Saipan Casino saga moves towards second attempt

Imperial Pacific International’s Saipan Casino project has ravaged the Commonwealth of Northern Marianas Islands over the last decade. This is a small patch of US Pacific Territory, at least four hours flying time away from Asian markets.

The site is littered with ruins, including the unfinished Imperial Palace Casino Hotel, which has been shuttered, and dozens of graves belonging to ancestors, as well as the remains of fallen Japanese and American World War II soldiers. A construction worker was killed and other victims were mangled by forced labour. Some $3 billion in uncollected gambling debts. Some $20m owed creditors and much more owing CNMI authorities. FBI raids at the Governor’s Office; and elected officials confessing to wrongdoing in order to allow the casino.

A brutal legacy

Despite IPI’s brutal legacy many are willing to bet that casino gambling in tropical weather, and visa-free entrance for Chinese tourists, can help CNMI’s teetering economic situation and cash-strapped Government.

A lawsuit filed by Glen Hunter, a businessman, led to the admission of three legislators including future Governor Ralph Torres that they violated CNMI’s Open Government Act in order to pass Saipan’s casino law without public hearings and ignored two Saipan referenda rejecting casinos. These lawmakers and other elected representatives accepted luxury trips to Macau and Hong Kong by IPI associates.

Match fixing

“It was an untrustworthy process, which was done behind closed doors to please one investor.” Hunter, owner at The Shack beachfront restaurant, believes that the entire bidding process has been a farce.

The sole licensee had been chosen and arranged well in advance of the bid process. They took our elected officials on private trips to Asia and wined and dined them in order to gain their trust and win the license through corruption.

In an email he continues, “We’ve learned some very hard lessons …. If done correctly, I believe a true casino owner or investor could run a successful casino in the CNMI.”

Ji Xiaobo is the “special investor” behind IPI. He was a former executive at Hengsheng Group and Macau’s first mainland China-led junket promoter. Ji Xiaobo and his associates bought Hong Kong-listed First Natural Foods and changed the name to Imperial Pacific International. Ji’s mother Cui Lijie, formerly one of Mao Zedong’s barefoot physicians, became the majority shareholder.

Upping the ante

IPI, which won the license requiring $2bn in investment and 2,000 hotel rooms, announced a $7.1bn plan for 4,000 rooms. This included a beachfront resort on Garapan’s Cotai Strip and a tropical Pacific version.

Ben Lee, managing partner at iGamiX, says that a $7bn project on an island of 43,000 people was never realistic. The market and local infrastructure couldn’t support such a huge project.

Hunter says that “these staggering figures were presented for only one purpose – to scare away any real casino investors.” “No sensible investor in our area would ever accept that type of investment.”

“Bait and Switch”

Hunter claims that in 2015, IPI opened up a casino at Garapan’s DFS mall, which catered to tourists. This was “a bait-and-switch”, Hunter says. IPI started reporting astronomical VIP rolling chip numbers under former Sands China Macau President Mark Brown, an alumnus of Trump Casinos.

IPI reported VIP volumes of $49.5bn in 2017 on average 18 tables. Venetian Macao also reported $26.2 billion in VIP volume for the same year on their 100+ VIP tables. IPI reported a VIP revenue of $3.3 billion and a VIP roll exceeding US$100 billion from the end of 2015 until its Covid closure on March 17, 2020.

Many are skeptical. It’s hard for people outside Saipan to accept the figures because they are so absurdly high. For those who witnessed it firsthand, the experience was real. Donald Browne, former CEO of IPI Saipan tells iGB that the incident was “mind-boggling but real”.

If there’s any doubt, it should come from the credit side. We had no idea about the ability of customers to pay back the debt because all credit approvals were made by the corporate office.

Deadbeat VIPs

IPI’s reported VIP revenue of $3.3 billion is almost exactly matched by its uncollected debt from players. John Kucera is the lead US prosecutor for 1MDB Malaysian sovereign fund. He believes that uncollected VIP credit far exceeds industry standards and suggests money laundering.

Kucera, who is now a partner with Boies Schiller Flexner and does not know the specifics of IPI’s situation, says: “If you can’t come up with an explanation that makes sense as a business, then you have a pretty good indication that there’s something fishy going on.”

The fact that you can show actual gambling does not mean that there was no illicit money involved. You’ve still laundered the money, whether you win or lose.

Saipan, as a US territory has stricter anti-money laundering regulations than most other jurisdictions. Ji, in a group discussion, said that he, like some lawyers, believed the CNMI was exempt from US laws on money laundering because of its commonwealth status. Browne states, “Contrary of beliefs, Ji was very insistent that AML compliance was critical to the operations.”)

Shooting & hopping

Money laundering can however be made easier by a cooperative US financial institution such as a US casino. Kucera says that Saipan with its patina, which is a combination of US regulations, but less scrutiny because it is so far away from Los Angeles, and diligence is the ideal place to “shoot” the gap.

The trick to money laundering is to hop from one bank to another, from one less or more legitimate to another more legitimate. Kucera suggests that funds from Saipan can be sent first to a smaller onshore US-based bank, then to a larger US-based bank with a strong compliance reputation on which banks from around the world can rely.

IPI is not charged with money laundering for casinos, despite the fact that the FBI searched the Saipan office of IPI, the former Governor Torres, and the law firm of his brother in November 2019. Torres lost his re-election bid in November after being impeached and then indicted for misusing government money.

Palace coup

Browne, who was a consultant on Imperial Palace’s construction project, says that “the most critical mistake” was the fact that the company assumed too much responsibility and involved family members, friends, and investors without any knowledge of building codes, labour laws, or construction directly in the development of the Imperial Palace. Construction began in 2015.

