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Did GOP Money Man Sheldon Adelson Violate the Foreign Corrupt Practices Act?

Adelson built a gambling empire in Macau that made him one of the world's richest men. Now, his business methods are under investigation.

| Tue Jul. 17, 2012 6:00 AM EDT

This story, a coproduction of ProPublica and PBS's Frontline, previously appeared on the ProPublica website.

A decade ago gambling magnate and leading Republican donor Sheldon Adelson looked at a desolate spit of land in Macau and imagined a glittering strip of casinos, hotels, and malls.

Where competitors saw obstacles, including Macau's hostility to outsiders and historic links to Chinese organized crime, Adelson envisaged a chance to make billions.

Adelson pushed his chips to the center of the table, keeping his nerve even as his company teetered on the brink of bankruptcy in late 2008.

The Macau bet paid off, propelling Adelson into the ranks of the mega-rich and underwriting his role as the largest Republican donor in the 2012 campaign, providing tens of millions of dollars to Newt Gingrich, Mitt Romney, and other GOP causes.

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Now, some of the methods Adelson used in Macau to save his company and help build a personal fortune estimated at $25 billion have come under expanding scrutiny by federal and Nevada investigators, according to people familiar with both inquiries.

Internal email and company documents, disclosed here for the first time, show that Adelson instructed a top executive to pay about $700,000 in legal fees to Leonel Alves, a Macau legislator whose firm was serving as an outside counsel to Las Vegas Sands.

The company's general counsel and an outside law firm warned that the arrangement could violate the Foreign Corrupt Practices Act. It is unknown whether Adelson was aware of these warnings. The Foreign Corrupt Practices Act bars American companies from paying foreign officials to "affect or influence any act or decision" for business gain.

Federal investigators are looking at whether the payments violate the statute because of Alves' government and political roles in Macau, people familiar with the inquiry said. Investigators were also said to be separately examining whether the company made any other payments to officials. An email by Alves to a senior company official, disclosed by the Wall Street Journal, quotes him as saying "someone high ranking in Beijing" had offered to resolve two vexing issues—a lawsuit by a Taiwanese businessman and Las Vegas Sands' request for permission to sell luxury apartments in Macau. Another email from Alves said the problems could be solved for a payment of $300 million. There is no evidence the offer was accepted. Both issues remain unresolved.

According to the documents, Alves met with local politicians and officials on behalf of Adelson's company, Las Vegas Sands, to discuss several issues that complicated the company's efforts to raise cash in 2008 and 2009.

Soon after Alves said he would apply what he termed "pressure" on local planning officials, the company prevailed on a key request, gaining permission to sell off billions of dollars of its real estate holdings in Macau.

Las Vegas Sands denies any wrongdoing. But it has told investors that it is under criminal investigation for possible violations of the US anti-bribery law. Adelson declined to respond to detailed questions, including whether he was aware of the concerns about the Foreign Corrupt Practices Act when he directed payment of the bill from Alves' law firm.

The documents depict Adelson as a hands-on manager, overseeing details of the company's foray into Macau, which is now the world's gambling capital.

They show that Alves helped the company address a crucial issue: Adelson's frayed relations with officials in Macau and mainland China.

Alves met with prominent Macau officials on Las Vegas Sands' behalf, emails show. When Adelson made a three-day trip to Beijing, Alves accompanied him, billing more than $18,000 for his services.

Alves promoted himself to Adelson as someone "uniquely situated both as counsel and legislator to 'help' us in Macau," according to an email written by a Las Vegas Sands executive.

The then-general counsel of Las Vegas Sands warned that large portions of the invoices submitted by Alves in 2009 were triple what had been initially agreed and far more than could be justified by the legal work performed.

"I understand that what they are seeking is approx $700k," the general counsel wrote to the company's Macau executives in an email in late 2009. "If correct, that will require a lot of explaining given what our other firms are charging and given the FCPA," the Foreign Corrupt Practices Act.

Adelson, described by Forbes magazine as the largest foreign investor in China, ultimately ordered executives to pay Alves the full amount he had requested, according to an email that quotes his instructions.

Alves holds three public positions. He sits on the local legislature. He belongs to a 10-member council that advises Macau's chief executive, the most powerful local administrator. And he's a member of the Chinese People's Political Consultative Conference, a group that advises China's central government.

Alves did not respond to detailed questions from reporters about his activities on behalf of Las Vegas Sands, saying in an email that the work he had done—"legal services"—was unrelated to his government positions. "I would never use my public offices to benefit the company, nor have I been asked to," Alves wrote.

Several Las Vegas Sands executives resigned or were fired after expressing concerns about Alves' billings. These include Las Vegas Sands' general counsel and two top executives at Sands China, its Macau subsidiary.

Alves briefly severed his relationship with the company in early 2010, according to internal documents, but was rehired months later as outside counsel, a role he still plays.

The internal Las Vegas Sands documents were obtained by reporters working for the University of California's Investigative Reporting Program as part of an ongoing collaboration with ProPublica and PBS's Frontline.

The documents include dozens of emails, billing invoices, memos, and reports that circulated among top executives of Las Vegas Sands and its attorneys. The documents were provided by people who had authorized access to them. They offer important glimpses of the company's dealings in Macau and China but are not a complete archive.

One invoice, for example, notes that Alves billed $25,000 for "expenses" in Beijing with no further explanation.

