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Reviewing Asia’s regulatory revamps
Some of Asia’s key gaming jurisdictions are undergoing a major regulatory overhaul and in this edition of Asia Gaming Briefings we focus on some of the key changes and what they will mean for the industry.
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Firstly, Macau. Legislators in the world’s largest gambling hub are poring over amendments to its gaming law, which will set the course for the city’s casinos for years to come. It was the first major shakeup in regulation for two decades and is the precursor to the bidding process for the casino concessions.
In our first article, we hear again from Carlos Simoes, a partner with DSL Lawyers in Macau. In this edition, Simoes tackles the issue of the satellite casinos, which were seen as the biggest losers in the amended bill, which states that the casino must be in a property owned by the license holder. They have been given a three-year period to reorganize their businesses accordingly, raising concern over the potential impact on employment in Macau.
Over in Singapore, a new law covering the entire gambling industry had its second reading in March. The law will create a new regulatory authority to oversee all aspects of gambling in the city state. The government has said that the changes were necessary due to rapid changes in technology, which have affected how people bet, as well as the increased blurring of lines between gambling and gaming.
Wai Ming Yap, a partner at Morgan, Lewis and Bockius, takes us through some of the changes and their implications.
Australia’s gaming industry has been in turmoil since a 2019 documentary threw the spotlight on money laundering and immigration violations at Crown Resorts. The company has been the subject of numerous regulatory probes, which have also now extended to rival Star Entertainment.
Western Australia has just released the results of its Royal Commission inquiry into Crown, the third high-level investigation, and Jamie Nettleton and Brodie Campbell of law firm Addisons take a look at the latest developments.
Lastly, while Japan’s slow march toward establishing an integrated resort industry inches ahead, other sectors of its well-established gambling industry have seen some interesting changes.
Joji Kokuryo, managing partner of Bay City Ventures, looks at how going online has boosted the fortunes of the country’s horse racing industry, while the iconic pachinko and pachislot parlors are struggling with regulations that make them less appealing to players.
Satellites seen as having future, despite gaming law conundrum
By Carlos Simões* and Paulo Rowett*
Macau’s gaming law amendments will result in a significant reorganization of its satellite casinos, which account for about 45 percent of the total. However, they are unlikely to be eradicated altogether. Carlos D. Simões, a partner with law firm DSL, and associate Paulo Rowett, take us through some of the likely solutions to one of the key concerns in the new legislation.
On January 18th this year, the Macau government published the draft amendments to its Gaming Law, kicking off the current discussion on the fate of the satellite casinos.
Although the term is widely used in gaming industry lingo, there is no legal definition of “satellite casino” under Macau laws.
“Satellite casinos” can be described as arrangements between a concession holder and a third party-owner, under which the hotel owner requests the use of a concessionaires’ license to run gaming operations in a designated area of the hotel, or property.
The concessionaire undertakes all gaming operations, namely supervision of gaming staff, leaving the operation of other hotel services, such as cleaning, F&B, etc. to the owner. In sum, these are gaming establishments technically managed by the gaming concessionaires but de facto indirectly owned and managed by the independent investors in their properties.
Currently, pursuant to Section 7 of Law 16/2001 (Gaming Law), the commercial operation of casino games of chance can only be pursued by one of the three original concessionaires; SJM, Galaxy Casino, S.A. and Wynn Resorts (Macau) S.A., or its subconcessionaires: MGM Grand Paradise, S.A.; Venetian Macau, S.A. and Melco Crown (Macau) S.A..
In reality, satellite casinos are a legacy that goes back to STDM times, which was the predecessor of SJM. During that era there were no integrated resorts, no foreign operators and no Cotai. These satellite casinos were a simple way to diversify the offer available and to involve other business partners.
At the end of 2021 there were 40 casinos operating in Macau:
CONCESSIONAIRES / 2021
S.J.M. - 21
Galaxy Casino, S.A. - 6
Venetian Macau, S.A. - 5
Wynn Resorts (Macau) S.A. - 2
Melco Crown (Macau) S.A. - 4
MGM Grand Paradise, S.A. - 2
TOTAL 40
Of those 40 casinos, 18 qualify as satellites. Only 22 are directly owned and managed by the concessionaires. Of the 18 satellite casinos, a total of 14 satellite casinos are under the umbrella of SJM, while the other four are under Galaxy and Melco Resorts.
