Unprecedented November 7 US Federal Bureau of Investigation raids on the Saipan office of the Hong Kong-listed gaming company Imperial Pacific International Holdings and the office of Governor Ralph Torres have put a shadow over the role of the island as a gambling haven for cash-flush Chinese high rollers.

Saipan, a tiny island about double the size of Manhattan, became a US territory after a 45-day battle between US and Japanese forces during World War II that took the lives of 50,000 soldiers and civilians on both sides. It has become a visa-free destination for Chinese gamblers far from the prying eyes of authorities. According to a 2016 Forbes report, each VIP table in Saipan is generating a daily average of US$5.6 million in bets, four times Macau's average during its high-roller heyday. Imperial Pacific estimated at the time that each of its 100-odd VIP visitors bet an average of US$27 million.

“The main significance is that as the FBI has been investigating Imperial Pacific for some time, they have possibly found some serious irregularities in past dealings,” said Eric Coskun, director of casino projects at IGamiX, a Macau gaming consultancy.

This is the first time the authorities have raided both the Imperial Pacific offices and the office of the governor of the Northern Mariana Islands, a US commonwealth that covers 14 islands including Guam. The FBI also raided other facilities including a local law firm Torres Brothers, according to local media reports. Torres previously worked as a lawyer at Torres Brothers, which he owns along with his brother Jack.

The Hong Kong-listed firm announced on November 7 that its office in Saipan “assisted in an investigation at the request of local enforcement authorities,” and provided information and documentation to the authorities. Imperial Pacific said the investigation has not affected its operations. Governor Torres’ office confirmed on the same day that FBI investigators searched the office. In a statement, Torres said he was giving the “fullest cooperation” to the investigation.

The FBI has not given reasons for its investigations. Imperial Pacific has long been linked to the territory’s governor in various ways including land sales, said Dane Chamorro, a Singapore-based senior partner at Control Risks, an international consultancy. For instance, Imperial Pacific announced on October 7 it had acquired 50 percent of two pieces of land with a total area of 129,687 square meters for US$23.65 million.

In August 2014 when Eulogia Inos was the territory’s governor, Imperial Pacific gained a 25-year license to build and operate a casino. Imperial Pacific pays US$15 million per year for the gaming license and no gambling taxes.

“This kind of deal had never been seen before in the entire Asia Pacific region,” Coskun said.

The company has the sole license to operate the only full-fledged casino in Saipan and is one of the biggest taxpayers in the territory. Recent huge losses by Imperial Pacific have had a drastic impact on Saipan’s economy, prompting the government to implement austerity measures, Coskun said.

In the first half of this year, Imperial Pacific suffered a net loss of HK$1.88 billion (US$240 million) compared to a net profit of HK$79 million in the first half of last year. The company’s revenue plunged 81.5 percent year-on-year to HK$399 million in the first half of this year. Most of Imperial Pacific’s revenue came from the VIP gaming sector, which fell 87.5 percent year-on-year to HK$254.7 million in the first half of this year.

Although most or all VIP gamblers at Imperial Pacific’s casino in Saipan come from mainland China, it has also become an attraction for Filipino and other high-rollers. For example, Liu Lirong, founder of Gionee, a Chinese smartphone maker, disclosed he lost “a bit more than one billion yuan (US$142.7 million)” at Imperial Pacific’s casino. In an interview in November 2018 with the Securities Times, a Chinese newspaper, Liu admitted he might have used company assets to gamble at the casino.

“The dollar volumes cleared by Imperial Pacific on any given day were routinely multiples of what a large Macau casino would generate,” Chamorro said. That is an obvious red flag, raising the question whether large sums were laundered, which has been a focus of regulators and investigators for some time, he added.

The FBI raids and investigations throw into question a US$500 million loan from a Japanese company GCM. On May 15, Imperial Pacific announced GCM had agreed to lend US$500 million to Imperial Pacific’s integrated resort, of which at least US$100 million has been supplied. GCM did not reply to questions.

“Any company wishing to invest in offshore gaming in essentially unregulated jurisdictions like Saipan needs to be extremely cautious, as these facilities tend to attract large sums of black money,” said Chamorro.

Although there is no proof of money laundering in Imperial Pacific’s casino, Saipan has a history of money laundering. Bruce Aitken, an American expatriate in Hong Kong, wrote a book, “The Cleaner,” describing his experience laundering money through Saipan and Hong Kong during the 1980s.

America's overseas territories including Saipan are generally badly run places from a governance perspective, Chamorro added.

Construction of Imperial Pacific’s integrated resort started three years ago. The casino has been operational since July 2017, but the resort is not completed, plagued by labor troubles. It was also devastated by Typhoon Yuto in October of 2018, the strongest such storm ever to reach the island, with winds up to 215kph.

In April, the Northern Mariana District Court ordered Imperial Pacific and its subsidiary, Imperial Pacific International, to pay the US Department of Labor US$3.36 million for workers’ back wages and other penalties.

“Top level management is extremely inexperienced and there is no cohesive business plan nor strategy. Their inability to deliver a completed project within very generously extended timelines has created a white elephant,” said Coskun.

Chamorro said Imperial Pacific has tried to protect its image by hiring former senior US officials to its board. One of Imperial Pacific’s independent non-executive directors is Robert James Woolsey, who was CIA director from 1993 to 1995. There is no evidence of wrongdoing by Woolsey, who was under-secretary of the US Navy from 1977 to 1979.

Imperial Pacific did not answer further questions.

Toh Han Shih is a Singaporean writer in Hong Kong.

Asia Sentinel

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