one day, according to the ledger.

Asked about the ledger, which was an accounting document at Sands, Ron Reese, a company spokesman, wouldn't comment on the money transfers, the company's use of junkets or any people identified as moving money through casinos. "We believe the company has acted properly and we will continue to cooperate with all our regulators," he said. "But we will not compromise the privacy rights of our customers."

In the end, some followers of the junket arrival in Las Vegas say the biggest mystery may be the size of this new industry. In Macau, junkets accounted for nearly three-fourths of the island's gambling revenues last year, according to local regulators. Here in Las Vegas, casino executives say the junket industry is much smaller, accounting for no more than 20% of their mainland China VIP business. But some consultants say that number is higher.

One problem: it is hard to track junket revenues because some junkets don't use formal contracts—part of what Mr. Lee, the expert in the Chinese gambling market, calls the "shadow junket" industry.

"Getting money over to America is even harder than getting money to Macau," he said. "That's why the junkets have a big role in Vegas."

The Wall Street Journal