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Shadowy operators power Duterte's offshore gaming boom

Lawmakers question value of online casino industry registered in tax havens

Of the 60 offshore gaming operators licensed to operate in the Philippines, over 80% are registered outside the country, mostly in the British Virgin Islands.

MANILA -- It has created 470,000 jobs. It contributes over $11 billion to the economy. It has even sparked a diplomatic clash with China. The strange thing is, nobody is sure who fully owns it.

It's not as though the Philippine offshore gaming operators who are transforming Manila, known collectively as POGOs, are invisible, although the owners are mostly anonymous, according to information gathered by the Nikkei Asian Review.

On even the most casual stroll through Makati, the capital's financial district, hundreds of online casino workers can be seen streaming out of office towers, chatting among themselves in Mandarian and Cantonese as they come off their 12-hour shifts taking bets or luring gamblers in via WeChat.

While at work, staff appear online as croupiers and poker dealers, some of them scantily clad in lingerie to help keep the interest of punters based mostly in China, where online gambling remains illegal.

Branded the "most dangerous tumor in modern society, detested by people all across the world" by China's government, the online casinos have no gaudy, flashing lights to draw customers and can only be played by people living outside the Philippines.

Yet of the 60 POGOs set up in the Philippines since 2016, most are registered either in the British Virgin Islands, or other tax havens including the Seychelles, Belize, Samoa and the Isle of Man, where the identities of company directors and owners are hidden from public view.

Only 15 POGOs are registered with the Bureau of Internal Revenue, and only six pay taxes according to Senator Joel Villanueva, an independent aligned with President Rodrigo Duterte and a staunch critic of the gambling industry. Meanwhile, only 16 POGOs are registered with the Philippine Securities and Exchange Commission, the corporate regulator, Nikkei has learned.

As these POGOs are registered in low-regulation, low-tax jurisdictions lie thousands of miles from the scrutiny of other agencies, such as the Securities and Exchange Commission, their presence in the Philippines raises the inevitable question: Who runs them, and are they just a front for money laundering?

In a statement to Nikkei, the Anti-Money Laundering Council revealed that it was already looking into the POGO industry to "understand peculiarities and trends in the flow of funds of online gaming operators and licensees" that will assist in the conduct of a money laundering and terrorism financing assessment of the sector.

"Included in this study is the determination of the volume of transactions of POGOs, both coming to and going out of the Philippines," the AMLC said in a statement. "It also includes information about the origin and destination of such funds. These are helpful in assessing the extent of money laundering risks Pogos are exposed to taking into account the peculiarities of their operations."

Senator Villanueva told Nikkei that in his view the Philippines as a whole was not benefiting from the sector.

"It's only benefiting a small portion of the society, primarily the real estate [business]," Villanueva said, adding that he had already alerted authorities to "the risk of money laundering" posed by the rise of POGO operations in the Philippines.

In August, Villanueva passed a Senate resolution calling on the Labor, Employment and Human Resources Development Committee to investigate the offshore gaming industry, focusing in particular on the influx of foreign workers to service the industry, the prevalence of fraud and money laundering, and whether enough tax is being paid.

The gaming regulator, the Philippine Amusement and Gaming Corp. or Pagcor, which requires POGOs to submit an anti-money laundering plan, did not respond to requests for comment. Pagcor also declined to disclose who owned the business, citing local privacy protection laws introduced in 2012 that were intended to protect individuals' personal data in the growing digital economy.

Stephen Cutler, director at Philippine tech consultancy Guide Meridian and a former U.S. FBI agent based in Manila, said that seeking registration in domains such as the British Virgin Islands, whose key selling points include low taxation and secretive banking rules, does not necessarily imply wrongdoing.

Scantily clad croupers and dealers help keep online gamblers interested.

"But I would say that a BVI registration raises an eyebrow because why would they have BVI registration when they do business here?"

While mere registration in the British Virgin Islands did not automatically translate to a money laundering violation, the Anti-Money Laundering Council said possible tax evasion was a concern for all jurisdictions.

"The Financial Action Task Force standards consider tax crimes as a predicate offense for money laundering," the AMLC told Nikkei.

Several other lawmakers have also signaled their intention to probe the industry.

"I call on our financial intelligence and law enforcement units to dig deeper into the personalities behind the gambling enterprise of both the POGOs and the casinos," Representative Robert Ace Barbers said in a statement.

Barbers also urged Pagcor to ensure proper due diligence of the sector, arguing that organized crime and drug syndicates may be using offshore gaming as a vehicle for money laundering.

Money laundering and corruption are a major theme in the Philippines. On Monday, Oscar Albayalde, the head of the Philippine National Police was forced to step down amid allegations that he protected officers who had resold confiscated drugs and received some of the profits.

Earlier this year, the Philippine Department of Justice charged five local bank officials with money laundering over their role in the $81-million Bangladesh Bank cyber heist in 2016. Some of the stolen money were laundered in casinos.

Other congressional leaders led by deputy Speaker Eddie Villanueva and Ways and Means Committee Chairman Joey Salceda have also also called for hearings on possible security threats arising from the proximity of offshore gaming hubs to military and police camps, as well as the industry's impact on the Philippine economy.

Pagcor first began issuing offshore gaming licenses in 2016, triggering such explosive growth that the industry now rents more office space than the business process outsourcing industry, a major export earner. POGOs snapped up 386,000 sq. meters of office space from January to September this year, 34% of total demand.

"The POGO sector has gone ballistic," said David Leechiu, CEO of top broker Leechiu Property Consultants. "It has really become aggressive."

The online gaming boom has angered China, which under Duterte has become the Philippines' closest regional ally, committing around $45 billion worth of investment in the country since he was elected president in 2016. In September, Duterte defied a personal request from Chinese President Xi Jinping to shut down the industry, saying he decided "that we need it" because "many will lose jobs [if it stops]."

While the offshore gaming boom has boosted the real estate sector, which was facing a slowdown three years ago, Jun Neri, an economist at the Bank of the Philippines Islands, questioned whether the industry benefits the broader economy.

"Does it make us Filipinos, in general, more productive or does it just make property and consumer goods more expensive and less affordable to the ordinary Filipino?" Neri said. "Some even ask whether Filipino taxpayers end up bearing the burden of providing a livelihood to illegal aliens and enriching the owners of underground activities."

Authorities are in no doubt about the dangers posed by the industry. "If they leave," said central bank governor Benjamin Diokno, who also chairs the Anti-Money Laundering Council. "It would be better because there will be no risk for money laundering."

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