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Saipan Casino saga moves towards second try

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Imperial Palace pieces are up for auction in Saipan. Muhammad Cohen writes that despite the failure of this project, casino gambling is still a goal for Saipan.

Imperial Pacific International’s Saipan Casino project, which began in the last decade, has carved a trail of destruction through the Commonwealth of Northern Marianas Islands. These tiny specks of US Pacific Territory are at least 4 hours flying distance from Asian markets.

Saipan, and the surrounding area is a ruinous place.

Imperial Palace Casino Hotel, which is now closed, has desecrated Saipan’s Garapan Beachfront, along with the destruction of dozens ancestral graves and fallen World War II Japanese and American fighters. One construction worker is also dead. Other victims of forced labor trafficking. Uncollected gambling bills of $3bn, $20m owed to creditor and more owing to CNMI officials. FBI raids have also been conducted on the Governor’s Office. Officials admitting wrongdoing in order to allow the casino.

A brutal legacy

Despite IPI’s brutal legacy many are willing to wager again on casino gambling in tropical climates and visa-free entrance for Chinese tourists as a way to help CNMI’s sputtering economy and cash strapped government.

A lawsuit filed by Glen Hunter, a businessman, led three lawmakers, including the future Governor Ralph Torres to admit that they violated CNMI’s Open Government Act in order to pass Saipan’s Casino Law without hearings and ignoring Saipan’s two referendums rejecting casinos. These lawmakers, as well as other elected officials, accepted luxurious trips to Macau or Hong Kong by IPI Associates.


What is match fixing?

It was an untrustworthy process, which was done behind closed doors to please a particular investor. Hunter, the owner of The Shack beachfront restaurant, believes that the entire bid process was a joke.

The sole licensee had been chosen and arranged well in advance. The corrupt officials had taken our elected representatives on private tours of Asia and wined them and dined them to gain their trust and win the license.

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

Ji Xiaobo is the “particular shareholder” of IPI, a Macau junket promoter who self-declares to be Macau’s first mainland China-led junket promoter. Ji Xiaobo and his partners acquired Hong Kong’s First Natural Foods and changed the name of Imperial Pacific International. Ji’s mother Cui Lijie became the majority shareholder. She was once one Mao Zedong’s barefoot physicians.


Upping the stakes

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

Ben lee, iGAmiX’s Ben lee, says that a $7bn project on an island of 43,000 people was not realistic.

Ben Lee, managing partner at iGamiX says that a $7bn project on an island of 43,000 people was not realistic. The market and the infrastructure in the area could never support such a project.

Hunter says that “these staggering numbers were presented for only one purpose – scare away any true casino investor.” No sensible investor in our area would agree to such an investment.


Bait & Switch

Hunter describes the opening of IPI’s casino at Garapan DFS mall in 2015 as “a lure and switch. IPI started reporting unimaginable VIP rolling chip numbers under former Sands China Macau President Mark Brown. Brown is a Trump Casinos alumni.

IPI’s VIP tables averaged 18 in 2017. Venetian Macao also reported $26.2bn in VIP volume for the same year on their 100+ VIP tables. IPI’s VIP operation lasted from the end of 2015 until its Covid-19 closure on 17 March 2020. During this time, IPI recorded VIP revenues and VIP rolls in excess US$100bn.

The figures are viewed with skepticism by many. 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 would be about the credit. 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 has reported a $3.3 billion revenue from VIPs, but its unpaid player debt is almost as high. 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 Boies Schiller Flexner partner, says that if you can’t come up with an explanation that makes sense, then you have a good chance that there’s something fishy going on. He explains this without knowing the specifics about IPI’s situation.

The fact that you have evidence of gambling does not mean the money was not illegal. 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 conversation with other lawyers, said that CNMI was exempt from US laws on money laundering because it is a commonwealth. Browne states, “Contrary of beliefs, Ji insisted that AML compliance was crucial to the operation.”


Jumping and shooting

Money laundering can however be made easier by a cooperative US financial institution such as a US casino. Saipan has the appearance of US regulations, but is less scrutinized due to its distance from Los Angeles – Saipan’s farther than London from Tokyo.

The trick to money laundering involves hopping, from one bank to another, from an illegitimate to more legitimate bank. Kucera suggests that funds sent from Saipan to the US could then be transferred to large US banks with strong compliance records, which are trusted by other banks in the world.

