Queensland University of Technology Law and Justice Journal
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Queensland University of Technology Law and Justice Journal |
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ANGELA VENG MEI LEONG [*]
Under Portuguese rule, gaming has been legalized in Macau since 1847 and
this small former Asian overseas province of
Portugal[1] has become known worldwide
as the “Monte Carlo of the Orient”. The first casino monopoly
franchise was granted to the
Tai Xing Company in 1937, but it was too
conservative to exploit the full potential of the industry and only Chinese
games were played
in the casinos at that time. In 1962, the government granted
the Sociedade de Turismo e Diversoes de Macau
(STDM)[2] the monopoly rights to all
forms of gambling. The exclusive gambling franchise of the STDM was extended in
1986 for another 15 years
but has since expired. Today, there remains ten
casinos operated by the STDM, and they have become the backbone of Macau’s
tourism and entertainment industry. The number of visitors rose from half a
million in 1961 to 2 million in 1973, then 4 million
in 1983 and more than 8
million in 1996, but declined to 7.4 million in 1999. Besides playing a key
role in the development, prosperity
and growth of Macau, the STDM is the largest
taxpayer and has contributed to most infrastructure
projects.[3] The STDM is also the
largest commercial employer in Macau, employing more than ten thousand people
(5% of Macau’s workforce).
With the huge revenue from gambling, Macau is
able to maintain a free port status, invest in infrastructure and adopt a low
taxation
policy. Thus, Macau like Nevada has ‘... [b]uilt government
around the gaming industry’[4]
and could be called a “Casino
State”.[5]
The
centralization of ownership of casinos seems to be a good way of running
gambling business in a small place like Macau. It is
often easier to manage and
the order inside the casinos can be maintained. However, over time too much
centralization and monopolization
mean fewer incentives for the STDM to improve
its services and reduce costs. The administrative process becomes time
consuming and
resources are wasted. Combined with increasing competition from
newly opened casinos in nearby areas like Thailand, Myanmar and
Korea, and
floating casinos in adjacent seas, consumers are attracted to these new casinos
with better facilities and services.
At the beginning, the STDM observed
the rules of the game and operated as the only operator under the exclusive
franchise. However,
in order to reduce the administrative and marketing costs
while attracting more customers, the STDM decided to change their way of
doing
business in the 1980s and began to operate gambling rooms within its casinos in
1984. With this informal arrangement of gambling
rooms, the “dead”
chips system and the “bate-ficha” business became established in
“individual or sub-contracted”
gambling rooms.
The STDM imported the idea of “dead” chips from Europe in the
1970s but the first organized “dead” chips system
appeared in Macau
casinos only in 1980 when the informal gambling rooms began. “Dead”
chips (sei-ma), also called non-negotiable chips or “mud”
chips (lai-ma), are chips that cannot be exchanged for cash.
“Dead” chips can be used only in specific gambling rooms for
gambling
purposes alone. The overt function of “dead” chips is to
attract customers and keep them staying in the games. Cash
chips can be used
for betting in all gambling rooms and are transferable into cash. There are
cash chips ranging from the amount
of $10 to $200,000 for MOP and HKD. However,
there are no “dead” chips for MOP and the smallest value of
“dead”
chips is HK$1,000 increasing to HK$5,000, HK$10,000,
HK$50,000, HK$100,000 and HK$500,000. The face value of both “dead”
chips and cash chips is the same. All cash chips of value below HK$10,000 are
circular in shape with “STDM” and the
value imprinted, and the size
increases with the value, while the “dead” chips are usually
rectangular in shape. In
addition to the logo of the STDM, the word
“Junket” and sometimes the name of the gambling room are imprinted
on the
“dead” chips so as to distinguish them from the cash chips.
The “dead” chips for different gambling rooms
are different in color
and size, sometimes even in shape and can be used in the specific gambling rooms
only.
The first gambling room, the “Diamond VIP Room” was
established in Casino Lisboa in 1984. Although the gambling rooms
are not run
directly by the STDM, they remain their property. The STDM provides the
croupiers or dealers and other assistance to
the gambling rooms, including
security. While the operator of the gambling room has to take care of the
administrative costs, profits
and losses in the form of a quasi-privatization of
the gambling room. However, the STDM has denied contracting out of any of its
gambling rooms as it is illegal under Article No. 1 of the Contract of
Exclusive Concession of Gaming[6],
and claims that rooms are reserved for high rollers and VIPs. Today, there are
more than fifty gambling rooms and clubs in Macau
casinos and
baccarat[7] is the chief game played.
The only distinction between gambling rooms and clubs is that the former is open
to the public, while
the latter requires membership.
As the arrangement
of these “VIP” gambling rooms is informal , the so-called
“contract” between the STDM and
the gambling room operator is not
standardized or legally endorsed. Instead, the terms of such contract depend on
the relationship
between the operator and the STDM and also the ability to raise
entry capital. In other words, successful or favoured operators
may negotiate
better terms of profit and loss sharing. This is an example of casino
management failure as it is based on a form
of cronyism rather than the concept
of efficiency.
When the gambling room operator starts his business, he
has to give the STDM an amount of approximately HK$2 million as a guarantee.
