The latest report from the U.S. Congressional-Executive Commission on China says American gaming experts should provide technical training and assistance to Macau authorities. One wonders “what for?”

The 2011 Annual Report of the U.S. Congressional-Executive Commission on China, released last month, has garnered rather more media attention than it deserves. Its findings and recommendations are almost entirely predictable, given the commission’s legislative mandate to monitor and report on human rights and the development of the rule of law in China.

The chairman of the commission is a 16th-term Republican, congressman Chris Smith, from, wait for it, New Jersey, the state that famously found Pansy Ho Chiu King to be an unsuitable associate of MGM Resorts International.

Notable amongst the legislation he has this year introduced to the U.S. House of Representatives is a bill called the “China Democracy Promotion Act of 2011”, a bill which appears to have little to do with democracy, since its primary aim is to deny entry to the United States of senior leadership of the People’s Republic of China and individuals who may have been involved in human rights abuses in the mainland.

While Macau only attracts a few pages of findings in the U.S. Congressional-Executive Commission on China’s report – mainly the recycled view of others, not the product of the commission’s own research – they are, of course, adverse. No surprises there.

One recommendation is, however, a surprise: it entreats the U.S. government to “arrange for regulatory experts from states with gaming industries, such as Nevada, to provide technical training and assistance to Macau authorities on how to control criminal activity, and ensure that U.S. casino owners and operators in Macau are adhering to the highest standards for the gaming industry.”

This recommendation is founded, in part, on a view that Macau is more corrupt now than in the recent past. The evidence for that is said to lie in the fact that Macau has dropped from 43rd to 46th place on the Corruption Perceptions Index, published annually by Transparency International.

What the report does not say is that in the same period as Macau’s ranking declined, so too did that of the United States, from 19th to 22nd. In fact, the United States has been trending in the direction of the more corrupt end of the scale since 2001, when it ranked 16th.

What the report also fails to say is that the index measures only perceived public sector corruption; it does not extend to the private sector. The index is therefore not necessarily reflective of corruption across the board.

Simply the best?

Congressman Smith’s home state experienced something of an epiphany this year, when it realized that its cherished gaming regulatory system was not only hugely expensive to administer, but was significantly unfriendly to business.

Actually, the two factors were related, since fines imposed on licensees by the Casino Control Commission in part funded the New Jersey regulatory machinery.

Hence, justice was rarely tempered with mercy.

I was a guest of the New Jersey Casino Control Commission some years ago and attended a hearing in Atlantic City, in the course of which a casino licensee was fined US$25,000 (MOP200,000) for being a day late with a tax payment, a delay resulting from a change of its banking arrangements, rather than a wilful disregard of its obligations.

Earlier this year, the functions of the Casino Control Commission were largely transferred to the Division of Gaming Enforcement, and significant amendments were made to New Jersey’s gaming law to make it more competitive and business-friendly.

This recommendation for the need of U.S. gaming experts to provide technical training and assistance to Macau authorities must also have come as a surprise to the International Masters of Gaming Law. The organisation last month bestowed the honour of “Regulator of the Year – Evolving Jurisdictions”, upon Manuel Joaquim das Neves, the director of the Gaming Inspection and Coordination Bureau, Macau’s gaming regulator.

The International Masters of Gaming Law membership comprises gaming regulators, attorneys and advisors from many jurisdictions, including U.S. states.

At the presentation of the “Regulator of the Year” awards, Mark Lipparelli, chair of the Nevada Gaming Control Board and winner of the corresponding award for the Americas, commented that Nevada also needs to reform its regulatory system, presumably to ensure that it reflects contemporary realities and achieves an appropriate balance between societal expectations and the business imperatives of industry participants.

Do your homework first

A more serious criticism of the U.S. Congressional-Executive Commission on China recommendation is that it is not internally consistent. It references Nevada as a source of expertise for technical training and assistance to “Macau authorities” on how to control criminal activity – so far, so good.

However, it goes on to imply that U.S. operators in Macau are not adhering to the highest standards for the gaming industry.

Was the commission not aware of the fact that Nevada is one jurisdiction which has foreign gaming provisions, applicable to its licensees, in its gaming law, the effect of which is to require such operations to be conducted in compliance with Nevada regulatory standards?

Why do Macau authorities need to concern themselves with the adoption of other jurisdictions’ standards, the implementation of which might relieve Nevada of having to do its job of enforcing the foreign gaming operating provisions of its law? Moreover, why is it assumed that “the highest standards for the gaming industry” are those operating in Nevada or anywhere else in the United States?

A reasonable argument could be made that the “highest standards” are now those observed in Singapore or Australian states, which have developed eclectic regulatory models specifically adapted to those jurisdictions.

It is 10 short years since Macau dismantled the STDM gaming monopoly. There are still gaps in the legislative framework by which gaming is regulated but it does not necessarily follow that gaming is unregulated or even poorly regulated.

It simply means that the regulatory system which has evolved to date is specific to the needs of Macau and takes account of societal and government expectations, the history of the industry and its evolution and wider parallel developments in corporate and prudential regulation.

Macau has not had a Lehman Brothers, an Enron, Global Crossing, Tyco, WorldCom, Dot-com bubble, savings and loans crisis or gubernatorial scandal or any systemic regulatory failure to contend with or influence its thinking.

It is getting on with the business of responsibly developing a sustainable industry, which just happens to be by far the largest on the planet. It deserves some respect, especially from the occupants of glasshouses.

David Green Gaming consultant, Newpage Consulting