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Macau Gaming Law Series Part 12: Overly Broad Suitability Checks Will Dilute Their Effectiveness

Welcome to the twelfth in a series of articles on Macau Gambling Law AGI publishes throughout March and early April:

Suitability requirements are a long-established part of casino gaming industry regulation worldwide. Having a misfit operator or a misfit person wield executive power within an operator potentially creates a wide range of undesirable outcomes ranging from negative social consequences such as a high prevalence of problem gambling to tolerance of criminal behavior outright, such as loan sharking, money laundering and even violent.

The “right” kind of people should make management decisions in casinos. These individuals – sometimes referred to as “fit for the job” – must have relatively clean experience and the skills and reputation required to conduct the activity in a fair and sound manner acceptable to the regulator and government. In another world, they should be “appropriate”.

We recently saw Crown Resorts deemed unfit to hold a casino license in Sydney, Melbourne and Perth – albeit with two-year grace periods in Melbourne and Perth given to the company to muddle through and return to the adequacy, and an indefinite period of time for the same hardening process to occur in Sydney. In the past, some people with criminal or disreputable backgrounds have been turned down for key positions with a casino operator.

No one disputes that fitness requirements are appropriate measures. The only question that arises from time to time is “how far should it go?” While it is clear that any casino licensee or concession holder should be subject to a suitability requirement, which of that company’s employees, partners and related entities should also be subject to such a requirement, and which are not. shouldn’t?

This question has generally been at least partially answered by defining certain “key employees” who are subject to suitability requirements. Article 14.5 of the Macau Gaming Law establishes the entities subject to adequacy reviews during the term of concessions:

  • Dealerships;
  • Shareholders holding 5% or more of the concessionaire’s share capital, their directors and their main employees;
  • Management companies and their shareholders holding 5% or more of their share capital, their managers and their main employees;
  • Any employee of the concessionaire, shareholders who indirectly and alone or jointly hold 5% or more of the share capital of the concessionaire, persons and companies who cooperate with the concessionaire or are involved directly or indirectly in the operation of the gaming activities of any any way.

Of these, the most onerous by far is the requirement in Article 14.5.2 that “key employees” of shareholders who hold 5% or more of the concessionaire’s share capital must be subject to an ongoing requirement of aptitude. Article 2.7 of the law defines “key employees” as “members of the administrative bodies of companies, holders of positions in the bodies of companies, secretaries of companies, employees authorized to perform legal acts on behalf of the company under a power of attorney, and other employees authorized to perform acts relating to the management of personnel, finances or the company.

I would interpret this definition as the Board of Directors, the Executive Committee (headed by the CEO), the General Secretary, the General Counsel, any trustees and the heads of the HR, Finance and Operations departments (who would be part of the Executive Committee anyway). It doesn’t seem unreasonable that members of this group of senior executives working for the concessionaire itself should be subject to fitness, but does that make sense to 5% shareholders? These shareholders would likely include passive investors whose employees have little or nothing to do with the day-to-day operations of the dealership. Does it make sense that, say for example, the human resources manager of such a company, whose head office may be located on the other side of the planet, should be subject to a permanent aptitude requirement?

Instead of subjecting such remote individuals to an aptitude requirement, I would argue that Macau’s interests would be better served by focusing the resources available for aptitude exams on the key employees of the concessionaires themselves.

The next article in this series will be published in the next few days.