In
addition, he has to buy a certain amount of “dead” chips from the
STDM, usually about HK$4 million per month. The
operator obtains a commission
for these HK$4 million of “dead” chips and additional commission for
extra “dead”
chips bought. If the operator is not able to buy HK$4
million of “dead” chips in one month, he will be fined. The profits
gained from the gambling rooms are shared between him and the STDM, usually 55%
for the STDM and 45% for the operator. In addition,
the gambling room operator
has to pay rent for each gambling table, which is approximately HK$300,000 per
table per month. He is
also responsible for the administrative and management
costs as well as the commission of the “bate-ficha” business inside
his gambling room.
As mentioned above, the gambling room operators have
to buy a huge amount of “dead” chips from the STDM each month, they
have to attract enough business to absorb all the “dead” chips
required by their “contract”. Thus, instead
of keeping all the
commission from the STDM, the gambling room operators use part of this
commission to establish a unique ancillary
business in their gambling rooms,
known as the “bate-ficha” business trading in “dead”
chips.
The term ¼bate-ficha¼ is a colloquialism used in Macau as this
kind of business only exists in Macau casinos. This term
does not appear in the
law but it exists in the police records of investigation. In other words, this
business is not governed by
any legislation, nor is it taxed. The original
expression is in Cantonese (dap-ma) and the Portuguese term
“bate-ficha” was made up by some local Portuguese police officials.
“Bater” is a
verb that has many meanings such as shake, beat,
strike, hit, etc, while “Ficha” means chips. The term
“bate-ficha”
means to “handle” chips, and lots of chips
indicate power and profit. So the “bate-ficha” business simply
means the rolling or exchanging of chips between the customers (gamblers) and
the “bate-ficha” guys (dap-ma-chai) or chip rollers. The
chip rollers often carry piles of “dead” chips and walk around the
gambling rooms in order to
seek customers. And that is how this activity earns
its name. They exchange the “dead” chips for cash chips or cash
with their customers. In return, the chip rollers get a commission for this
kind of exchange.
The pyramid structure of the “bate-ficha”
business is shown in Figure 1. The STDM arranges or “contracts out”
a gambling room to an operator. The gambling room operator is the only person
who actually has an account with the STDM but he can
choose his own partners to
share his investment in the gambling room. According to the usual contract, he
has to buy a few million
in “dead” chips from the STDM each month.
Say for instance, if he has to buy HK$4 million of “dead” chips
from
the STDM, he will need at least 100 customers to each gamble HK$40,000 per month
in order to absorb all the “dead”
chips. Since the amount of
“dead” chips is substantial, the gambling room operator has to
attract more customers through
the establishment of the “bate-ficha”
business, which include the account owners, chip roller team leaders and chip
rollers.
The operator will invite interested people, usually his friends or
relatives, with large amounts of capital to open an account in
his gambling
room, this person is often called the account owner or middleman. He will get
commissions for the amount of “dead”
chips rolled for cash chips.
Again, one man’s power is limited, this account owner will then invite or
employ his friends
or “triad[8]
brethren” to run the “bate-ficha” business. In other words,
his friends or “triad brethren” work as
sales agents and will earn a
commission from the account owner. They approach customers and exchange the
“dead” chips
for the customers’ cash chips or cash, and they
are called the “bate-ficha” guys (dap-ma-chai) or chip
rollers. There are several thousand chip rollers in Macau casinos, both male and
female, a few hundred might be full-time
and the rest are part-time. They have
no professional qualifications and are usually old school dropouts. Since the
STDM has no
liability role in the “bate-ficha” business, the
gambling room operator, the account owners (middlemen) and the chip
rollers are
not employees of the STDM. The chip rollers may or may not be employed by the
account owner but they earn their living
mainly from
commission[9] by exchanging
“dead” chips for cash chips.
When their operations are
profitable, many will acquire their own branch and continue to ascend the ranks
so they can eventually become
chip roller team leaders. In addition, the
gambling room operator or his partners can be account owners and establish their
own
“bate-ficha” business. Even when someone gets into trouble, the
“bate-ficha” system will not collapse because
it is divided into
separated branches under different account owners and team leaders. Each
account owner has his own “bate-ficha”
business, independent of the
others. This organizational structure reflects the idea of pyramid selling and
risk distribution.
Furthermore, two teams under different account owners
working in the same gambling room may help each other by lending money with
a
mutual agreement on how to share the commission. In other words, the account
owners will try to form themselves into loose
cartels.[10]
The following
is an example to demonstrate the operation of this business more clearly. Say
for instance, the operator of the gambling
room X knows that one of his friends
(Mr Y) is interested in running the “bate-ficha” business and he
also has enough
capital. The operator will ask Mr Y to open an account in the
chip exchange counter in gambling room X and, let’s say, the
commission
for every HK$10,000 “dead” chips is HK$600. Each account carries a
number and the account number for Mr Y
is 32. Mr. Y becomes the account owner
of this business. He then employs some friends or “triad brethren”
as chip rollers.
The minimum amount of “dead” chips that can be
bought from the counter is HK$100,000, which is often known as a tray
of
“dead” chips. For example, Mr Y uses cash or credits to reserve
HK$2,000,000 “dead” chips (twenty trays
of “dead” chips)
recorded in his account (No 32). Each of the chip rollers will get HK$100,000
“dead” chips
and they begin to walk around the gambling room seeking
new gamblers or their own customers to exchange cash or cash chips for their
‘dead’ chips. Once the chip rollers have exchanged all HK$100,000
worth of “dead” chips, they will go to
the counter and use
HK$100,000 cash chips to buy another tray of “dead” chips through
account 32. At the end of each
month, the transaction of “dead”
chips in account 32 is calculated. For example, there are 100 trays of
“dead”
chips sold from account 32 in this month, then the commission
for Mr Y will be HK$600,000. Mr Y, the account owner, will either
pay the chip
rollers fixed salaries each month, or they may also receive some commission
depending on Mr Y’s decision.
