Sands China Deals Scrutinized

U.S. Investigators and Board Inquiry Examine Real-Estate Payment, Team Sponsorship, Ferry Deal

In the fall of 2007, during the Chinese ambassador's tour of the U.S., one stop was Las Vegas Sands Corp.'s LVS -0.35% Venetian casino, where he helped celebrate the announcement of a planned Adelson Center for U.S.-China Enterprise in Beijing. Guests dined on shark fin soup and other Chinese delicacies.

Associated Press

Las Vegas Sands CEO Sheldon Adelson and his wife look at a model of the Sands Cotai in Macau.

The Center—funded by Sands and named after the Sands CEO—was designed to help small and medium-size U.S. businesses break into the Chinese market. It never opened, although it was under development for 18 months.
It is now under scrutiny by the Justice Department, the Securities and Exchange Commission, and the company's audit committee for possible violations of antibribery laws, according to company documents and people familiar with the inquiries.


The probes jump off from Sands' disclosure last year that the U.S. Justice Department and the Securities and Exchange Commission were investigating it for possible violations of the Foreign Corrupt Practices Act, following allegations made in a wrongful-termination lawsuit by the ousted head of its Macau operations. The probes go beyond the allegations in that suit, which is pending.
Sands is cooperating with the current investigations and denies the allegations in the suit, which was filed by Steve Jacobs, the former head of the Macau unit.
Among other things, his suit claims he was fired after questioning the company's relationship with a politically connected Macau lawyer.

 

