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Casino junket operators may not come under inland revenue net
View(s):By Kapila Bandara
Gambling promoters who entice ‘whales’, the VIPs who get regal pampering and millions in credit from casinos, may not fall under the tax net despite the proposed gambling regulator in Sri Lanka, the Central Bank of Sri Lanka has acknowledged.
A monitoring mechanism will be available under the gambling regulator is set up, a CBSL official told a panel of lawmakers this week, without explaining exactly what will be monitored — finances, junket operations, credit, money transactions, or all of that and more.
Having laboured for years, lawmakers who repeatedly claim credit for advocating regulation have produced a drab regulatory regime with loopholes, including that of money-laundering and allowing gambling promoters (junket operators), some of whom have been exposed for having underworld links in casino centres such as Macau and Australia.
The junket issue came up in the context of City of Dreams Sri Lanka casino opening in August, where Melco Resorts & Entertainment with a 20-year license are in a strategic partnership with John Keells Holdings.
A Financial Intelligence Unit official told the Committee on Public Finance this week that “the inland revenue mechanism, already the casinos are under their revenue collection structures, and of course going forward, whether the junket operators will be included in that revenue mechanism is yet to be seen’’.
But, he said, through Gambling Regulatory Authority bill, “once the regulatory authority is established it is very much within their purview to issue regulations and necessary directives’’.
He did not elaborate.
The bill was gazetted but regulations have not been published, yet.
Junket operators have come under scrutiny in various jurisdictions for crime links.
In Australia, recent reports show that Queensland sought an investigation into the links of Hong Kong jewellery company Chow Tai Fook with jailed junket operator Alvin Chau who operated Suncity, (the biggest junket operator in Macau once) listed in Hong Kong. Chau was jailed for 18 years for organised crime.
Junket operators work with agents who get commission from the principal for providing credit to high rollers and also collect debts. In the periphery, unlicensed players operate. Macau demands that junket operators “must obtain a valid license’’ and are prohibited from sharing revenue with casinos. A junket license costs 1.5m Macau pataca (roughly US$186,000). Junket operators are not allowed to issue credit. Only casinos can.
Sri Lanka’s proposed regulatory regime does not mention junkets licensing.
It also seemed from questioning that CBSL is being oddly seen as a watchdog for gambling and related issues. It has no such mandate. CBSL was asked if it was, “fully satisfied that the junket operators and others you know who bring money in and take money out will be monitored. Are you satisfied with the regulation?’’
The FIU official responded: “At the moment, I would not use the word satisfied because at the moment it’s a point to -point-based value transmission mechanism which we are not seeing. As you mentioned earlier, junket operators may be settling from their respective counterparts in their respective jurisdictions, but there is definitely value coming to Sri Lanka. Otherwise, their modus operandi won’t be of benefit to the local casinos.
“But, once the Gambling Regulatory Authority comes there is also a way to monitor this operation. At the moment, there is no mechanism to monitor. The only mechanism that (sic) established is within the fiscal policy department of the Ministry of Finance … that’s also for licensing purposes. There is no provision to enforce it even under the current casino regulations bill, (sic) Act of 2010.’’ He was referring to the Casino Business (Regulation) Act, No. 17 of 2010.
The FIU official also raised concerns about the Colombo Port City and cruise ships offering gambling.
“When the cruise ships arrive in Sri Lanka if they have casinos, that should be prevented from operating within the territorial limits of the water, (sic) err, Sri Lanka, otherwise local casinos will not have a necessity to operate. So that’s one of the other areas which is right now challenging and we hope to tackle that because that’s one of the key AML/CFT [Anti Money Laundering and Countering the Financing of Terrorism] loopholes that we have observed.’’
But a former finance minister interpreted this to mean a ban on luxury cruise ships. “You are telling them not to come?’’
The FIU official dismissed the suggestion and explained the 12-nautical mile rule applied internationally.
It is well known that within 12 nautical miles of land, vessels come under the laws of that country, beyond that, ships are governed by the laws of the country of registration. Even under the UK Gambling Act, the regulator does not have powers over vessels operating casinos in international waters.
In another odd exchange, the former finance minister repeatedly asked the CBSL if it builds up forex reserves using its profits, citing CBSL 2024 earnings.
The Governor, Dr Nandalal Weerasinghe, responded: “No.’’ He insisted that profits are a different thing and that reserves are built up through US dollar purchases in the market.
The former finance minister also suggested to the CBSL that it propose to the government to accept the Russian ruble for tourism, saying “Trump and Putin’ are best of friends’’ despite sanctions.
An official of the CBSL reminded him that “due to US sanctions it is not possible to transact with Russia’’.
Also, the FIU official said that “although those two persons may be the best of friends, still the US Treasury has issued what is known as US Office of Foreign Assets Control list of designated entities and individuals, under that, most of those entities which are involved in commerce in Russia are designated entities or individual and it’s still the case. If any commercial enterprise, including a bank enters into any custodian relationship if they are dealing with one of the sanctioned entities or individuals they will lose the privilege of entering into or transacting with US dollars and that will be a killer for all these banks, which carry out custodian relationship.’’
It is well known that, for example, US banks are prohibited from participating in the primary market for Russia’s non-ruble denominated bonds. The executive order was in 2019. In November last year, Ofac warned foreign jurisdictions and financial institutions about the sanctions risks of joining the Russian financial messaging system Sistema Peredachi Finansovykh Soobscheniy, an alternative to the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network.
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