The customers of the
“bate-ficha” business are mainly from Hong Kong, Mainland China and
Taiwan. While having the “dead”
chips, the chip rollers will
provide their customers with free jetfoil tickets, accommodation and meals.
They will also give them
advice on the games. Sometimes the chip rollers will
exchange “dead” chips at a
discount.[11] The customers can
always exchange the “dead” chips back to cash chips or cash with the
chip rollers whenever they want
to quit gambling. In addition, the chip rollers
will protect their customers from the “hangers-on” (pa-chai)
inside the casinos. The “hangers-on” are those people who will
bother and beg the gamblers for tips when the gamblers
win a game.
Occasionally, their customers might want to acquire drugs and prostitution,
whereby the chip rollers can arrange for
better deals with or without additional
commission.
Although it is possible for high
rollers[12] to open an account with
the gambling room directly, it is often difficult because the operator usually
wants to build his own “bate-ficha”
business with the account
owners, who are his friends or “triad brethren”, as they can be
controlled more easily. The
operator has many excuses to prevent customers from
opening an account individually in his gambling room. Excuses usually include
insufficient stakes, or they need to maintain an account for a long period of
time. In fact, most high rollers will choose the services
of the chip rollers
for the purpose of convenience, companionship and protection.
The
“contracting out” of gambling rooms and the establishment of the
“bate-ficha” business generate more cash
flows for the casinos
because gamblers are often stimulated to gamble when they are accompanied by the
chip rollers and can get additional
credits (in the form of cash chips or
“dead” chips) from the chip rollers. In this way, the STDM can
reduce their administrative
and marketing costs while increasing customers
and/or the amount gambled. However, there is no legislation governing this
lucrative
“bate-ficha” business and this loophole is exploited by
triads, especially in the areas of loan sharking, money laundering
and skimming
operations within Macau casinos.
King,[13]
Skolnick[14] and
Zendzian[15] have shown that there
is a long history of organized crime involvement in casinos, and Macau is no
exception. Before the arrangement
of gambling rooms, there was no
“bate-ficha” business in Macau casinos. At that time, the power of
the triad societies
was limited because they did not have direct administrative
access in the casinos and only limited profit was earned from loan sharking
and
other illegal “ancillary” activities like prostitution, drug
trafficking and smuggling. Hence under the centralized
casino structure,
different triad societies were loosely organized marginal to the central
activities and did not have their own
territories inside the casinos during the
1960s and 1970s. With the arrangement of gambling rooms and the establishment
of the “bate-ficha”
business in the 1980s, a “lawless”
space was created for triads in the casinos. With the increase in access and
wealth,
different triad societies began to establish their territories in the
casinos and the strongest ones monopolized the “bate-ficha”
business
by the late 1990s. The three largest triad societies in Macau in the 1980s and
1990s were the 14K, Wo On Lok (also known as Shui Fong) and Wo
Shing Yee, and the Big Circle Boys (Dai Huen Chai) was another active
gang of criminals in Macau.
Most of the gambling room operators are
wealthy businessmen, of whom some are alleged to have earned their capital from
past illegal
businesses. They are not necessarily triad members although some
may be retired or inactive triad members. The major criterion
is to have a huge
amount of capital and a good relationship with the STDM, the triads and also the
police.
Because the “bate-ficha” business is not governed by
any legislation, this business works like a ‘black
market’[16] which is risky,
unprotected and unpredictable. Those who are involved in this business have
difficulties in recovering debts and
seeking legal protection as a result of
unclear laws and ineffective law enforcement agencies. Thus, the gambling room
operators
often invite faction leaders of the triad societies to be account
owners and to run the “bate-ficha” business in their
gambling rooms.
These leaders often recruit their own members or “triad brethren” to
work as chip rollers. The functions
of triads in the “bate-ficha”
business are as follows:
Since the number of customers determines the income of the
“bate-ficha” business, there is severe competition among different
chip roller teams. Without triad muscle, they cannot compete for customers and
risk losing their own customers to their competitors.
As a result, they can
hardly survive in this business without the chip roller teams securing positions
in the gambling room by turning
to the triads for private protection. Thus,
triads are often employed for protection by the gambling room operators. They
intervene
and stabilize the market by using violence to ensure the benefits of
their members, secure positions and for the purpose of mutual
aid.
The
chip rollers also provide protection to their own customers from the so-called
“hangers-on” who will bother and beg
the gamblers for tips when the
gamblers win a game. If these hangers-on are unsuccessful in begging for tips
from the gamblers,
they may use violence or threats against these gamblers. The
chip rollers will also provide “ancillary” services such
as drugs,
prostitution and loan sharking.
In addition to providing private
protection, triads often run the “bate-ficha” business in their
gambling rooms. Usually,
the gambling room operator will grant the
“bate-ficha” business to just one triad society, for example, the
14K. But
sometimes he may allow two triad societies, the 14K and Shui
Fong, to run the “bate-ficha” business in the same gambling
room. If say, the 14K (main protector) is weaker in strength
or influence than
the dominant triad faction, say the Shui Fong, in order to prevent
conflict, the operator will allow both triad groups to operate in his gambling
room but would pay the main triad
protector (the 14K) a higher commission,
usually double.
