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MACAU—Fueling the glittering casinos of the world's largest gambling center is an informal and largely unregulated financial system known as junkets.

Junket operators tap personal relationships reaching deep inside China to recruit gamblers, bring them to Macau, lend them money to bet with—and later handle the sometimes-messy business of debt collection. Junkets accounted for nearly two-thirds, or $30 billion, of Macau's casino revenue last year, government figures show, feeding high rollers into a city that generated seven times the gambling revenue of the Las Vegas Strip.

Now, the Macau junket system is under pressure. After annual growth as fast as 70% over the past decade, gambling revenue from junkets' high-roller customers has fallen in recent months as government corruption and money-laundering crackdowns slow the business and casinos fight for a bigger share of the gambling dollar.

Some junket companies—known simply as junkets here—are trying to adapt by becoming more transparent and businesslike, but they struggle against an image problem based in the junket business's historic ties to organized crime.

Macau has long relied on junkets to bring in VIP clients. China limits how much money people can take out of the mainland. The credit that junkets give those arriving in Macau is a way around that.

China also doesn't recognize gambling debts, making them legally unenforceable and undergirding an alternative loan system that relies on personal relationships for repayment.

Junkets act like banks in some ways—taking deposits and lending out their cash—but with special features. They arrange travel to and lodging in Macau, which is part of China but has its own laws. They have agents who both provide capital for the business and bring in customers. Inside casinos, junkets maintain their own tables and VIP rooms, earning commissions from casinos based on how much junket clients wager.

"It's a specialized form of shadow banking. I can't think of an industry that's directly comparable," says Stephen Green, a Hong Kong-based economist.

Charlie Choi says he started working for a junket in 1991 when he was 18 years old. He prowled the betting floors of the Lisboa casino with other middlemen, lending to gamblers, giving them tactical advice and partying with them till dawn in smoky casino VIP rooms rented by the junkets.

It was a dangerous business. Rival criminal organizations known as triads had bloody fights for control of the VIP rooms in the late 1990s. Mr. Choi says he fled to escape the violence in 1997 and returned to his hometown in southeast China. Triad violence involving junkets is less common now, with far fewer incidents reported, but alleged triad connections continue to turn up at times in court cases and government investigations.

Mr. Choi, who says he has never had anything to do with triads, returned to Macau in 2006 and found the business booming. The city had let in foreign casino operators such as American companies. The foreign companies were initially uncomfortable dealing with partners with checkered histories, say casino executives. But many eventually began to support junkets by lending to them. The result was to turbocharge the high-roller business.

Mr. Choi recalls a Shanghai man who made five or six trips a year to Macau and played three times a day for just one hour each session. He says he helped bankroll a $13 million, three-year winning streak by the gambler in the late 2000s, until one week he lost it all.

"Before, he was so talkative. That week, he didn't talk much," Mr. Choi says. The gambler dropped Mr. Choi as his junket agent, convinced he was unlucky.

Mr. Choi now is mainly an investor in junkets rather than an agent roaming the casino floor. He turned a $1.3 million investment made in a junket in February 2013 into $2.5 million by this July, records of the investment show.

Dressing in jeans by Dsquared2 and tailor-made shirts, he manages about 20 agents, all friends of his. Each has a credit line from Mr. Choi and uses it to bankroll about five gamblers. Mr. Choi trusts that his agents have vetted the clients and can collect any debts they run up.

His agents are among about 20,000 in Macau, according to Billy Ng, an analyst at Bank of America Merrill Lynch. It is easy to spot them roving the casinos with their man-purses stuffed with cash and chips for quick loans. Agents may carry tens of thousands of dollars, turning to investors such as Mr. Choi when they need even more to make a loan. Mr. Choi says the largest such quick loan he has financed was $13 million, which was repaid.

Those in the business say personal relationships are the best defense against bad debt—in fact, the only defense. Like informal lenders, some junkets use "physical force" at times to get paid back, says Sara Hsu of the State University of New York at New Paltz, who has studied Chinese informal financial networks. It is pointless to do formal asset checks or to ask gamblers to guarantee loans with property in China, junket operators say, because players can fake the paperwork or pledge the collateral more than once.

Anyway, the lightning pace of business leaves no time for formalities. After someone in China sends a text message alerting a junket of plans to come to Macau, "you might only have 10 minutes to make a decision" on whether to extend credit, one junket investor says.

While junkets are still a robust business, revenue from gamblers at Macau's VIP tables—most of whom are junket clients—was down an average of 16% in June, July and August from a year before, according to Daiwa Capital Markets. Overall gambling revenue in Macau also declined, but less, an average of 4.5%.

Junkets are getting squeezed by three forces: the U.S. and the Chinese governments, and the casinos themselves.

In China, a crackdown on corruption has made the rich wary of being seen betting millions at the baccarat tables and made it riskier for junkets to move money across the border for them. The pressure began in late 2012 when Chinese police detained backers of one of Macau's then-largest junkets on suspicion they had ties to Bo Xilai, a politician arrested in a high-profile case that year and later convicted of corruption and sentenced to life in prison.

"The anticorruption campaign has caused a lot tighter governance on the large amount of money leaving China," and "investors are hesitating to invest in the junket industry due to the situation," says Hoffman Ma, deputy chief executive of Macau's Ponte 16 casino.

American-based casino operators in Macau are also feeling pressure from U.S. law enforcement to prevent money laundering and in turn are pushing the Macau junkets for greater transparency.

And casinos have their own reasons for squeezing the junkets. Increasingly, casinos and junkets are both competing for the same clients. The commissions that casinos pay the junkets to bring in VIP gamblers are so high that the casinos clear only about a quarter as much profit on junket clients' bets, per dollar wagered, as on bets made by walk-in gamblers.