Fast forward 20 years and it now seems such heritage is to be discarded, or “purged” as some commentators have noted.
Under an amendment to Section 5, number 3 of the Proposed Gaming Law, the reality of satellite casinos is being reshaped by a draft that rules that “a concessionaire must operate games of chance in casinos in a location where it holds ownership of the real estate (…).”
In one stroke, by inserting this new requirement, the Proposed Gaming Law rules that “satellite casinos” are over and done.
Needless to say this provision has proved to be a focal point in the Legislative Assembly discussions, where local business sectors are well represented - the same business sectors that are also well engaged in the existing satellite casinos.
The recent announcement of the closure of the four satellite casinos managed by the Golden Dragon Group has also served to build up the pressure in the current discussions.
The main controversial point is the transitional period, which will allow some time for the satellite casinos to get adapted to the “new reality.”
The government has proposed a grace period of three years to allow the current operators reasonable time to realign with the provisions of the draft law.
The “start” of the three-year grace period for satellites will match the start date of the new gaming concessions. However, a further extension is being considered by the Legislative Assembly of up to five years, according to recent government announcements. The government is conducting site checks on satellite casinos, investigating and inspecting all properties of the concessionaires for the bill amendment to better suit the local needs.
But the reality is that some solution(s) will be needed once the transitional period ends. What will happen to the satellite casinos after three, or five years?
A possible outcome is the purchase of satellite properties by the concessionaires. Such a solution increases the concessionaires’ responsibilities, granting them full administration and control of non-gaming services and facilities. It is, however, very unlikely that concessionaires will undertake such a considerable investment when the market is performing so poorly.
So far, there is much speculation over ways to address this option. Must the premises on which a casino is operated be 100 percent owned, or just majority-owned (over 50 percent) by the concessionaire? Would a joint ownership or equity investment of less than 50 percent be possible on those properties?
On the other hand, hotel owners may consider dividing the property and transferring the strata area related to the casino, instead of considering a transfer of the entire property, since only the property associated with gaming activity needs to be owned by the concessionaire. This is seen as the best-case scenario and one that will certainly be the case if the third-party operators are allowed to transfer an undetermined share of the overall property and not the specific part where the casino operates.
Of course satellite venue owners may simply take the decision to close when faced with such a transition requirement, resulting in jobs being lost. But it is also unlikely that all the existing satellite casinos will close once deprived of the casino part because there is value in the remaining hotel operations.
It’s undeniable that there is huge demand in Macau for low-cost or budget hotels and this could represent an opportunity to explore. To this extent, the new Law no. 8/2021 on Hotel Activity, that came into force on January 1st, 2022, already introduced a new concept: low cost and budget accommodation.
The new hotel activity law states that low-cost hotels may choose to provide accommodation in single or shared rooms (where a lease can be made per bed). The rooms may lodge four or eight visitors similar to accommodation in hostels.
While offering accommodation in private homes remains illegal, by regulating affordable, legal accommodation solutions, the law amplifies the spectrum of visitors and addresses the usual short nature of their stays in town. This may be an opportunity available for former satellite casinos if they are deprived of their gambling revenues.
Whatever the outcome of this conundrum, the fact is that concessionaires are not overly concerned.
The existence of “satellite casinos” has undermined a gaming system that is supposed to prevent other investors or operators from entering the gaming market. “Satellite casinos” have been operating in a grey area under the concession model outlined by the current Gaming Law and represent a regulatory hazard.
Considering the lack of gaming tourism in the territory due to Covid, the sustained losses, depletion of cash flow and recent travel restrictions for Mainland residents’ trips to Macau, if it were up to the concessionaires, the satellites would most certainly face closure. This would mean that various service industries would suffer, leading to an increase in unemployment and the closure of some companies. It would also undermine the local hospitality sector, where development of gaming peripheral sectors – businesses that combine leisure and hospitality with retail, such as restaurants, bars, café, spa, etc. - are highly inter-dependent.