Due to the small geographic area and large population, Macau functions
like a small community and triads have become part of the culture
of the Macau
society. There is a traditional practice in seeking triad assistance in the
settlement of disputes and for private
protection rather than the assistance of
police as Macau citizens have little confidence in the law enforcement agencies
under Portuguese
administration. Most people have difficulties in understanding
the law because most legislation is written in Portuguese, and legal
channels
for dispute settlement are often time-consuming, expensive, ineffective and
involve a complex chain of procedures. Furthermore,
legal channels are
unavailable to illegitimate businesses such as loan sharking and bookmaking.
Thus, triads provide real services
and settle disputes among different gambling
rooms and different chip roller teams in a more effective and efficient manner
than
the state.
Triad societies are believed to be highly structured and organized with
many members available to form a large pyramid of “bate-ficha”
business providing many sales agents for the gambling rooms. Such triads have
no hesitation in resorting to illegal means when exchanging
the
“dead” chips. Since millions of “dead” chips have to be
absorbed each month by the gambling rooms, the
operators will allow triads to
exchange the “dead” chips through two illegal channels namely,
“forced exchange”
and loan sharking.
“Forced exchange” means that when the customer gambles with
cash chips in the gambling room, the chip rollers will replace
the cash chips or
cash on the bet with “dead” chips without the consent of the
gambler. Technically, the customer loses
nothing because the value of the cash
chips and the “dead” chips is the same. However, sometimes a
dispute may result
and triads often help to settle this kind of conflict.
Loan sharking or usury is defined as illegal in the Penal Code of
Macau (Article No. 219)[17] and
penalties range from one to five years imprisonment. Since there is no
legislation governing the “bate-ficha” business,
the chip rollers
will exploit this gray area to run loan shark businesses, which generate
attractive profits. They usually lend
money to their customers in the form of
“dead” chips, but seldom in cash so that they are less prone to
detection. Triads
are involved in the loan sharking business as it is very
lucrative and they can easily acquire potential borrowers in their guise
of chip
rollers. Thus, there is no clear distinction between chip rollers, loan sharks
and hangers-on, as they all claim to be in
the “bate-ficha” business
in order to avoid violating the law. In fact, there is not much the police can
do to deter
loan sharking through the “bate-ficha” business, as
there is no law in place to detain or arrest chip rollers. The chip
rollers
will choose to break the law as the perception of apprehension and punishment is
low. Since loan sharking is an illegal
business in which there is no legal
contract protecting the rights of both creditors and debtors, it is highly
vulnerable to triads,
extortionists, robbers, informants, dishonest customers,
dishonest partners and employees. Because of the lack of formal regulation
and
contract, violence is often employed in debt collection.
The “dead” chips system established in the early 1980s can be
a good casino marketing tool if it is managed properly,
as seems the case in
Nevada and elsewhere. The problem was that the STDM had imported the idea of
“dead” chips system,
but not the techniques for managing it.
Moreover, due to the fact that the government depends excessively on gambling
taxes, it
seems to adopt a passive role in monitoring the management of the
casinos. Given the symbiotic relationship between the government
and the STDM
and unclear legal regulation, loopholes are created for triad infiltration to
casinos and the unregulated “bate-ficha”
business serves as a vector
for skimming operations, money laundering and corruption. Gambetta’s
economic theory of private
protection[18] is utilized to
explain why the nature of the “bate-ficha” business is highly
vulnerable to triad involvement. Gambetta
applied economic theories and
concepts to study how organized crime is organized in the market place and gave
unique insights into
their origin, organization and activities. According to
Gambetta, Sicilian Mafia emerged as the supplier of private protection in
order
to meet the demand in the market.
As mentioned above, the STDM has no
liability in the “bate-ficha” business, those who run the business
are not employees
of the STDM which means that they are not protected by any
legal employment contract. As a result, it is often difficult for those
involved to seek adequate official protection from the Public Security Police,
Judiciary Police or gambling inspectors from the Directorate
of Inspection and
Coordination of Gaming. According to Gambetta’s economic theory of
private protection, this ambiguity provides
the demand for private protection in
an inscrutable market where both the sellers and the buyers know little about
the quality of
their products.[19]
Gambetta claimed that ‘[c]hoices in inscrutable markets are potentially
full of momentous consequences, such as choosing between
partners, prophets, or
sometimes even presidential candidates. The options are indistinguishable, yet
the faint possibility that
one is better than the other, or one genuine and the
other a fake, makes the choice
difficult’.[20] In addition,
trust, which is necessary in order to do business, is scarce and fragile in
these unstable transactions. Since the
so called “contract” between
the STDM and the gambling room operator is not legally sanctioned, there is a
fundamental
lack of trust between them. Consequently, the unregulated
“bate-ficha” business works like a black market in which the
sellers
(chip rollers) and the buyers (gamblers) do not have much information about the
quality of their products (such as protection
and loan sharking) and the actual
“price” provides little surety. The instability creates the
circumstances for more
ruthless measures to protect earnings.
