Alvin Chau, Suncity’s boss, has been detained in Macau, the world’s richest gambling market. The Wenzhou government has requested Chau’s extradition in order to face a string of criminal charges in Zhejiang. The government claims that Chau orchestrated a cross-border illegal gambling syndicate and warranted issuing an order for his arrest this week.

Alvin Chau Topples an Industry

Alvin Chau is accused of making a fortune by organizing channels to allow the richest citizens of China to gamble from offshore and cross-border. This is illegal in China.

Macau, one of two SARs under the People’s Republic of China, is an autonomous area that follows China’s “one government, two system” policy. It is free and independent to set its own laws about gambling. China allows its citizens to visit Macau, but gambling is not allowed on the mainland.

The rule has been broken for decades by casinos partnering with VIP junkets groups like Chau’s Suncity. The casinos create private gaming rooms for trip organizers and manage them. The junkets will keep the VIP rooms busy for mainland high-rollers. In exchange, the casinos split some of the gaming revenue.

Junkets work in secret on the mainland to recruit such clients for Macau. They lure them in with free perks such private flights to Macau, and accommodations at five-star luxury resorts.

Macau detained Chau, in part, following its own investigation, according to a notice from the Special Administrative Region (SAR). It added, “The information by mainland authorities revealed that Chau allegedly set up a cross-border gambling syndicate that illegally organized Chinese residents to travel to VIP junkets overseen by Chau and located outside the mainland in order to take part in cross-border gambling. Such activities concerned a huge amount of capital, and seriously hamper the country’s management of social order.”

More Fallout Coming

According to JP Morgan analysts, the arrest warrant issued by Chinese authorities for Suncity Group CEO Alvin Chau, along with subsequent arrests of 11 other people related to the group, was “really bad” for Macau’s junket sector, but should have no long-term effects on city’s casino operators.

Analysts DS Kim, Amanda Cheng and Livy Liu write that the warrant for Chau is not only a confirmation that China’s crackdown on cross-border gambling does include Macau, but also a significant boost in enforcement activity. It was the first major crackdown of a junket’s senior management and couldn’t have found a bigger target. Suncity was responsible for 40%-45% of the junket market.

They wrote that most of the detentions and arrests from the past six years focused on agents and foot soldiers who carried out illegal operations. Being arrested “for just running the junket and doing what seems to us like very normal junket activities should send a chill down the spine of any and all junkets, in our view,” they added. “We wouldn’t be surprised to see junket VIP revenues immediately contract in the coming weeks, perhaps by 30% to 50% from current run-rates.”

Even the United Nations responded to the news, an indication of the magnitude of the ordeal. Jeremy Douglas, the Regional Representative of the United Nations Office on Drugs and Crime (UNODC) for Southeast Asia and the Pacific, stated, “Chau’s arrest warrant is no doubt sending shockwaves through organized crime in Hong Kong and Macau, but also Cambodia, Laos, and the Philippines.”