ROLLING THE DICE IN MACAU

Star Ledger October 16, 2005

ROLLING THE DICE IN MACAU
MGM found a way into China, but New Jersey’s probe could have consequences around the world

Sunday, October 16, 2005 BY JUDY DeHAVEN Star-Ledger Staff

Three years ago, U.S. casino operators were given a chance to build gambling palaces in a setting that seemed best suited for a James Bond movie.

Macau, the Chinese enclave long known for violent mob factions called triads who troll its casinos and operate their VIP rooms, was looking to clean up its image. At the same time, Macau presented a golden opportunity for U.S. companies. It is the only place in China where gambling is legal, offering unique access to more than 1 billion people.

Breaking into Macau would enable the Las Vegas operators to tap into a huge market and get that much closer to the coveted Asian high rollers, the kind of gamblers who think nothing of wagering seven figures in a weekend.

Gambling’s biggest moguls all competed for a piece of the action. Steve Wynn and Sheldon Adelson snagged two of the gambling “concessions.” The other wasn’t a surprise: Stanley Ho, a billionaire businessman who for years held a monopoly on Macau’s casino industry.

The final big-name bidder, MGM Mirage, the Las Vegas giant headed by Chief Executive Terry Lanni, lost out.

What happened next is a tale of international intrigue that stretches from Macau to Las Vegas and now, to New Jersey.

Last spring, MGM announced it had a way in — through Stanley Ho and his daughter Pansy, once a Paris Hilton-style party girl in Hong Kong and Macau. MGM entered into a 50/50 partnership with Pansy Ho and was granted a “subconcession” from her father to build its own casino in exchange for $200 million. The Macau government approved the deal, and MGM and Pansy Ho broke ground on their $1 billion casino in June.

Now, casino regulators in New Jersey, where MGM is co-owner of the Borgata casino, are investigating the company’s arrangement with Pansy Ho and her connections to her father, who has been accused of having ties to the Chinese triads.

The case illustrates how interconnected the gambling industry has become. Regulators in the U.S. can weigh in on transactions that take place across the globe. And they can force companies to sell multimillion-dollar stakes in projects or find new partners if they want to do business here.

New Jersey has a history of taking a hard line when it comes to people who have a whiff of the underworld. In one famous case, it denied Hilton Hotels a license in 1985 because its lawyer had mob ties.

FAMILY TIES

Stanley Ho has been dogged for decades by allegations that his gambling parlors do business with triads, which are known to launder money, loan shark, sell drugs and pimp prostitutes through the Macau casinos. But he has never been prosecuted and has repeatedly denied any wrongdoing.

Pansy Ho, the oldest of his 17 children, is the heir apparent to her father’s empire, which accounts for two-thirds of Macau’s tax revenue through its holdings in hotels, real estate, a ferry route, its largest department store, a local airline, a racetrack and, of course, the casinos. Her sister Daisy is also involved in the MGM deal, but Pansy is a half-owner and managing director of the joint venture.

Regulators concede proving allegations against Stanley Ho will be difficult. Even if they were to find him unsuitable, merely being related to him wouldn’t be enough for Pansy Ho or MGM to be disqualified from holding a license.

But MGM and Pansy Ho may have to prove she is a businesswoman in her own right who has invested her own money into the deal and operates her business ventures separately from her father, said Mickey Brown, a former state gaming enforcement chief.

That could be tricky, since Pansy Ho has been named a top executive in several of her father’s companies as the 84-year-old has started to put together a succession plan. And through its partnership with Pansy Ho, MGM paid her father’s gambling company $200 million for the subconcession.

Although its competitors have been grumbling about MGM’s Macau deal, the New Jersey investigation came as a surprise to the company. MGM in February had received clearance from Mississippi regulators, and while Nevada authorities had been examining it for some time, they have yet to raise any red flags. Calls to regulators in Nevada, where MGM owns half of the hotels on the Strip, were not returned.

In June, around the time of the groundbreaking in Macau, the New Jersey Casino Control Commission even cleared MGM and renewed Borgata’s license, despite the allegations.

PATH TO A PROBE

So why investigate now? Tom Auriemma, director of the Division of Gaming Enforcement, said he did not authorize the probe before the commission renewed Borgata’s license because “we had only sketchy information at that point in time.”

“It would have been wholly inappropriate to raise negative information regarding MGM Mirage,” he said.

And before sending investigators halfway around the world, Auriemma said he wanted to make sure MGM was serious about Macau. Announcing it had a partner and was in the market for a Macau casino is one thing. Getting a subconcession and going forward with a groundbreaking is another, he said.

So when Borgata’s license came before regulators in June, the division said in its report that there are “numerous public allegations suggesting that Stanley Ho, the father of MGM’s joint venture partner Pansy Ho, has ties to Asian organized crime.”