Although the extinction of “satellite casinos” (as we currently know then) might happen in the near future under the proposed changes to Gambling Law, it’s not likely we will witness the eradication of these small-scale casinos throughout the territory.
These “little casinos” possess a high degree of operational resilience and responsiveness and even with stricter legal provisions, many outcomes are possible.
Carlos D. Simões is a Partner at DSL Lawyers. Paulo Rowett is an Associate at DSL Lawyers.
Singapore’s new regulations to address tech, gaming boundaries
By Wai Ming Yap* and Gina Ng*
The revision of Singapore’s legal framework addresses two main challenges: technology and ease of access, and boundaries between gaming and gambling. Wai Ming Yap, a partner at Morgan Lewis & Bockius LLP, and senior associate Gina Ng, explain the key changes to Singapore’s gaming bills and what they will mean for the industry, land-based and online.
Two bills were passed in the Singapore Parliament on 11 March 2022 to address the evolving gambling landscape in Singapore. The Gambling Regulatory Authority of Singapore Bill expands the mandate of the Casino Regulatory Authority – a statutory board – by reconstituting it to establish the Gambling Regulatory Authority, while the Gambling Control Bill updates gambling laws and regulatory approaches.
The Singapore government has generally adopted a strict but pragmatic approach toward gambling. Gambling is prohibited unless licensed or exempted. Some forms of gambling are allowed in a controlled and safe environment, as the Singapore government takes the view that total prohibition would drive gambling underground and result in greater law and order and other social issues.
The GRA Bill and GC Bill do not seek to change the existing approach towards regulation of the gambling landscape in Singapore but have sought to address two significant emerging trends.
Firstly, technology has led to an increase in online gambling as gambling now can take place anywhere and anytime through electronic devices and smartphones. Secondly, the boundaries between gambling and gaming have become increasingly blurred, which may lead to the normalization of gambling behavior, if left unregulated. In particular, products that were traditionally not perceived as gambling, such as mystery boxes, have now been adapted to include gambling elements.
Establishment of the GRA
Gambling regulation in Singapore is currently overseen by various government agencies. The CRA regulates the land-based casinos, the Gambling Regulatory Unit in the MHA regulates online gambling services and fruit machines, while the Singapore Totalisator Board regulates physical gambling services operated by Singapore Pools. The Singapore Police Force is responsible for enforcement, while the Ministry of Social and Family Development is responsible for social safeguards to address the harms of gambling.
The passing of the GRA Bill will expand the CRA to form the GRA as the single regulator for all forms of gambling to pool and optimize resources and expertise across the Singapore government. The GRA is expected to be established by mid- 2022. The rationalization and consolidation of regulatory oversight is expected to allow the Singapore gambling regulator to keep pace with trends in the gambling landscape more effectively, and take a more holistic and coherent approach to gambling policies and issues. In addition to overseeing existing regulatory regimes, the GRA will also oversee new regulatory regimes, such as the new licensing regime for gambling in private establishments and class-license regimes for low-risk gambling products.
Consolidating existing laws
The GC Bill essentially seeks to consolidate the existing laws regulating gambling outside the casinos. The newly passed GC Bill will cover unlawful gambling offenses and regulation of non-casino gambling and replaces existing gambling legislation, namely the Betting Act (BA), Common Gaming Houses Act (CGHA), Private Lotteries Act, and the Remote Gambling Act (RGA), which will be correspondingly repealed.
The key objectives of the new GC Bill are to address emerging trends and products, such as mystery boxes and loot boxes in video boxes. It also seeks to ensure consistency in the regulatory treatment of different products. Current regulatory mechanisms for gambling are distributed across various legislation and are regulated by the type of gambling products and the modality of gambling, rather than being technology-neutral. Finally, the GC Bill also seeks to enhance existing social safeguards.
