Cyprus Risk Watch - Casinos: a sure bet?

The debate about legalising casinos in Cyprus continues. Clearly, for a small island dependent on tourism, casinos could provide a much needed boost to the economy and the government’s tax coffers. But, is it all a win-win scenario? Serious risks arise. What have other countries experienced and how successful have they been in countering the risks? Could Cyprus get the right formula?

The Key Benefits

Countries that already have legal casinos report a healthy boost to tourism. Gamblers are known to be prepared to travel far. For countries with a cultural predisposition to gamble (Cyprus being one), the numbers are significant. Cypriots and others from the Republic-controlled areas flock every weekend over the Green Line to the casinos in Kyrenia in north Cyprus. They are reported to spend some €100mln there every year. Foreign gamblers such as Israelis also go there. Wealthy Arabs have long travelled to London, Beirut and Athens to gamble. Singaporean gamblers travel to Australia, while mainland Chinese gamblers in their thousands favour Macau.

In 2008, Macau’s casinos pulled in US$13 bln in earnings, twice as much as those in Las Vegas. In whichever country, casinos relieve the punters of large sums of money and the government coffers gain from license fees and taxation. Hotels, restaurants and other local businesses also get a lot of spin-off from the influx of such visitors. So, what are the downsides?

The Key Risks

It is easy to be dazzled by the revenue potential and gloss over the downsides. The key risks may be summarised as falling under three main headings: criminal, social, economic.

International Organised Crime

Organised criminals target casinos because of the huge sums of cash. By owning or controlling the enterprise, they can do double book-keeping and declare false low earnings thereby paying far less tax and siphoning off the undeclared money. In addition, casinos provide an ideal vehicle for laundering ‘dirty’ money from other criminal activity. Casinos also provide a hub for other criminal activity, especially trafficking of drugs and people, often involving prostitution.

The bigger the casino opportunity, the more likely that the criminals attracted to it will be ‘big fish’ from outside the country. The international gangs are better organised, more sophisticated, better funded and far more ruthless and quickly take over or eliminate any local criminal control of casinos. Once embedded, they are notoriously difficult to root out.

So, the priority for government and law enforcement is to prevent criminals of any sort from owning or otherwise controlling any casino or from ‘setting up shop’ anywhere near a casino. Keeping organised crime out of gambling is a major headache for the authorities in countries that already have casinos. It would be a huge task for a small country such as Cyprus. Despite having a largely effective police force in Cyprus, it is the sheer scale of the new threat that would probably overwhelm their existing resources. A whole new approach, strategy and specially trained resources would be needed to combat the threat, long before any casino is allowed to open as the criminals will also have been very busy in advance.

Moral and Social Decay
There are moral arguments against gambling per se. Both the Greek Orthodox Church and President Christofias are reported to be against casinos because of gambling addiction and serious personal debt that can lead to other crime and a huge negative impact on families and society. They have a strong case. For example, a finance manager at Asia Pacific Breweries in Singapore, Mr Chia Teck Leng, forged company documents in order to cheat a number of banks out of US$78.5mln to feed his gambling addiction. In 2004, he was jailed for 42 years. There are countless lesser cases of individuals commiting fraud and theft to fund their gambling addiction. There are many documented cases of suicides and murders of desperate gamblers in Hong Kong and Macau who have fallen victim to loan sharks and credit stings. The pro-casino lobby in Cyprus counters with a ‘where’s the harm in it?’ plea, pointing to other forms of gambling already allowed such as horse racing, betting shops and the national lottery as evidence that such problems are minor.

The moral argument aimed specifically at casinos is unlikely to win unless all other forms of gambling are also outlawed. A proportion of the population will always be vulnerable to addictive behaviour. The only distinction about gambling in casinos is the scale of the bets and the temptation to bet even more heavily to recoup losses. Some countries, such as Australia and Singapore upcoming, require casinos to maintain a register of known gambling addicts who must be refused entry. Gambling addicts (or their families) can add their name voluntarily in Singapore.

This article is focussing on casinos but what about the rapidly growing on-line gaming? How could the Cyprus government or any government prevent its citizens from gambling on unregulated overseas internet gaming sites? Gambling addicts will always find a way round attempts to stop them gambling.

Economic Distortion
For large multi-sector economies, the strength or otherwise of the economy is not determined by the existence or absence of casinos. For countries that rely heavily on tourism, however, casinos can come to dominate the economy unless steps are taken to limit their effect. If and when a general economic downturn comes, such as the current recession, or some other event e.g. another war in the Middle East deterring regional casino tourists, tax revenues from casinos could plummet. Macau is a current example. The recession coupled with the mainland PRC government’s recent US$4,000 limit for its citizens visiting Macau has dampened the whole economy, which had become dominated by casinos. Sands Macau has closed. Thousands of local casino employees and croupiers are now unemployed and have no transferable skills for other work.

Models – Unfettered or Controlled?
A variety of approaches to regulation has emerged but broadly there are two main categories – unfettered and tightly controlled. What lessons can Cyprus learn from their respective experiences?

Unfettered – Macau, north Cyprus

This category has little or no government regulation. Typically, in unregulated countries there will be many casinos. Whereas some operators are law-abiding and respectable, others have become synonymous with organised crime which an unregulated system enables. Some parts of the Macau casino industry, for example, have become notorious for their association with and control by organised criminals. The casino situation in north Cyprus is reported to also be a mix of legitimate and less savoury operations.

Controlled – Hong Kong, Singapore, Lebanon, Greece
This category enjoys strong government regulation of gambling. In Hong Kong, casinos are barred and only gambling (horse racing and betting shops) operated by a single licensee, The Hong Kong Jockey Club, is legal. The Club has a major permanent Integrity & Security department dedicated not only to general safety of racing events but also to eliminating race fixing, bet fixing, fraud and infiltration of Club membership by undesirable elements. Working closely with the organised crime and anti-corruption units of the police in Hong Kong and other countries, they have successfully prevented sustained efforts over many years by criminals and undesirables in the Macau casino industry from gaining undue influence or even control of the Club.

In Singapore, licences have been granted for only the two new Entertainment Complexes opening in the next few months, Marina Bay Sands (US$6 bln cost) and the Genting Resorts World (US$4.7 bln) at Sentosa. Each will have a casino plus hotels, restaurants, shopping malls, cinemas, swimming pools, theme parks and many other forms of leisure and entertainment. These mega-entertainment complexes are designed to attract families and tourists, as well as visitors focussed on gambling, with an irresistable ‘wow’ factor. The strong regulation and policing system in Singapore, with its sophisticated intelligence capabilities, should ensure that organised criminals will find it hard to take over or abuse these new ventures.

Lebanon has also opted for a single licensed casino (Casino du Liban). Greece has currently nine licensed casinos. Regulation is thus the norm and unfettered operations such as north Cyprus and Macau are unusual.

If the Republic of Cyprus does decide to legalise casinos, it should opt for strict regulation. As Cyprus is small, only one or a small number of casinos should be licensed, taking account of relevant foreign experience and the ‘wow’ factor. A thorough review of the law enforcement capacity and resource requirements in Cyprus would be essential. A whole new approach, strategy and specially trained resources would be needed to combat the threat from international organised criminals arising from casinos and on a scale unseen in Cyprus before.

Dr Alan Waring is an international risk management consultant with extensive experience in Europe, Asia and the Middle East with industrial, commercial and governmental clients. Contact .

Financial Mirror, November 24, 2009 - RISK WATCH. By Dr Alan Waring

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