(Bloomberg) -- Casino stocks dropped in the U.S. after Macau laid plans to step up scrutiny of operators and increase local ownership, signaling tighter control over the world’s largest gambling hub amid Beijing’s efforts to clamp down on money laundering and currency outflows. 

The government aims to increase “direct supervising” in gambling companies to better monitor their operations, Macau Secretary for Economy and Finance Lei Wai Nong said in a news briefing Tuesday, without elaborating how the proposed changes would be enacted. Officials also suggested raising the shareholdings of local directors in gambling companies from the currently required minimum of 10%, according to a public consultation paper on the proposal. 

Authorities also proposed increasing scrutiny on so-called junkets that service high-rollers and extend credit to them, including raising entry barriers for junket operators as well as allowing background checks. The proposed changes could be made in a long-gestating revision of the casino law, which will be passed ahead of Macau’s issuance of new gambling licenses to operators. Current gambling licenses expire in June 2022. 

Las Vegas Sands Corp. led a slump among gambling companies operating in Macau, sliding 9.4% to $38.85 at 9:59 a.m. in New York, the most intraday since March 2020. Wynn Resorts Ltd. fell 9.3%, Melco Resorts & Entertainment Ltd. declined 6.2% and MGM Resorts International slipped 3.9%.

China has been clamping down on activity by so-called VIP punters in Macau for several years now over concerns that the high-stakes betting there -- which takes place in convertible Hong Kong dollars - can sometimes be an illicit channel of currency outflow and money-laundering efforts. Beijing has also cracked down on organized gambling trips to Macau and other overseas destinations by junkets. 

Social Problems

“The development of the gaming industry has evidently driven local economic and social development, but has also created some social problems,” said Lei.

The government’s proposal also includes reviewing the number of gambling licenses and their terms. The current licenses came with a 20-year effective period. Officials will consult the industry and public for 45 days before reaching a final bill to be tabled to the local legislature. 

Macau, whose economy is almost entirely reliant on casinos, has been languishing during the pandemic as border curbs prevented its lifeblood of Chinese punters from entering the city. Gambling revenue for the month of August was 82% lower than the same month in 2019. 

The government has been seeking ways to weed out potential illegal activities, including the possibility of introducing a digital currency to better combat money laundering and tax evasion. 

While China has been tightening its scrutiny over Macau’s gambling sector for years, this move comes as Beijing undertakes a widespread crackdown on business and society. While initially focused on the growing influence of China’s tech giants, the campaign has taken on a moralistic tone, targeting children’s video-game use to after-school tutoring. The Communist Party has long had a dim view of gambling.

©2021 Bloomberg L.P.