Some casinos are asking junkets for more information about their operations and clients, a move that casinos link to regulatory pressure but that junkets see as a way for casinos to build their own ties to affluent Chinese gamblers.

Getting as much profit as possible from each customer is important to casinos because Macau limits the number of gambling tables. At the start of this year, many casinos raised the minimum amount of business that junkets must bring in to retain their dedicated tables and VIP rooms, according to Kwok Chi Chung, president of a junket trade group. He says the minimum value of wagers rose 50% to HK$300 million ($38.7 million) a month for each gambling table. "It's quite difficult to maintain that," he says.

In a sign of a stricter regulatory climate, Las Vegas Sands Corp. LVS +2.94% Las Vegas Sands Corp. U.S.: NYSE ^$62.06 +1.77 +2.94% Sept. 26, 2014 11:57 am Volume (Delayed 15m) : 3.02M P/E Ratio 19.17 Market Cap $48.55 Billion Dividend Yield 3.21% Rev. per Employee $306,370 09/26/14 Stocks of Struggling Macau Cas... 09/25/14 Pro-Beijing Media Accuses Hong... 08/14/14 CIMB Takes Field Trip to Macau... More quote details and news » LVS in Your Value Your Change Short position last year paid $47 million to the U.S. government as part of a money-laundering settlement. Although the case was related to the U.S., not Macau, casino executives say they tried afterward to strengthen compliance globally. The Treasury's Financial Crimes Enforcement Network, or FinCEN, has also told casinos to improve their anti-money-laundering policies with respect to Macau junkets specifically.

One concern of regulators is that junkets don't do the same due diligence to screen out sketchy customers as U.S. rules require of banks and casinos. "The whole world has bought into the 'know your customer' requirement except Macau junkets," says Fred Gushin, a former New Jersey casino regulator now at consulting firm Spectrum Gaming Group.

Las Vegas Sands told junkets operating in its Macau casino to provide personal information about their clients earlier this year, according to Mr. Kwok and others familiar with the matter. Mr. Kwok says junkets refused because giving it away would hurt their businesses and violate a local data-privacy law. A spokesman for Sands says it didn't ask junkets to give it patron information but just to make sure they were collecting the data themselves.

Some casinos are trying to cut official ties with junket operatives who can't pass due-diligence reviews. MGM Resorts International MGM +1.43% MGM Resorts International U.S.: NYSE ^$22.71 +0.32 +1.43% Sept. 26, 2014 11:57 am Volume (Delayed 15m) : 2.24M P/E Ratio 78.90 Market Cap $10.99 Billion Dividend Yield N/A Rev. per Employee $165,116 09/16/14 Wynn Resorts Wins Bidding on $... 09/10/14 New Jersey Lets MGM Keep Half ... 09/10/14 Trump Entertainment Casino Ban... More quote details and news » MGM in Your Value Your Change Short position recently demanded that junket executives produce their Hong Kong police records, which are used by casinos for vetting their own staffs.

When Charles Heung, one of the most powerful figures in the junket business, didn't do so, MGM asked junket Suncity Group to remove him as a guarantor of MGM's loans to it, say people familiar with the matter. The junket did so, according to these people.

Suncity, Macau's largest junket, didn't respond to requests for comment. Neither did Mr. Heung, who has been identified by U.S. regulators, by Hong Kong police and in a 1992 U.S. Senate subcommittee report as a triad leader. He has denied being involved in organized crime.

In April, Las Vegas Sands blocked a company controlled by Mr. Heung from lending to a junket operating in one of Sands' Macau casinos, according to people familiar with the matter.

As for the third U.S. casino company in Macau, Wynn, it says Mr. Heung "isn't an identified principal in any Wynn junket."

Junkets aren't always helping themselves with their image. In April, a junket operator vanished while believed to owe various parties $1.3 billion. As the news spread, investors in his business rushed to casino counters hoping to get their money back. The incident caused a cash squeeze that forced some junkets to scale back or merge, and it discouraged investment in junkets, operators say.

Two months after this disappearance, a major shareholder in another junket was arrested in Macau for allegedly running an illegal sports-book operation. He posted bail and within weeks turned up in Las Vegas—where he was arrested on similar charges. In a complaint filed in U.S. District Court in Nevada, an FBI agent says the man, Phua Wei Seng, is known by law enforcement to be a high-ranking triad leader. His lawyer, David Chesnoff, denies he is. Mr. Phua has pleaded not guilty to the U.S. charges.

After the arrests, MGM asked the junket where Mr. Phua is a major shareholder, called Star888 Ltd., to vacate its VIP room in MGM's Macau casino, says a person familiar with the matter. No one at Star888 could be reached for comment.

While junket companies are licensed by Macau, the junket investors and middlemen such as Mr. Choi aren't vetted by the city's casino regulator, an agency known as the DICJ.

Massachusetts recently explored the junket system in the course of reviewing casino-company applications for a license. State documents quoted Wynn CEO Steve Wynn as saying that junkets are structured "like a tree with branches that keep growing out wider and wider," and that keeping track of the middlemen is "almost impossible because they multiply like rabbits."

Though the minimal regulation may have benefitted junkets in years past, this now is seen as a reputation handicap as some try to become more professional.

"In a lot of ways they're becoming more like us," the CEO of MGM Resorts' China unit, Grant Bowie, said last month.

Some junket executives fret that casinos have used junkets as a stopgap until the casinos can establish their own VIP networks in China. Junkets are "tired of being a wedding dress"—used once and set aside—says Tony Tong, a junket investor and consultant.

Now, some are trying to get into the casino business themselves, if not in Macau then elsewhere.

The junkets Mr. Tong is involved with include one called HengSheng Group, which plans to invest in a casino—not in Macau but on the Pacific island of Saipan.

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