The division also said it would continue to monitor the deal and report back to the commission. Auriemma said the investigation is the next logical step. The division plans to send a team of investigators to Macau early next year.

In licensing cases, the division acts as a prosecutor and the commission as the judge. Once the division completes its investigation, it will be up to the commission to decide what action to take, if any.

MGM spokesman Alan Feldman said he was surprised to hear New Jersey had started a probe.

“We’ve been keeping them informed about this for what feels like two years now,” he said. “I’m not aware of anything that has happened or is about to happen or underway that is any different.”

He said MGM cooperates “fully with our regulators in all respects.”

Pansy Ho did not respond to questions sent via e-mail.

ESCALATING RIVALRY

MGM has been interested in Macau for years. And it was no secret the company was disappointed when it lost out on the initial concessions.

Adelson’s company, the Las Vegas Sands, has already opened one casino and has plans to build a strip of casinos rivaling Las Vegas. Wynn, considered a gambling visionary, has a $1.1 billion casino set to open next year.

MGM’s subconcession from Stanley Ho initially drew criticism from one competitor. Las Vegas Sands President William Weidner was quoted in the Las Vegas Review Journal saying his company “wouldn’t take the risk of doing anything having to do with any Ho.” A Sands spokesman declined further comment.

MGM wonders if its rivals are now stoking the flames.

Feldman said “certain competitors” have “engaged in a campaign of unfounded rumors and innuendo” because they are afraid competition from MGM will hurt their business.

Auriemma, the division director, said he was not influenced by either Wynn or the Las Vegas Sands. He said he decided to move forward with the investigation because he felt the allegations warranted a close look.

Besides the $200 million cost of the subconcession, MGM paid $100 million for “consideration for having the opportunity to partner with Pansy Ho,” according to the division report on MGM. In addition, MGM and Pansy Ho each invested an initial $80 million, and the partnership will pay $60 million for a land concession agreement.

Feldman said apart from the payments for the subconcession and the land concession, which he said were made by the partnership and not directly by MGM, “there is no continuing relationship with (Stanley Ho’s company) at all.”

“We entered into an independent joint venture with Pansy Ho under a fully autonomous subconcession agreement which has been approved by the government of Macau,” Feldman said.

Brown, the former division director, said all of the financial transactions will be scrutinized as part of New Jersey’s investigation.

WHERE THERE’S SMOKE?

Experts said it could be difficult, if not impossible for the division to prove any accusations against Stanley Ho.

Ho’s name was once attached to a particularly violent gangland episode. In 1987, his chief assistant, Thomas Chung, was hacked to death as he walked to his car in Hong Kong after a game of tennis, according to published reports. Police said he was murdered by a professional killer as a payback from an Asian gambling syndicate, but it was unclear if Ho had any knowledge of Chung’s gang activities.

U.S. and Canadian authorities also have been unsuccessful in their attempts to verify allegations. In 1988, the U.S. Justice Department listed Ho as an associate of an unknown triad. Two years later, the Royal Mounted Canadian Police assigned him a gang file number, saying he was a member of the Kung Lok Triad.

The allegations haven’t prevented U.S. and Canadian politicos from welcoming Ho into their circles. In 1994, Ho posed for a picture with then-President Bill Clinton and personally handed him a check for $250,000 for the memorial fund for former President Franklin D. Roosevelt.

The most recent allegation involving Ho has to do with Seng Heng Bank. Last month, the Wall Street Journal reported Seng Heng, which Ho controls, is one of three banks under investigation by U.S. agencies for possible connections to North Korea’s illegal fundraising network that Washington thinks is financing Pyongyang’s nuclear program. The bank has said it is unaware of any investigation and has not engaged in any illegal activities.

James Dubro, an expert on Asian organized crime, said it would have been hard for Ho to avoid coming in contact with underworld figures during his career because they are such a part of the fabric of Macau. The enclave, a Portuguese colony until 1999, is home to only 500,000 people.

But Dubro, who has researched a book and three documentaries on Chinese triads, said he has never seen any evidence that Ho was a member of one of the gangs.

“Overall, I would say that the triads are a natural part of the landscape in Macau and Hong Kong, and someone as prominent and well-connected as Ho cannot exist without either making a deal or disarming or neutralizing the triads in his sphere,” Dubro said.

If authorities had the goods to prove Ho was a criminal, “something would happen,” Dubro said. “But they don’t.”

Auriemma said he knows investigating Stanley Ho and his daughter will not be easy. For one, his team has never before conducted an investigation in China, and it will have to rely on cooperation from the authorities in Macau.

“We are talking about an international investigation by an American law-enforcement agency involving another country,” he said. “There’s a lot of preliminary legwork that has to be done before we go marching off to Macau.”

© 2005 The Star Ledger