Only a few
individuals are eligible to open an account or obtain “dead” chips
directly from the gambling rooms, those
who would like to gamble with
“dead” chips and acquire additional benefits (such as free meals and
accommodation and
protection against “hangers-on”) have to buy these
services from the chip rollers. Thus, the services provided by the
“bate-ficha” business can be considered as inelastic in
demand.[21] Except for the slight
differences in appearance of the “dead” chips and sometimes the
interest charged for loans, most
“bate-ficha” businesses provide
similar services and benefits. Despite the fact that some chip roller teams
sometimes
undertake sales promotion and advertising by exchanging chips at a
discount rate or giving extra benefits, there is still little
product
differentiation. The “bate-ficha” business requires no professional
qualification and involves low technology,
the few skills required are gambling
skills, and perhaps communication skills so that they can persuade the gamblers
to exchange
more “dead” chips or stay in the game longer. In fact,
individual chip roller teams only have a moderate influence over
the price of
their services because each chip roller team receives more or less the same
amount of commission from the gambling room
operator and there is usually a
market price for loans. The only barrier to entry is whether you have enough
capital and any connections
with the gambling room operators. As there are more
than fifty gambling rooms, there are many chip roller teams resulting in fierce
competition. However, no unionization can be found among the chip roller teams
in different gambling rooms because they are usually
operated by different
factions of a triad society or by various triad societies. The lack of official
or legal recognition also
inhibits collective
bargaining.[22]
The
characteristics of the “bate-ficha” business mentioned above are
similar to the market structure of ‘monopolistic
competition’[23] and possess
features that Gambetta and
Reuter[24] described as low product
differentiation, low barriers to entry, low technology, unskilled labor,
inelastic demand for the product
and comprise a large number of small firms.
The exception is no obvious presence of unionization, unless the traditional
mutual
aid aspect of the triads can be considered a functional equivalent. By
generating a huge amount of cash profit, the “bate-ficha”
business
has become a very attractive target for organized crime. Contrary to a popular
belief that the business community is a
passive victim which is unable to resist
triad demands, triad societies in Macau are actually invited by the gambling
room operators
to provide private protection, to enforce contracts and to ensure
debt collection in the “bate-ficha” business. These
organized crime
groups have already established their reputation in Macau as reliable protectors
because they are ready to use violence
as a deterrence to intrusion. In fact,
the chip rollers not only provide basic security, but also other ancillary
services which
help to attract more customers. These illegal enterprises or
ill-defined practices are most vulnerable to triad protection as they
cannot
seek any official protection. Therefore, the actual operation of the
“bate-ficha” business makes it highly vulnerable
to triad
involvement and indeed my informants took this to be endemic to that aspect of
the gambling industry.
In their involvement in the
“bate-ficha” business, triads are not extortionists and are able to
provide real services
to the gambling room operators. They help to maintain
public order in gambling rooms, guarantee exchange and enable business to
run
smoothly. The triads function as a ‘labor
union’[25] in this market, and
anyone who wants to enter the “bate-ficha” business must be in one
way or another connected to the
triads. Gambetta and Reuter stated that the
comparative advantage of the Mafia ‘[i]s likely to be in organizing cartel
agreements
for large number of industries, as well as making cartels more stable
and successful’.[26] The
triads exploit and maintain their reputation in using violence to protect their
members from competitors, “hangers-on”
and other extortionists.
Thus, the use of violence and threats by triads is rationalized for the purpose
of providing more effective
services and establishing
reputation.[27] ‘Toughness is
a quality lacking in subtlety, for one either has it or does not. There is no
coming in second best, only winning
or
losing.’[28] According to
Gambetta, protectors tend to protect all the transactions in a small territory
rather than providing services over
different
territories.[29] This is true for
triads in the “bate-ficha” business, one triad society tends to
monopolize the “bate-ficha”
business in a small territory, such as
inside a particular gambling room, so that they can have better control over
their business
and enjoy the ‘economies of
scale’.[30] It is also easier
for them to collect protection fees and commissions for their
“bate-ficha” business. In addition,
they also need relevant
intelligence and sources of reliable information to provide effective services,
especially ancillary services,
to their customers. As Gambetta stated
‘...[b]uilding and managing an intelligence network may be difficult,
time-consuming
and
treacherous’.[31]
Furthermore, unfamiliar faces trying to work as chip rollers in their gambling
rooms can be identified or punished immediately so
as to prevent newcomers into
the market and protect their trademark from being pirated or usurped by
others.
In the late 1980s, the strongest criminal organizations in
Macau (14K, Wo On Lok, Wo Shing Wo and Big Circle Gang)
monopolized the “bate-ficha” business, shared the markets and formed
themselves into cartels. In
this case, triad membership serves as a
“license” to operate this
business.[32] Thus, poor casino
management combined with the presence of “cronyism” and police
corruption enhanced the monopolization
of the “bate-ficha” business
by triads. Due to this monopolization, there is an increasing opportunity for
greater levels
of organization, loan sharking, money laundering, skimming
operations and the power to corrupt law enforcement agencies at higher
levels.[33]
Unfortunately,
this picture of business “rationality” also poses risks to the
gambling room operators. The triads may
ultimately offer a poor and costly
service because the “bate-ficha” business is not subjected to any
legal or “market”
control, and it is not uncommon for triads to
blackmail the gambling room operators or their customers. In some cases, triads
may
force the gambling room operators to employ only their triad brethren as
chip rollers. Once they are in the business, it is very
difficult to get rid of
them. Sometimes, customers may also be victims of the chip rollers through loan
sharking, prostitution and
blackmail.
