In the shade of Panama

As a researcher of gaming law and a visiting professor at the University of Macau Jorge Alexandre Fernandes Godinho has a vast knowledge of Macau’s legal system, obtained through five years with the Monetary Authority of Macau (AMCM) and 20 years research into Criminal Law, International Law and European Criminal Law (in particular money laundering, confiscation, asset freezing and detection mechanisms). In an interview with Business Daily, Godinho avers Macau has made important steps in improving transparency in its financial system but that the city can never guarantee that money laundering and offshore dealings never occur here.
The recent Panama Papers scandal revealed the existence of 22 beneficiaries and 233 shareholders in offshore accounts established by Mossack Fonseca. Where does Macau find itself in this web of offshore banking and money laundering?
The main question is whether Macau should be considered an offshore jurisdiction. Are we in that league? Macau has some characteristics of offshore havens – such as a low level of income tax, but ‘full’ tax havens don’t even have income taxes. In any event, Macau’s tax base is the gross gaming revenue of casinos.
Is there any industry in Macau that you consider as having a larger prevalence of offshore account use?
These revelations by Mossack Fonseca from my perspective are nothing new. Everybody knows about offshore arrangements. It was already on the radar of institutions dealing with international money flows and globalisation. We have known for many years that certain jurisdictions have excessive levels of confidentiality and allow corporate structures to have a nominee board of directors and shareholders, with the real beneficiaries hidden behind.
This can serve many different purposes and the biggest problem internationally is in terms of legislation to prevent organised crime, money laundering, corruption, etc. For that, many efforts
have been made in the last years – such as those by the Financial Action Task Force, an international group that in 2000 started to issue a ‘blacklist’ of non-cooperative countries and jurisdictions, especially those offering offshore banking. After those lists were published many of the countries that were named and shamed rushed to change their laws and correct their systems, but after September 11 world attention shifted to terrorist financing. It is a pendular movement, and we are now coming back to offshore financial centres.
What has the Macau Administration done to try and improve transparency in the local economy?
In fact, Macau has made efforts in the last years to distance itself from the offshore jurisdictions group; it abolished bearer shares, for example, with an amendment to the Commercial Code last year. The justification provided for this at the time was exactly the issue we are discussing now: to create a more transparent system. Other steps are information sharing with the European Union on tax matters.
Therefore, should Macau worry about the Panama Papers? I think in global terms maybe not. Of course, there may be one or two local companies implicated in the scandal but that can happen
anywhere.
Do you believe the gaming industry has a role in offshore accounting or money laundering?
Taxation is on the gross gaming revenue so there is no way to evade the tax bill. It is an aggressive system which checks revenue straight from the source from each table and slot machine, making sure that all is accounted for. This system is tailor-made to avoid any kind of tax evasion. If taxation was on company profits then you would have much more work; that’s why most jurisdictions tax the gross gaming revenue.
Of course, as in any sector, it is possible that cases of money laundering may occur. This can happen in gaming, banking and any other [industry]. No bank or casino can say with a straight face that there is no money laundering whatsoever going on in our company; that is impossible to guarantee!
There are millions of bank deposits, thousands of transactions every hour, and no bank can be 100 per cent sure it checks what every one of its clients is doing or what each transaction represents. The same thing happens in gaming, where thousands of people go to the casinos every day – it’s just the way things are.
So the real issue is whether the necessary steps to prevent money laundering are being taken, and whether the mechanisms required by the rules are in place?
In the case of Macau, yes, there is awareness, respect of international standards, training. Companies have compliance officers and they report suspicious transactions to the government, while [simultaneously] international teams have been evaluating Macau. In law there is a distinction between obligation of means and obligation of results. The latter is when someone is forced to guarantee a concrete result. In this matter we have an obligation of means; that is, an obligation to try our best to make sure that there is no money laundering. But nobody can guarantee that money laundering will never happen.
So would you say Macau has loopholes in the law that can be explored?
Well, some jurisdictions have serious loopholes – like the case that happened in the Philippines showed (with US$81 million being stolen in a cyber heist from the Bangladesh Central Bank and laundered in two casinos) because gaming there simply doesn’t have the regulations we just talked about. That is more than a loophole, it’s a huge omission. The truth is that no jurisdiction is 100 per cent in compliance with the very ambitious international standards of FATF (Financial Action Task Force). Another example is lawyers in the United States, who are simply not subject to anti-money laundering rules. Those of Macau are.
What could be changed in current gaming law?
At the moment we’re waiting to see what the direction for the industry is that the interim review will point to, and it will generate considerable debate for sure. Aside from that, the main
transformation that should happen is that the monopoly for sports betting should end. I’ve been saying for years that this monopoly no longer makes sense. At a time in which the revenue from casinos is decreasing, the revenue from sports betting could increase considerably.
What kind of impact will the Panama Papers leak have on the future?
They definitely are having quite an impact now. It’s a bit sad that sometimes we need a big scandal to make things happen. Especially because we have known about these issues for a long
time. Whether there will be a long-lasting impact remains to be seen but for now it’s too early to tell. In one or two years from now, after the dust has settled and when this matter is out of the public eye, we’ll be able to see whether something significant has actually been done. The media sometimes focuses on a topic and that’s all people talk about for a while until it disappears.
It seems the ICIJ (International Consortium of Investigative Journalists) will make more revelations about the Macau companies involved. Honestly, I don’t like the way the media has been revealing the information drop by drop. In Portugal, we feel like every week there’s going to be blood. One week it’s the Banco Espirito Santo Case (the Panama Papers showed Mossack Fonseca helped managers of the Portuguese bank maintain 300 offshore companies ), another week it’s another. It bothers me a bit.
It’s understandable to give a chance to those involved to comment but I also believe that if the media keeps [revealing] news about the Panama Papers every month, people will lose interest.
Offshore legality
At what point does offshore go from legal to illegal?
Let’s not forget there are legal uses for offshore [accounts]. It’s important to understand that these confidentiality issues come [from] way back and are part of history. It all started in Switzerland and then everybody followed suit; and why did bank confidentiality start in Switzerland? Because people were hiding money from the Nazis, which is a cause that I think we can all sympathise with. If there’s a criminal government committing crimes, [it’s] much worse than with asset seizing, people will have a way to protect their money. The problem is [when] that practice evolves to other uses, where multinationals are the ones that know the best way to manage the system, placing a company in a different jurisdiction, getting revenue from another jurisdiction, placing factories in another.
It’s a problem of social justice, something a lot of left-wing political parties have been talking about a lot because for a low-wage worker [he or she] doesn’t have any way of avoiding taxes [or] in the Portugal situation – pays his taxes to the last cent and if he misses something the IRS is right on top of him. I’m not even talking about legality here but about social justice – which is the force behind the indignation around the Panama Papers case – regarding the way that the wage gap is becoming increasingly bigger worldwide; it’s scandalous to see the difference of treatment by authorities when it comes to paying taxes between bigger companies and individual workers.