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Queensland University of Technology Law and Justice Journal

Queesland University of Technology Law and Justice Journal (QUTLJJ)
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Leong, Angela Veng Mei --- "The 'Bate-Ficha' Business and Triads in Macau Casinos" [2002] QUTLawJJl 5; (2002) 2(1) Queensland University of Technology Law and Justice Journal 83

The “Bate-Ficha” Business And Triads In Macau Casinos


I Introduction

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.

II “Dead” Chips System and Gambling Rooms

A The “Dead” Chips System

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.

B The Arrangement of Gambling Rooms

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.

C The “Bate-Ficha” Business

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.

III Triad Involvement in 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:

A As Bouncers or Protectors in the Gambling Rooms

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.

B Dispute Settlement

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.

C Massive Consumption of “Dead” Chips

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.

D Forced Exchange

“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.

E Loan Sharking

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.

IV Casinos and Triads – Operational Symbiosis

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.

V Conclusion

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.

VI Figure 1: The Pyramid Structure of the ‘Bate-Ficha’ Business in Macau


[*] B Soc Sc, MPhil, Research Assistant, Centre for Criminology, The University of Hong Kong, Pakfulam Road, Hong Kong ( 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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