Gambetta argued that whether the
Mafia are protectors or extortionists depends on the variable of
time.[34] Although the four largest
criminal organizations managed to form themselves into cartels in the 1980s,
they began to foresee short-term
prospects in this “bate-ficha”
protection business in the early 1990s. In fact, the triad cartels broke up
when one
triad society or a faction leader of one society, “Broken Tooth
Wan”,[35] became too wealthy,
powerful and ambitious that he invaded others’ territories and took their
“bate-ficha” businesses.
As a result, cartels fell apart and
territorial wars or battles for control began. Severe competition combined with
the uncertainty
produced by the return of administration to China in 1999 and
the expiration of the exclusive franchise in 2001: protection drifted
towards
extortion. Though the problem was partly due to casino mismanagement, the STDM
had no incentive to set new rules for the
game. Instead the STDM was more
concerned about maximizing profit before the end of 2001. The Directorate of
Inspection and Coordination
of Gaming and the law enforcement agencies had
little incentive or legislative support in regulating the
“bate-ficha”
business because the Casino State had failed to
acknowledge this aspect of casino gambling.
A cooperative and harmonic relationship between the government and the
gambling industry is necessary for the stability and economic
growth of Macau.
However, this symbiotic relationship had become too entwined and at the level of
operations indistinguishable,
in effect the roles and functions of the colonial
administration were grossly distorted. In fact, the Portuguese government had
little incentive to develop adequate control mechanisms. The laws governing the
gambling industry stressed the regulation of the
collection of gambling taxes,
yet were permissive in monitoring the management of the casinos, hence, the
“bate-ficha”
business remained unregulated, under-taxed and required
no registration of its players.
The “bate-ficha” business
appeared apparently functional to the government, casino owners and customers,
and hence was
tolerated. The STDM was able to earn more profits through this
casino marketing tool, in turn, the colonial government received
more gambling
taxes during 1980s. When everybody was content about this manifest function of
the “bate-ficha” business,
there was no concern to impose any legal
control over its operation. As a result, law makers and law enforcers ignored
the existence
of the “bate-ficha” business and no legislation about
this business was found in the Contract of Exclusive Concession of
Gaming. Even though the Organized Crime Law (Law no 6/97/M) was
carefully planned, the definitions of high rollers, VIP gambling rooms or
“bate-ficha” business still
did not exist legally when this new law
was promulgated in 1997.
At equilibrium, when there was a balance of
power and the symbiosis still held, triad involvement in the
“bate-ficha”
business seemed to generate more positive than negative
externalities. The triads were allowed in casinos because they were highly
productive and did not interfere with the system. They were more likely to be
entrepreneurs and protectors as they were able to
provide some real services,
attract more customers and generate more cash flow in the casinos. Since the
triads and the less educated
Chinese immigrants who came to Macau in the early
1980s were able to earn a living through this “bate-ficha” business,
they became less involved in other illegal activities outside the casinos.
Thus, the level of crimes decreased rapidly since 1984.
The total number of
crimes has dropped from 6,831 (crime rate per capita is 23.66) in 1984 to 4,414
in 1986 (crime rate per capita
is 14.64). The latent function of this business
helped to keep the public order in Macau. In other words, casinos helped to
accommodate
triads and certain crimes in the 1980s.
However, cartels
broke up resulting in severe and unregulated competition in the
“bate-ficha” business which most likely
contributed to the increase
in crimes in the 1990s. The “bate-ficha” business had become
dysfunctional and served as
a vector for corruption, loan sharking, money
laundering and skimming operations. There was also a high tendency for the
triads
to practice extortion rather than simply to remain as entrepreneurs or
protectors. According to Gambetta, whether triads are protectors
or
extortionists is a function of the time involved in the business. However, in
the case of Macau, other external factors, such
as the irrational behavior of
“Broken Tooth Wan”, economic recession caused by the Asian Financial
Crisis in 1997 and
pressure from the handover of the colonial administration in
1999, completely overwhelmed the equilibrium supposedly providing symbiosis.
The triad turf wars and the public order problem in the late 1990s reflected the
weaknesses and instability of such symbiotic relationship
and was also
symptomatic of the structural complexity and divided strength of Macau law
enforcement agencies.
[*] B Soc Sc, MPhil, Research
Assistant, Centre for Criminology, The University of Hong Kong, Pakfulam Road,
Hong Kong (avmleong@graduate.hku.hk).
I am grateful to my supervisor, Dr
Roderic Broadhurst, for his comments and suggestions on the draft of this
paper.
[1] Macau (Macao), the
first and last Western settlement in China, was a former so-called
‘overseas province’ of Portugal
but became a ‘Chinese
territory under Portuguese administration’ in 1976 with a high degree of
autonomy under the Organic Statute of Macau (Estatuto Orgânico
de Macau). Macau is located on the western side of the Pearl River Estuary
on the southern coast of China and comprises a total area of 23.6
square
kilometres consisting of Macau Peninsula, Taipa Island and Coloane Island. The
estimated total population was 435,000 in 2000.
Just 60 kilometres opposite
Macau, on the eastern side of the Pearl River Estuary, is the Special
Administrative Region (SAR) of
Hong Kong (see Huang Han Qiang and Wu Zhi Liang,
Macau Overview (1996)). Like Hong Kong, Macau recently returned to China
and became a Special Administration Region on 20 December
1999.