Definition of Gambling
The passing of the GC Bill will amend the definition of gambling to make it technologyneutral to cover existing and emerging gambling products. For example, the definition of betting will go beyond horseracing and sporting events to also include the outcome of any competition, event, or process. However, the expansion of the definition will not cover products that MHA has no intention of treating as gambling products (e.g., investments in financial products already regulated by the Monetary Authority of Singapore through other legislation). In addition, to address the transnational nature of online gambling activities, the definition of remote gambling will now also cover situations where the facilities are outside of Singapore, whether in part or in full. The prohibition and offenses under the new law will apply even if the offenders reside overseas, as long as their customers are in Singapore.
Social Gambling
Physical social gambling is not prohibited under current gambling legislation. The Singapore government recognized that such activities are commonplace amongst many Singaporeans, such as playing mahjong at home and law-andorder concerns are low. To provide clarity on the legality of social gambling, the GC Bill clarifies that physical social gambling is exempted as long as the following key conditions are met:
The gambling activity must be conducted in an individual’s home. This excludes public places (e.g. decks, coffee shops, hotels and chalets); The participants must be members of the same family or know each other personally; Social gambling must not be conducted for the private gain of any person who is not participating, or in the course of any business, and no participant should be able to obtain a benefit other than winning. For example, no commission, charges, or fee, should be sought from the participants.
However, online social gambling will continue to be disallowed on the basis that it is difficult, if not impossible, to ascertain whether participants are socially acquainted online. While the police will be practical in enforcing social gambling breaches, enforcement will be firm against criminal gambling syndicates that seek to exploit the exemption to conduct illegal gambling.
Licensing regimes
With the passing of the GC Bill, the GRA will take over regulation from the different governing agencies for key gambling products. The GRA will be empowered to issue gambling operator licenses for certain gambling products, such as fruit machines or recreational clubs, Singapore Pools’ products (both physical and online), and gambling at private establishments such as recreational clubs and societies.
In particular, the GC Bill introduces a new licensing regime for gambling among members at private establishments, such as social clubs and clans. At present, private establishments are not required to apply for a license to have gambling on their premises. They are legally permitted to provide gambling in games such as mahjong for their members within their premises, provided they meet stipulated conditions relating to the types of games and the number of participants. To address concerns of illegal gambling taking root in private establishments, the GC Bill will require a private establishment to apply for a license, which will allow the GRA to screen key personnel for their eligibility to hold a gambling operator license and to introduce surveillance requirements for enforcement at these licensed private establishments.
The GC Bill also introduces a class license regime for the GRA to regulate lower-risk gambling products. Operators offering such products will not need to be individually licensed, including mystery boxes, online games with gambling elements, and business promotion lucky draws. A class license regime differs from a licensing regime in that an operator is not required to apply for a license. The class-licensed operator can operate as long as the stipulated conditions, which will be set out in subsidiary legislation, are satisfied.
Penalties for unlawful gambling
The GC Bill rationalizes offenses and penalties across the existing pieces of gambling legislation. All gambling activities will be prohibited unless they are licensed or exempted, regardless of whether it is conducted online or physically. Unlawful gambling activity will be an offense for all persons involved, including operators, agents, and punters.
A three-tier penalty structure will be applied consistently for unlawful gambling activity and differentiates between operators who set up the unlawful gambling activity, agents who facilitate the conduct of the unlawful gambling activity, and punters who participate in the unlawful gambling activity, The highest penalties will be imposed on operators, followed by agents and then punters (in order of culpability).
Penalties for unlawful gambling will also be increased to send a strong deterrent signal to criminal syndicates. The GC Bill imposes mandatory imprisonment for operators and agents of unlawful gambling activities and will also feature higher penalties for repeat offenders who facilitate or operate unlawful gambling services.
Ban on proxy betting
Proxy gambling in casinos and fruit machine rooms will be criminalized under the GC Bill. Proxy gambling takes place when an individual gambles on behalf of another person, thereby circumventing entry checks which are meant to screen out persons under the entry bans. The offense will only apply to casinos and fruit machine rooms, where law-and-order and social concerns are higher, but not to other settings like the Singapore Pools’ outlets.