IPI is not charged with money laundering for casinos, even though the FBI searched its Saipan office in November 2019, as part of a larger operation which also included the search of the offices of a former governor Torres, an IPI advisor, and the law firm of his brother. Torres lost his November re-election campaign after being impeached and indicted for misusing public funds.


Palace coup

Browne, who was a consultant on Imperial Palace’s construction project, says that “the most critical error” of Imperial Palace is the fact that it placed friends, family and investors, with limited knowledge in construction, labour law or building codes, directly in charge of its development.

IPI has spent $1 billion on the 344-room unfinished hotel. In July 2017, the casino, which was designed to have 193 gaming tables and 365 slot machines, partially opened.

In August 2020, federal charges relating to human trafficking and forced labor were brought against IPI executives and the Saipan-based affiliate of China’s state-owned MCC International.

Aaron Halegua & Bruce Berline, attorneys at IPI & two construction firms won $ 6,9 million in judgments for 7 Chinese workers who had suffered burns, severed fingers and other injuries due to working conditions that were unhumane. They also received no medical attention.

Halegua: “We are very happy that the court recognized the seriousness of IPI’s misconduct and the pain it has caused to our clients.” But too many victims of forced labor only receive a piece paper. “We worked very hard to make sure that defendants pay the money ordered by the court. We are extremely pleased with the result.”


Unpaid Bills

IPI creditor numbers are still high. Clear Management’s senior partner Tim Shepherd, who is a member of the Clear Management team, has held four auctions on behalf of Imperial Palace creditors since late last year. A fifth one, scheduled for June 9, will be conducted by Tim Shepherd.

In previous auctions, furniture and chips were sold. The remaining items are up to 300 slots machines, closed-circuit TV components, various table gaming equipment, and perhaps two 60 metre long dragon chandeliers, each studded with over 2.5 million crystals, hanging from the Imperial Palace lobby.

The auction proceeds will not be enough to pay IPI’s creditors. IPI can try to recover 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, a liquidator must be convinced that debtors deserve to be pursued, that there is sufficient funding from IPI or another source to finance the pursuit, and that it would be in IPI’s creditor’s best interest.

Although gambling debts cannot be enforced in mainland China by law, the debtor may own assets that can be collected in another jurisdiction. Liquidators could sell debts to collection agencies for fractions of their face value.

IPI owes CNMI an annual license and regulatory fee of $18.65m plus penalties for 2020, 2021, and 2022. Hong Kong shares of IPI have been off the market since April 1, last year, with a last price 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 of the CNMI, says that “we’re told we will get more investors if we cancel our exclusive gaming license.” He proposes licensing three smaller casinos.

Ben Lee’s company, which operated the Club C Slot Parlour on Saipan says, “I conducted a feasibility study back in 2011, and I had advised the government in reality that a monopoly would not be in the best interest of the Island.” In his presentation to lawmakers a decade ago, he suggested that a minimum investment of $10 million was acceptable.

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 Japanese and Korean visitors. A $20m investment is the top of my list.

With a gambling licence, an entrepreneur can do amazing things

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, with a casino as an amenity, rather than a tourist-inducing fantasy, is best for staff.

Paul Steelman, architect at Imperial Palace, says that if an Asian Atlantis resort was built on Saipan it would be successful on the Chinese market only. He is referring to the beachfront hotel in the Bahamas with 3,800 rooms. With a gambling licence and entrepreneur, amazing things can occur.

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 would learn from each other.

Marissa Flores, Joel Camacho and John Paul Sablan were present at the lunch. Chairman Ralph Yumul was also there. They and Senator Corina Magofna were also individually addressed by me.

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

Yumul’s Committee held a YouTube-available press conference after receiving criticism over spending public money on a visit to Manila.

Flores used my credentials and name to state that she believed the Commonwealth Casino Commission was the main government perpetrator in the casino disaster on Saipan. The commission didn’t understand the implications of substandard regulations. There is no doubt that the current situation proves this.

It’s like blaming Lincoln’s murder on the play.

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

Flores was not alone in criticizing the Commission, and not the corrupt legislative processes that resulted in the licensing of IPI. The three members of the committee who were not in Manila at that time, Yumul Sablan, and Roman Benavente (who did travel) are all sitting lawmakers.

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 the only thing I can say.”

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

Muhammad Cohen, a former US diplomat who is currently iGB Asia’s editor-at-large, has been covering the Asian casino industry since 2006. He most recently covered it for Forbes. In 1997, he wrote Hong Kong On Air – a novel about television news, romance, betrayal and high finance.

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