Casino shares in Macau have fallen following a series of “illegal gambling” arrests in the Chinese enclave. Local police arrested 11 people over alleged money laundering and illegal cross-border gambling.

The news came after authorities said they were questioning prominent gambling industry leader Alvin Chau Cheok-wa, chief executive officer of Suncity Group Holdings Ltd. Chau is accused of heading a cross-border gambling syndicate, local media reported.

Although at first it remained unclear whether Chau was among the 11 people arrested by the police, it has now been confirmed he is. A Hong Kong newspaper, the South China Morning Post, quoted police as identifying a Macau businessman with the surname Chau.

On top of chairing Suncity Group Holdings, Chau is also the founder of Suncity, Macau’s biggest junket operator, which organizes trips to Asian casinos for VIP gamblers. Shares in Suncity Group have now been suspended from trading on the Hong Kong Stock Exchange.

Chau’s arrest marks the first time a prominent individual in the gaming business has been targeted. Police claim those involved in the case have admitted that the organization had established gambling websites or engaged in telemarketing activities in other locations, said Business Times.

Following the news, some of the city’s biggest operators saw drops in their shares: MGM China was down 10%, Wynn Macau was down 8%, and Sands China was down 6%. The Macau casino industry greatly benefits from junket operators, which act as intermediaries by bringing high rollers to venues, giving credit to them and collecting on their debts.

Sun Entertainment Group has also been severely affected by the news, its shares down by almost 30% on Monday afternoon. News sources have named Chau as the head of a cross-border gambling criminal syndicate, with more than 12,000 gaming agents and 80,000 members across China.

Prosecutors in Wenzhou, Zhejiang province, have charged Chau with being the brains behind a gambling ring that “wreaks havoc on the country’s social order,” according to Business Time. Meanwhile, the United Nations said Chau’s arrest should serve as a wake-up call for the junket business.

"There is little doubt that Chau's arrest warrant will send shockwaves through organized crime in Hong Kong and Macau, but also in the Philippines, Cambodia, and Laos," Jeremy Douglas, UN Office on Drugs and Crime's Regional Representative for Southeast Asia and the Pacific, said.

High-rollers have become less important to casinos in the region, accounting for just 15% of earnings in 2019, as China has been clamping down on the activity in recent years over concerns that high-stakes betting may be an illicit channel for money laundering. The VIP segment is likely to account for just 1-4% of operators’ earnings in 2023, JPMorgan analysts led by DS Kim wrote in a note dated Saturday.

The drop in shares delivers another blow to the already troubled Macau industry, which has been reported as being "in a state of limbo," according to a new report cited by Macau Daily Times. Rising "political risk" across China has been reported as affecting international investors: gaming licenses are set to expire soon, but there remains much uncertainty on what will happen with them.

A public tender process was set to take place after the expiry of current concessions, Chief Executive of Macau Ho lat-seng has previously announced. However, no further detail on timing has yet been provided, despite an earlier commitment to complete a tender process by the fourth quarter of this year, reports Macau Daily Times.

"Macau is perhaps more acutely impacted by political risk than other PRC cities," political and corporate risk consultancy Steve Vickers and Associates (SVA) said in a new report, while warning that the tendering process "remains opaque."

Macau’s casinos have also come under increasing scrutiny in recent months, as regulators aim to more closely supervise operations as part of a gambling law revision.