Today's SCMP:

In the article "Chips are down for cadres" published on December 31, 2004, it has been drawn to our attention that some readers might read the article to mean that mainland officials use the Sands casino to launder money. For the purpose of clarification we wish to clarify that the article was not meant to imply that we had knowledge that any money laundering activities by mainland officers had occurred there.

Chips are down for cadres

Macau's booming casino industry has highlighted the problem of gambling by senior political and government figures from the mainland, writes Mark O'Neill

If the governor of China's central bank wants to know how billions of yuan are being laundered out of his country, he should take the escalator to the third floor of the Sands casino in Macau.

Among the hundreds of gamblers crowding the tables below, Zhou Xiaochuan would likely see the odd mainland official betting public money and the bribes they have received. Down the corridor, through a locked door, are the VIP rooms, where access is reserved for high-rollers. There, too, Mr Zhou would find government colleagues.

'About half of our clients come from the mainland and the number is increasing, especially after Beijing allowed individual visas from many cities,' said one of the casino's staff.

Mr Zhou told a national meeting in the autumn that the fight against money laundering was 'falling behind' and a law was to be presented to the standing committee of parliament early next year. 'The situation is developing rapidly and we cannot keep pace with it.'

The love of gambling among officials has become so serious that, on February 17, the Communist Party issued an order banning senior cadres from betting abroad as well as at home, with severe punishments if they were caught.

The problem is so widespread among officials of the Guangdong government that the party has ordered those above the rank of deputy-director in the tax, finance and currency departments to surrender passports and Hong Kong and Macau entry permits to their personnel departments. To visit Macau, they must receive individual approval from their superiors.

In September, the State Administration of Foreign Exchange (Safe) announced its most important conviction in a money-laundering case. A court in Hangzhou, the capital of Zhejiang province, sentenced a money-changer named Feng Weilong to three years and a fine of 10,000 yuan and a Macau loan shark named Chen Zhifang to a fine of 4.95 million yuan, a record sum imposed against an individual by the agency since 1949.

The Zhejiang branch of Safe was alerted by heavy movements of foreign exchange through 11 accounts of one individual held at the Construction Bank in Hangzhou. Between December 2002 and July 2003, these accounts handled 522 transactions totaling US$16.9 million.

Working with the Zhejiang police, Safe discovered that this account was part of a sophisticated network run by Feng and Chen to launder money for mainland officials who went to Macau to bet. Since the casinos want payment in foreign currency, Feng and Chen took yuan from officials and gave them Hong Kong and US dollars in exchange and arranged, through illegal channels, for money to go back into Zhejiang banks.

The two charged a commission by exchanging money at lower than the official rate and took a fee for arranging the transfers, which is also illegal. The renminbi is not convertible and mainlanders are strictly limited in the amount they can exchange for foreign currency when they leave the country.

A dozen Hangzhou police officers pounced one afternoon last December arresting four of Feng's men with suitcases containing HK$4.4 million.

Chen was the lynchpin of the operation. A native of Shanghai, he emigrated to Macau in his teens and his name card identifies him as president of a trading company. But his real job was to lend money to gamblers from Shanghai, Jiangsu and Zhejiang and collect from them after their 'holiday', win or lose.

Chen knew his clients better than the banks they did business with. He knew their worth and what they could repay, enabling him to judge instantly how much to lend them when they asked for it in the heat and passion of the tables.

The Cantonese call loan sharks like Chen 'big ear hole'. The word comes from the Indians who were the first to offer high-interest loans and wore gold jewellery on their ears that made them appear larger than they actually were. Gamblers in Macau have been able to obtain the funds they needed from such creditors since the middle of the 18th century.

The margins on loan sharking are high, with interest ranging from 10-50 per cent a month. It is a high-risk operation. The sharks employ an army of men who watch their clients and, if they lose at the gamble, follow them when they leave the tables, to ensure that they repay.

'All methods are permissible to obtain the money,' said Leung Wai-hing, the owner of a watch shop in Macau. 'They include beating up the client, threatening or kidnapping his family members, and blackmail. The only way you can avoid repaying is to commit suicide. Death wipes out the debt.

'In the case of government officials, the sharks can go for 'black or white' - either the traditional methods or report the person to his superiors or state prosecutors, to ruin his career.'

Mr Leung said that officials who had taken bribes or stolen public funds bet heavily because they had to launder the money, preferably outside the mainland, into real estate or gambling.

'You have stolen 10 million yuan,' he said. 'You gamble the money. If you double it, you repay the original 10 million and keep the rest. If you lose, then it is gone. They have the sense that the money does not belong to them. In other cases, it is rich businessmen who give money to officials to bet. It is their gift, in exchange for favours and licences they need at home.'

The former vice-mayor of Shenyang Ma Xiangdong was one famous example. He lost more than 40 million yuan during 30 trips to the Macau gambling tables before he was arrested and executed.

Another well-known case was Lan Pu, former vice-mayor of Xiamen, who flew to Hong Kong in late 1999 after spending a week of study at the Central Party School in Beijing. He lost 3.5 million yuan in one day in Macau. But Lan won more than he lost. After his arrest, mainland investigators calculated that, over several years, he made a profit of US$650,000 and HK$330,000 from betting in Australia and Macau. The courts gave Lan a suspended death sentence.

Li Jianyang, director of Guangdong Taishan Sports Administration was given a life sentence for gambling in Macau from 1999 to 2001.

Last week, a Guangzhou newspaper reported that the head of a transport bureau in Yanbian, Jilin province, had spent seven million yuan, stolen from public funds and borrowed from his family and companies he supervised, at the gambling tables in Rason, North Korea. He is on the run. The Yanbian government said that any officials found gambling overseas would be dismissed from government and party positions.

Of 250,000 mainlanders who visited North Korea this year through Yanbian, an estimated 50,000 went to the Rason casino.