Yang Saixin, a consultant

(The probes are separate from a federal investigation of Sands, reported by The Wall Street Journal last week, for possibly violating money-laundering laws in its handling of millions of dollars from two Las Vegas high-rollers. Sands denies wrongdoing in the money-laundering probe.)
In addition to the allegations in the wrongful-termination suit, the government and company investigations are looking into at least three transactions in mainland China unrelated to the company's Macau casino properties, according to investigation documents from a probe from the Sands board's audit committee viewed by the Journal and according to people with knowledge of the situation.
Those transactions involve: a $50 million payment for real estate for the Adelson Center, Sands's sponsorship of a Chinese basketball team, and a contract for ferry service between Macau and Hong Kong.
Preliminary results of the board's audit committee probe, led by an outside law firm, were presented last week to Nevada gambling regulators, who are conducting their own inquiry.
Looking at transactions initiated by previous managers, including former president William Weidner, from 2005 to 2009, the audit committee's preliminary report said the "company's controls and books and records were not sufficient," according to a copy viewed by The Wall Street Journal.
While the investigations aren't yet complete, the law firm's findings so far on the transactions that have been unwound indicate "insufficient evidence to conclude that there were corrupt payments to PRC [People's Republic of China] officials," the report says.
Sheldon Adelson, Sands's longtime chairman, CEO and biggest shareholder, and other current top company executives don't appear to have been directly involved in those deals, people familiar with the matter said.
The audit committee "has not seen evidence that has caused it to doubt the integrity of current senior management," according to the copy of the preliminary report viewed by the Journal.
The record-keeping in and of itself could be an issue, as the FCPA requires proper bookkeeping, according to people with knowledge of the investigations.
According to the report, the issue of deficient controls and records had previously been investigated internally and the board adopted new internal measures in February 2010 to address the problem.
The company declined to comment on the investigations or the board's preliminary report. Richard Grime, an attorney working on the investigation for law firm O'Melveny & Myers, which was hired by the audit committee of the board, declined to comment. The SEC and the Justice Department declined to comment.
Some of the audit committee's preliminary findings reopen a bitter management dispute that dates back to 2008-2009, when Sands was struggling financially and Mr. Weidner left after he told directors that he had lost confidence in Mr. Adelson's leadership.
In a statement, Mr. Weidner said his China strategy received board approval. He said, "there was no evidence of activity that would be considered illegal in the U.S." and called the board investigation's focus on prior management a "distraction sideshow" to protect current management.
The probes come at a sensitive time for Mr. Adelson, who is a top Republican campaign donor in the U.S. elections.
In the past decade Mr. Adelson has transformed Sands from a Nevada casino and convention center into an Asian gambling empire, where huge growth has helped the company weather a deep downturn in Las Vegas. The investigations are scrutinizing some of the earlier days of the company's Asia expansion.
The Adelson Center was an attempt to network with influential business groups and included agreements to cooperate and promote trade with organizations such as the Chinese government's trade body, chaired by Wan Jifei, the son of China's former vice premier, according to public statements and people familiar with the matter. Sands hired Mr. Wan's daughter, Wan Bao Bao, to oversee public relations, according to the board's report and a person familiar with the arrangement.
Ms. Wan didn't respond to requests for comment.
The Adelson Center was part of a plan announced in 2005 for Las Vegas Sands to invest more than $1 billion in an ambitious new non-gambling convention center, hotel, and retail complex near Macau on the southern Chinese island of Hengqin, said people familiar with the matter.
Las Vegas Sands hoped that Hengqin would be a popular convention destination because Chinese wouldn't need visas as they do in Macau. The Macau casinos would be a short ferry ride away.
A former Macau controller for Sands is assisting the FBI in its probe of the deals, people familiar with the matter said. The former executive, Yvonne Mao, declined to comment.
No current or former executives have been accused of wrongdoing.
Investigators are looking at Chinese businessman Yang Saixin, a paid consultant and business partner of Sands, according to people with knowledge of the matter. The well-connected Mr. Yang was hired to help build relationships and facilitate deals in China.
Among other things, investigators are looking at Sands's $50 million in payments made through Mr. Yang for office space for the Adelson Center in Beijing, according to board documents.
The deals also involved the China International Travel Service, a large government-owned Chinese travel agency.
The board investigators' interim finding said there was insufficient evidence to conclude that there were any corrupt payments.
Efforts to reach Mr. Yang for comment were unsuccessful. China International Travel Service didn't respond to requests for comment.
The Adelson Center died on the vine in 2008. Sands, for its part, says it decided to stop construction of the center because of the company's financial straits in 2008 and a management shake-up.
A spokesman for Sands declined to comment on the relations with the Chinese officials and said Mr. Adelson also had no comment.
In the second transaction, Sands took control of a professional Chinese basketball team and moved the team to Shenzhen, a city not far from Macau. Sands renamed the team Wei-Li-Shan, which is pronounced like "Venetian," the name of Sands's marquee casino brand.
Sands, as a casino operator, wasn't permitted to buy the team, but it paid about $8 million to sponsor and control the team, which was bought by Mr. Yang, according to the board's preliminary report.
As much as $1.45 million of that amount is currently unaccounted for, the report said, although it said there is no direct evidence of payments to government officials.
The investigations also are looking at the transactions that went into Sands's creation of a high-speed ferry service to bring gamblers to Macau from Hong Kong. The ferry is operated in partnership with a company controlled by China's Guangdong province and a company the board believes may be affiliated with Mr. Yang, according to the board audit committee's preliminary report.
It isn't clear what specifically about the ferry transaction has piqued the interest of investigators.
While the ferry service continues to run and Sands recently renewed its contract with the Guangdong company, the basketball deal was ended not long after the Adelson Center fizzled.
Sands also appeared to stop using the services of Mr. Yang, according to the board investigation document, and its plans to build in Hengqin also were dropped.
The company has disclosed that China's foreign-exchange regulator later fined Sands about $1.63 million for alleged violations of currency rules.
The fine was for improperly using funds earmarked for the Adelson Center property to pay a Yang associated company, according to an email from Sands's outside counsel reviewed by the Journal. The Chinese regulator didn't respond to requests for comment.
Another email message from an attorney at the same firm explained: "China today is becoming a society regulated by law, not guanxi," or personal networks.

—Yang Jie, Tamara Audi, Justin Scheck, Kersten Zhang, Jeremy Page and James V. Grimaldi contributed to this article.

Write to Alexandra Berzon at alexandra.berzon@wsj.com

A version of this article appeared August 10, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Sands China Deals Scrutinized.