Nevada regulators are investigating whether casino powerhouse Las Vegas Sands Corp. broke bribery laws through its dealings in mainland China, adding to a growing number of inquiries into the empire of Sheldon Adelson.
The Nevada Gaming Control Board's probe, disclosed by two sources familiar with the matter, comes on top of reviews by the U.S. Department of Justice and the Securities and Exchange Commission, which the company confirmed in a March filing.
All three inquiries may have their roots in a breach-of-contract suit brought in Nevada by Steve Jacobs, former chief executive of Sands China Ltd, Sands' largest subsidiary. He is now cooperating with U.S. officials who are following up on his claims, according to records and interviews.
In that suit, Jacobs alleges he was fired after repeatedly clashing with Adelson over "Adelson's illegal demands." High on the list of disagreements was whether to hire a Macau official as a local legal counsel, which Jacobs said raised the risk of breaking U.S. anti-corruption law. Sands has denied illegal activity from the beginning, and Adelson has been quoted as saying "none of what he says is true and he can't prove it."
The probes have expanded beyond Jacobs' core claims that Sands' payments to the Macau legislator could have been improper. Jacobs' suit did not mention the new round of issues involving actions in the Chinese mainland. His attorney couldn't be reached for comment.
Macau is the only place in China where casinos are legal, and Sands properties there provide the majority of its revenue. Corruption has been an historic problem in Macau, which like Hong Kong is a special administrative region of the world's most populous country.
The probe into Sands' mainland China dealings is the latest look by regulators into one of the largest casino operators in the world, which is also the source of wealth of Adelson, who has sprung into the vanguard of Republican presidential supporters this season. Adelson and his family are the controlling shareholders of Las Vegas Sands, which said it would not comment on the developments because they involved ongoing investigations.
In the latest matter, the Nevada authorities recently obtained a detailed but preliminary report by an outside law firm for the Sands board's audit committee, which concluded that under previous management, the company's controls on executive actions were too weak, according to the two people familiar with the matter.
The document, first described Friday by the Wall Street Journal, did not find conclusive evidence of corrupt payments but questioned a series of deals on the mainland dating from before Jacobs' stint at the company.
Among other issues, it highlighted tens of millions of dollars spent through intermediaries to secure space for the Adelson Center for U.S.-China Enterprise, a nonprofit Beijing project intended as a resource for American companies pursuing ventures in China that was later shelved. It is unclear where all of that money ended up.
Sands declined to comment on the board's report or Nevada inquiry.
No formal complaint, yet
The Gaming Control Board has yet to reach the stage where it would consider making a formal complaint against Sands. In theory, a complaint could accuse the company of being unsuitable to operate casinos in Nevada due to suspected violations of the law or other grounds.
A complaint would require the unanimous backing of the three-member panel, and the casino would then get a chance to argue its case or say that it had made changes to correct past mistakes.
If a complaint is not resolved at that point, the two sides would square off before the state's Gaming Commission, which has the power to revoke a casino license, but seldom goes that far.
The Gaming Control Board declined to confirm or discuss any state inquiries.
Adelson has not been accused of any crimes by state or federal investigators. Sands previously has said neither the SEC nor the Department of Justice had accused it of wrongdoing and described an SEC subpoena for documents as part of a "fact-finding inquiry."
Adelson has drawn extra attention in the past year because of his financial support for Republican presidential candidates and support of Israel's conservative Likud party.
He is expected to be among the largest sponsors of advertisements against President Barack Obama's reelection.
Both the previously disclosed issues in Macau, the gambling capital of the world, and the new ones in mainland China, involve its majority-owned but publicly traded Sands China.
Another development last week, however, pointed to issues in the United States.
In a quarterly filing with the U.S. Securities and Exchange Commission, Las Vegas Sands said it received subpoenas on August 1 from federal prosecutors seeking documents "relating to two prior customers."
A person familiar with that case said that the two former customers are Mexican national Zhenli Ye Gon, a pharmaceutical company owner now awaiting extradition to Mexico on drug charges, and American Ausaf Umar Siddiqui, a onetime vice president at Fry's Electronics convicted of taking kickbacks from that chain's suppliers.
Under post-9/11 reporting rules, casinos are required to report when they have reason to suspect that patrons' funds may have derived from illegal activity. Those reports are commonplace and confidential, and they are reviewed on a nearly daily basis by tax, drug-enforcement and other agencies.
Sands did not file such reports on Ye Gon and Siddiqui, the person said. Ye Gon lost more than e125 million gambling at Las Vegas casinos including Sands properties between 2004 and 2007, according to an affidavit from a U.S. Drug Enforcement Administration special agent filed in a U.S. case against Ye Gon that was dismissed. Ye Gon's lawyers denied he was laundering money and said he was not involved in the illegal drug trade.
Siddiqui, meanwhile, transferred e121 million to Sands and MGM Resorts International casinos while earning only e225 thousand from Fry's, prosecutors said in filings against Siddiqui. Siddiqui attorney Paul Meltzer wrote that Siddiqui was addicted to gambling and that the casinos courted him with private jet trips and stays in luxury suites valued at more than e25 thousand per night.
Meltzer did not return phone calls, and Siddiqui's federal prosecutors declined to comment on the casinos' role. Sands also declined to comment.
While failing to file suspicious-activity reports can result in criminal charges, they are very rarely brought. In the best-known case, an MGM manager was arrested for failing to file any reports for more than a year, and the casino company itself paid e5 million to settle related claims by Nevada regulators.
More commonly, the U.S. Financial Crimes Enforcement Network, an arm of the Treasury Department that collects and distributes the electronic filings from casinos, banks and other businesses, levies smaller civil penalties against smaller casinos accused of procedural violations or deliberately looking the other way.
Want to enjoy 'Zen' reading - with no ads and just the article? Subscribe todaySubscribe now