The documents shed new light on an issue separate from Alves' work: the company's difficulties in avoiding contact with Chinese organized crime figures as it built its casino business in Macau.

Nevada law bars licensed casino operators from associating with members of organized crime. State investigators are now assessing whether Las Vegas Sands complied with that rule in its Macau operations, people familiar with the inquiry said.

One invoice, for example, notes that Alves billed $25,000 for "expenses" in Beijing with no further explanation.

William Weidner, president of Las Vegas Sands from 1995 to 2009, said he understood from the beginning that opening casinos in Macau meant dealing with "junkets"—companies that arrange gambling trips for high rollers.

Gambling is illegal in mainland China, as is the transfer of large sums of money to Macau. The junkets solve those problems, providing billions of dollars in credit to gamblers. When necessary, they collect gambling debts, a critical function since China's courts are not permitted to force losers to pay up.

Weidner said junkets are a natural result of China's controls on the movement of money out of the country, channeling as much as $3 billion a month from the mainland to Macau.

"To Westerners, the junkets mean money laundering equated with organized crime or drugs," he said. "In China where money is controlled, it's part of doing business."

Weidner resigned from the company after a bitter dispute with Adelson.

Nevada officials are now poring over records of transactions between junkets, Las Vegas Sands, and other casinos licensed by the state, people familiar with the inquiry say. Among the junket companies under scrutiny is a concern that records show was financed by Cheung Chi Tai, a Hong Kong businessman.

Cheung was named in a 1992 US Senate report as a leader of a Chinese organized crime gang, or triad. A casino in Macau owned by Las Vegas Sands granted tens of millions of dollars in credit to a junket backed by Cheung, documents show. Cheung did not respond to requests for comment.

Another document says that a Las Vegas Sands subsidiary did business with Charles Heung, a well-known Hong Kong film producer who was identified as an office holder in the Sun Yee On triad in the same 1992 Senate report. Heung, who has repeatedly denied any involvement in organized crime, did not return phone calls.

Allegations about the company's dealings with Alves as well as its purported ties to organized crime are prominently mentioned in a 2010 lawsuit filed by Steven Jacobs, former CEO of Sands China.

In the suit, Jacobs contends he was fired after multiple disputes with Adelson, which included the continued employment of Alves and the company's dealings with junkets.

Las Vegas Sands declined to respond to detailed questions about the emails, billing invoices or purported relationships with organized crime figures including Cheung and Heung. Nor would it comment on the federal or Nevada investigations.

Adelson told investors last year that the federal investigation was based on false allegations by disgruntled former employees attempting to blackmail his company.

"When the smoke clears, I am absolutely not 100 percent but 1,000 percent positive that there won't be any fire below it," he said, adding that what investigators will ultimately find "is a foundation of lies and fabrications."

At least one prominent Republican has expressed concern about the source of Adelson's campaign contributions. "Much of Mr. Adelson's casino profits that go to him come from his casino in Macau," Sen. John McCain noted in an interview last month with PBS's NewsHour.

"Maybe in a roundabout way, foreign money is coming into an American political campaign," said McCain, an Arizona Republican.

The questions raised by McCain and others have not prevented Adelson, the self-made son of a Boston cabdriver, from emerging as a powerful political figure in both Israel and the United States. A longtime backer of Prime Minister Binyamin Netanyahu of Israel, Adelson created a free daily newspaper, now Israel's largest, that supports the policies of Netanyahu's Likud Party.

His family's $25 million in contributions kept Newt Gingrich in the presidential race. He has been widely reported as donating $10 million to a super-PAC supporting Mitt Romney. A "well-placed source" recently told Forbes that Adelson's willingness to financially support Romney was "limitless." A filing with the Federal Election Commission last night shows that Adelson and his wife, Miriam, gave $5 million to the "YG Action Fund,'' a super-PAC linked to House Majority Leader Eric Cantor, a Virginia Republican.

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Macau's emergence in the 21st century as the biggest gambling center in the world, with $33.5 billion in annual revenue—four times that of Las Vegas—is a matter of history and geography.

A former Portuguese colony, the tiny peninsula was handed over to China in 1999. It has its own legislature, laws, court system, and chief executive, all of which exist under the umbrella of Chinese control.

For generations, profits from Chinese gambling flowed primarily to a single local company. But after China took control, authorities agreed to let foreign companies get a piece of the action.

Las Vegas Sands was among more than a dozen companies to apply for a license. Its plans were among the most expansive, calling for an American-style complex of hotels, casinos, shopping malls, and luxury apartments.

The first of four Las Vegas Sands casinos, the Sands Macau, opened its doors in 2004. It was immediately successful as well-heeled gamblers from the mainland flocked to the tables.

Over the next several years, the company pushed ahead with its multibillion-dollar construction projects on a strip of reclaimed land known as Cotai.

But in the summer of 2008, Las Vegas Sands faced a cash crunch. The global economic slowdown hit revenues at its casinos in Nevada. And gambling slowed in Macau after China's central government abruptly cut down on the number of visas it granted for travel to the region. Suddenly, the company was struggling to make payments on billions of dollars in long-term debt.

Executives at Las Vegas Sands began looking at ways to raise cash in Macau. To do this, the company would need some help from local officials.

It wasn't clear they would get it.

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