[2] The gambling franchise
was granted to the STDM in Mr Stanley Ho Hung Sun’s name at a price of
MOP$3 million in 1962. In 1999,
the STDM had a registered equity capital of
MOP$80 million and paid 31.8% of its annual income as taxes to the government.
According
to Article No 1 in the Contract of Exclusive Concession of
Gaming (Boletim Oficial de Macau [1962] 21) and all revised versions
(Contract of Exclusive Concession of Gaming 1998), the STDM must observe
the regime of exclusive concession in operating the gambling industry in Macau
(MOP stands for Macao Patacas which is the legal tender in Macau: US$1 =
MOP$8.034 approximately).
[3]
Major infrastructure projects funded by the STDM include the New Maritime Ferry
Terminal, International Airport, Deep-water Port,
New Macau-Taipa Bridge, and
reclamation and development in Praia Grande
Bay.
[4] Craig A Zendzian, Who
Pays? Casino Gambling, Hidden Interests, and Organized Crime (1993)
13.
[5] By “Casino
State” I mean to imply a state or jurisdiction where casino gambling has
been legalized and that government
revenues depend excessively on the gambling
industry. Since 1988 more than 30% of the Macau government’s revenue has
been
derived from gambling taxes. In 1998 and 1999, gambling taxes contributed
almost half of total government revenue (Macau Monetary and Foreign Exchange
Authority Annual Report
1990-1998).
[6] Contract
of Exclusive Concession of Gaming (Boletim Oficial de Macau [1962]
21) and all revised versions (Contract of Exclusive Concession of Gaming
1998).
[7] Since a gambler can
choose to be the banker or player in baccarat, this game seems to be the fairest
game. The casino merely acts
as a “referee” who takes only a small
commission from each game. The “hold”, the percentage of total bets
that the operator takes, is merely 2.5% in baccarat. It is much lower as
compared to 18% of total bets for horse racing in Hong
Kong. In other words,
the casino takes a commission of 5% on bets on the banker if the banker wins and
takes no commission on bets
on the player if the player wins. As the commission
is drawn from the banker only, the rules of the game seem to give a little
advantage
to the banker for compensation. Because of its fairness and small
percentage of hold, baccarat has become the most popular game
in Macau casinos.
‘From 1977 to 1985, measured by the gross revenue derived from each game,
baccarat has increased its share
from 37% to 65%’ (A Pinho,
‘Gambling in Macau’ (1991) Macau: City of Commerce and
Culture 245-257, 251).
[8]
Triads, also known as Hung Mun, Heaven and Earth Association, Sam Hop
Wui or Black Society, are often portrayed as violent, dangerous, unlawful
and well-organized underground organizations. James Main (‘The
Truth
About Triads’ 1991 7[2] Policing 144-163, 144) claimed that
‘The word Triad conjures up visions of a worldwide organized crime
network, centered in Hong Kong, masterminded
by a single all-powerful entity,
with tentacles embracing Chinese communities around the globe and with probing
fingers in virtually
every criminal pie.’ There are many myths about
triads as they are often seen as Chinese organized crime. Also see Che W
K,
‘The Triad Societies in Hong Kong in the 1990’s’ (1990) 14(4)
Police Studies 151-153; Chin Ko-Lin, Chinese subculture and
Criminality: Non-traditional Crime Groups in America (1990); Chin Ko-Lin,
‘Triad Societies in Hong Kong’ (1995) 1(1) Transnational
Organized Crime 47-64; Martin Booth, The Triads: The Chinese Criminal
Fraternity (1990); Mak Lau Fong, The Sociology of Secret Societies: A
Study of Chinese Secret Societies in Singapore and Peninsular Malaysia
(1981); W P Morgan, Triad Societies in Hong Kong [1962]
(1989).
[9] The gambling room
operator will get approximately 1.6% of the total amount of “dead”
chips bought as commission from
the STDM. He will distribute this commission to
the account owners, then to the “bate-ficha” teams. The chip
rollers
will usually get HK$600 to HK$800 as commission for every HK$10,000 of
“dead” chips rolled. Thus the income of the account
owners and chip
rollers depends on the number of customers and the amount of “dead”
chips that their customers gamble.
This means that if they are able to get more
customers, their income will increase, ranging from a few ten thousands to over
a hundred
thousand dollars per month.
[10] A cartel is an association
of producers in an industry that agree to set common prices and output quotas to
prevent competition
(Roger LeRoy Miller, Economics Today [1997]
538).
[11] At times, especially
during the Asian Financial Crisis in 1997, when their business was not good,
chip rollers will exchange “dead”
chips at a discount, for example,
HK$9,000 or HK$9,500 cash for HK$10,000 worth of “dead” chips, so as
to get more customers
to absorb the “dead” chips as much as
possible.
[12] High rollers
refer to those people who usually gamble in the high-stake gambling rooms and
gamble with a substantial amount of money
on every bet.
[13] See Rufus King,
Gambling and Organized Crime
(1969).
[14] See Jermone H
Skolnick, ‘A Zoning Merit Model for Casino Gambling’ (1984) 474
American Academy of Political and Social Science
48-60.
[15] See Zendzian,
above n 4, for details.
[16] A
‘black market’ is a market in which goods are traded at prices above
their legal maximum prices or in which illegal
goods are sold (Miller, above n
10, 81). This market occurs when there is a shortage or excess supply and the
implicit price is
either higher or lower than the equilibrium price. Thus, a
‘black market’ is not properly governed and is highly competitive,
risky and unpredictable.
