Risk & Compliance

China Uncovers $2.7B in Misused Lottery Funds

Audit finds that a quarter of all the money raised through the state-run lottery program between 2012 and 2014 was embezzled or misappropriated.
Katie Kuehner-HebertJune 26, 2015

Roughly 16.9 billion yuan ($2.72 billion) of China’s lottery funds have been embezzled or misappropriated to buy and build office buildings and hotels, according to China’s National Audit Office.

The misused funds accounted for a quarter of all the money raised through the state-run lottery program between 2012 and 2014, the BBC reported. Gambling is illegal in China apart from a few exceptions, including the lottery.

The audit covered 18 of China’s 23 provinces. Of those, all but one had sold lottery tickets via the Internet without approval from the finance ministry.

In addition to “dedicated lottery stores,” other Chinese outlets authorized to sell lottery tickets include supermarkets, post offices, and gas stations. The auditor found that 32 lottery shops had misused 3.1 billion yuan ($506 million) to construct office buildings, training centers and hotels.

Proceeds from the lottery are used to support sports and welfare charities. But China’s main government think-tank reported earlier this month that of the 104 billion yuan raised last year, only 40 billion had been spent on social welfare projects, such as building exercise equipment in public parks.

“The report did not explicitly mention corruption as a reason for the missing funds but there is a spectacular history of officials embezzling lottery takings,” The Financial Times noted.

In 2012, the former director of a lottery center in eastern China was given a suspended death sentence for buying a luxury yacht worth 20 million yuan and embezzling an additional 49 million yuan.

“The lottery industry in China has had very impressive growth for a number of years  . . .  and when you have massive expanding revenue, like buzzards the corrupt elements will gravitate towards these places,” Martin Williams,  Asia Editor at research company Gambling Compliance, told the FT.

Lottery jackpots in China are capped at 10 million yuan ($1.6 million), but China is expected to overtake the United States as the world’s biggest lottery market this year.

President Xi Jinping’s government has been waging a fight against corruption, warning that the problem is so bad it could affect the Communist Party’s grip on power.