IPI has spent $1bn on the hotel’s unfinished 344 rooms. The casino, which was designed to accommodate 193 tables and 366 machines, partially opened in July 2017

In August 2020, federal charges were brought against IPI executives and the Saipan-based affiliate of China’s state-owned construction company MCC International. The charges concerned forced labour and trafficking in humans.

Aaron Halegua & Bruce Beline, attorneys, won judgments totaling $ 6,9 Million from IPI & two construction companies on behalf of seven Chinese workers who suffered burns, severed fingers and other serious injuries while working in inhumane conditions – and were denied medical treatment.

Halegua: “We were delighted when the court acknowledged the egregiousness and severity of IPI’s conduct, as well as the suffering caused to our clients.” “However too many victims of forced labour only receive a piece paper.” We have worked very hard to make sure that the defendants pay the money awarded by a court. We are extremely pleased with the result.

Unpaid Bills

Many IPI creditor remain unpaid. Fortuna Investments Worldwide’s senior partner Tim Shepherd, has been conducting court-approved auctions on behalf of Imperial Palace creditors since late last year. A fifth is scheduled for June 9th.

In previous auctions, furniture and chips were sold. The remaining items include 170 slot machines and closed circuit television components. Sundry table gaming equipment and sundry table games are also available.

The auction proceeds will not cover the debts IPI has to creditors. IPI can try to collect unpaid gaming debts by contacting VIP players.

Still unpaid debt

Kingsley Ong is a bankruptcy lawyer with CMS Cameron McKenna, and he says that the liquidator of IPI can pursue anyone who owes IPI money. Before pursuing debts, the IPI liquidator must be convinced that the debtors deserve to be pursued, that there are enough resources from IPI or other sources available to fund the pursuit and that it is in the best interest of IPI creditors.

Although gambling debts cannot be enforced in mainland China, the debtor may have assets located in other countries where they can be collected. Liquidators could sell the debt to collection agencies for a fraction its value.

IPI owes CNMI an annual casino license and regulatory fees totaling $18,65m plus penalties for 2020, 2021, and 2022. Hong Kong shares of IPI have been off the market since 1 April, with the price at which they were last traded being less than one US cent. IPI could not be contacted.

License to Kill

CNMI legislators are urging Commonwealth Casino Commission (CCC) to cancel IPI’s exclusive license. Joel Camacho, a representative from the CNMI, says: “We were told to get rid of our exclusive gaming license and we would attract investors.” He suggests that three small casinos be licensed.

Ben Lee, who owned the Club C slot parlor on Saipan says, “I conducted a preliminary study in 2011, and I had advised the government in fact that a monopoly would not be in the best interest of the Island.” In his presentation to lawmakers a decade ago, he suggested a minimum investment of $10 million.

Shaun McCamley of EuroPacificAsia Consulting, a former executive at Tinian Dynasty Casino on Saipan’s neighboring Island, believes that Saipan is a potential market due to the Japanese, Korean, and Chinese markets who visit the island. A $20m investment is the top of my list.

Amazing things can happen when you combine a gaming license with an entrepreneur.

Scott Fisher, managing partner of Convergence Strategy Group, who has consulted on CNMI projects, believes that a property “similar to a casino-hotel in the southern Caribbean or Puerto Rico, where casino is an amenity and not a tourist-inducing fantasy,” would be easiest to staff.

Imperial Palace architect Paul Steelman, who is referring to the beachfront resort with 3,800 rooms in the Bahamas, says that if an Asian Atlantis were built on Saipan it would be successful on the Chinese market only. With a gaming license and an entrepreneur, amazing things can happen.

The best of both worlds.

Citing Muhammad Cohen

Since 2014, I have covered the Saipan Casino saga. When I met with five CNMI lawmakers in Manila in March at the ASEAN Gaming Summit, I hoped that we could share our experiences.

I had a lunch off-the-record with four representatives from the CNMI House Ways and Means & Gaming Committee: Chairman Ralph Yumul and Marissa Flores. I spoke with each of them individually, as well as Senator Corina Magofna.

After that, I sent them an email asking for their comments on this article. No one replied. None responded.

Yumul’s Committee held a Press Conference on YouTube after receiving criticism for using public funds to travel to Manila.

Flores invoked both my name and credentials in order to express her belief that the Commonwealth Casino Commission is the main government perpetrator of the casino disaster on Saipan. “The Commonwealth Casino Commission did not realize the implications of implementing substandard regulation.” There is no doubt that the current situation is proof of this.

“Like blaming Lincoln’s assassination for the play.”

Tim Shepherd, senior partner at Fortuna Investments Worldwide, has been dealing with regulators in Asia for over 20 years. He also consulted on the CNMI casino Tinian Diamond project that is due to open later this year. He describes the CNMI Commission as “a professional, responsible regulator.”

Flores was not alone in criticizing the commission and not the corrupt legislative processes that led to the licensing of IPI in 2014. The three members of the committee who were not in Manila at that time, Yumul Sablan, and Roman Benavente – all sitting legislators – echoed Flores’ criticisms, blaming only the corrupt legislative process which led to IPI being licensed in 2014.

During the Press Conference, a reporter inquired if Muhammad Cohen had any suggestions for what CNMI could do. “He believes that at the time, the CNMI made a huge, major mistake in poorly regulating this industry. That’s all I can say.”

My email response to Flores: “To put the record straight, I think blaming Casino Commission for the IPI problems is like blaming Abraham Lincoln’s murder on the play.”