[17]
According to the Penal Code of Macau 1995 (Article No. 219), a lender
with intent to obtain interest in property for himself or a third party, by
using means of the borrower’s
financial hardship, mental disorder,
disability, non-skill, inexperience, personality weakness, or dependence on the
lender, to cause
the borrower in any circumstances to promise or to undertake
obligation, to give pecuniary interest to the lender or a third party
which is
not proportional to that received by the borrower according to the facts, may be
liable to imprisonment for a maximum of
three years. For the following
situations, the offender shall be sentenced to imprisonment for one to five
years: (a) living by
means of usury; (b) by way of bank draft or false contract
to cover up illegitimate pecuniary interest; and (c) causing the victim
to be in
financial hardship (translated by the
author).
[18] See Gambetta,
below n 19.
[19] In an
inscrutable market, not just the customers but the suppliers themselves cannot
discern which products are of good quality
or bad quality, thus it is often
difficult to make rational decisions. ‘Inscrutable commodities are
generally regarded as
sui generis, special realms of human activity
unsuitable for rational choice analysis. This is a reasonable attitude. It is
arduous for agents
to rank the alternatives on the basis of quality, thus they
have no rational way to decide whether to enter an exchange. Moreover,
the fact
that suppliers themselves are unsure about the quality of their services adds an
insurmountable impediment because there
is no way they can send honest signals
to customers helping them to make up their minds. There is no clear ground on
which the notion
of ‘honesty’ itself can be constructed’ (D
Gambetta, ‘Inscrutable Markets’ [1994] 6[3] Rationality and
Society 353-68, 354).
[20]
Ibid 354.
[21] In a situation
of inelastic demand, a 1 percent change in price causes a response of less than
a 1 percent change in the quantity
demanded. The most extreme inelastic demand
is perfectly inelastic; no matter what the price, the quantity demanded remains
the
same, so the price elasticity of demand is zero (Miller, above n 10,
443).
[22] Collective bargaining
means bargaining between the management of a company or of a group of companies
and the management of a union
or a group of unions for the purpose of setting a
mutually agreeable contract on wages, fringe benefits, and working conditions
for
all employees in all the unions involved (Ibid
629).
[23] The characteristics
of ‘monopolistic competition’ market structure include: (1) large
number of firms; (2) differentiated
products; (3) easy entry into the industry;
(4) an individual firm’s influence over price is moderate; and (5) each
firm undertakes
sales promotion and advertising (Ibid see Chapter
25).
[24] See D Gambetta and P
Reuter, ‘Conspiracy Among the Many: The Mafia in Legitimate
Industries’ in G Fiorentini and S
Peltzman (eds), The Economics of
Organized Crime (Cambridge, 1995)
116-139.
[25] Labor unions
refers to worker organizations that seek to secure economic improvements for
their members; they also seek to improve
the safety, healthy, and other benefits
(such as job security) of their members (Miller, above n 10,
629).
[26] Gambetta and Reuter,
above n 24, 117.
[27] See Chu Yiu Kong, The Triads as Business (Routledge, 2000).
[28] Gambetta, above n 19,
40
[29] See D Gambetta,
‘Fragments of an Economic Theory of Mafia’ (1988) 29 Archives
Europeennes de Sociologie 127-45; Gambetta, above n
19.
[30] The reasons for
‘economies of scale’ include specialization, dimensional factor, and
improved productive equipment.
When a firm operates at a larger scale, there
are more opportunities for specialization and better productive equipment, so
less
input is required for each unit of output. Thus, it is sometimes not
profitable for more than one firm to exist in an industry (Miller,
above n 10,
499-500 and Chapter 24). With one triad society monopolizing a particular
gambling room, there can be better distribution
of labour. The chip rollers can
become more specialized in their own tasks and have better control over their
customers. Besides,
by dominating all rooms, they can avoid triad
warfare.
[31] Gambetta, above n
19, 36.
[32] See Chu, above n
27.
[33] Some Judiciary Police
officers were reportedly recruited by the triads as bouncers in their gambling
rooms, some of them even became
bodyguards of the triads. A typical example was
the case of Artur Chiang Calderon. Calderon was a former Judiciary Police
officer
but he was forced out of the Force in 1997 because he was believed to be
the brains of the 14K triad society. In 1999, he was convicted
and sentenced to
ten years imprisonment for being part of the leadership of a triad society,
illegal possession of weapons and involvement
in a string of bomb attacks
(‘Brains of 14K Triad Jailed for 10 Years’, South China Morning
Post [Hong Kong Internet Edition], 26 November 1999).
[34] ‘as time shortens,
the temptation to prey grows. As with all dealers, if the future looks
uncertain, protectors will maximize
present over future income. They will be
more likely either to sell bogus protection or to charge extortionate prices for
it, or
both’ (Gambetta, above n 19,
33).
[35] “Broken Tooth
Wan” is the nickname of Wan Kuok-koi, an infamous triad leader in Macau.
He was suspected of involvement
in the car bombing of the Director of Macau
Judiciary Police on 1 May 1998. Thus, he was arrested in the same evening,
detained
and finally convicted of being a triad gang leader, money laundering,
loan sharking and telephone tapping and received the maximum
jail term of 15
years (‘Broken Tooth Jailed for 15 Years’, South China Morning
Post [Hong Kong Internet Edition], 24 November 1999).
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