Enhanced social safeguards
Under the GC Bill, the minimum age for gambling will remain at 21 years old, except for gambling at Singapore Pools’ physical outlets, which will remain at 18 years old. Three sets of offenses pertaining to underaged individuals are introduced with the GB Bill.
Firstly, it will be a criminal offense for underaged individuals to gamble, whether with legal or unlawful operators.
Secondly, it will be a criminal offense for underaged individuals to enter gambling areas. Singapore Pools’ physical outlets are excluded from this offense as it is not impractical to implement entry checks for these outlets. Opening of online gambling accounts with Singapore Pools by under-aged persons will also be a criminal offense.
Thirdly, gambling with underaged individuals that is not social physical gambling, inducing underaged individuals to engage in gambling that is not social physical gambling, or employing underaged individuals to conduct gambling, will each constitute a criminal offense. The offense of inducement has strict liability to allow for more effective prosecution. This means that a person commits an offense once he sends out any inducement to gamble, and with no need for the prosecution to prove the intent to induce.
Excluded individuals and entry bans
Currently, exclusion orders are issued under the Casino Control Act by the National Council on Problem Gambling (NCPG), the Commissioner of Police, and the CRA. Exclusion orders issued by NCPG prevent persons from entering the casinos to mitigate the harm of gambling to the excluded persons and their families. In addition, individuals under NCPG’s exclusion orders are also prevented from entering fruit machine rooms or accessing Singapore Pools’ online gambling services, using operators’ exemption or permit conditions. The exclusions are, however, carried out administratively, rather than by way of provisions in gambling legislation. There are also no legislative provisions to allow the Commissioner of Police and CRA to prevent persons from entering fruit machine rooms or accessing Singapore Pools’ online gambling services.
The GC Bill, therefore, codifies the current exemption or permit conditions in law, to allow NCPG to issue exclusion orders to persons to prevent them from entering fruit machine rooms and from betting on Singapore Pools’ online gambling products, in addition to being excluded from the casinos. It will also introduce an entry ban by law enforcement agencies and GRA and empower them under legislation to ban individuals who pose law-and-order or regulatory concerns from entering fruit machine rooms and accessing Singapore Pools’ online gambling products.
Advertising and promotion offenses
Currently, the existing gambling legislation criminalizes advertising and promoting unlawful gambling. However, the threshold for proving an Advertising and Promotion (A&P) offense is lower for unlawful online gambling than that for unlawful physical gambling. For online gambling, an A&P offense can be made out as long as there is A&P for gambling without the need to prove that the promoted site provides gambling. On the other hand, for physical gambling, the A&P offense must be linked to actual unlawful physical gambling activities, which sets a higher bar and imposes enforcement difficulties. The GC Bill introduces an offense for advertising unlawful gambling and applies the threshold that is currently in place for online gambling to physical gambling as well.
* Wai Ming Yap is a partner at Morgan, Lewis & Bockius LLP and is also the Managing Director at Morgan Lewis Stamford LLC, a Singapore law corporation affiliated with Morgan, Lewis & Bockius. Gina Ng is a senior associate.
COMMENTS
The passing of the GRA Bill and the GC Bill will lead to wideranging changes to the existing gambling regulatory landscape in Singapore and will have significant implications on all gambling operators operating in Singapore, or who offer gambling activities to persons in Singapore.
Operators of land-based casinos and online gambling (including online games with gambling elements) will need to carefully monitor when the GRA Bill and the GC Bill come into effect and consider the implications it will have on their operations. For example, with the new offense of proxy gambling, casinos will be liable to regulatory action, like financial penalties, if they fail to enforce action against proxy gambling in casinos (e.g. by putting in place measures to detect proxy gambling in casinos or training casino staff to detect proxy gambling). Operators of online games with gambling elements (e.g. mystery boxes and loot boxes) will need to consider whether they fall within the class license regime and ensure that they comply with applicable conditions. As licensing standards and details are expected to be set out in subsidiary legislation and regulations, such gambling operators should carefully monitor the passing of subsidiary legislation and issuance of regulations or other official statements to assess the scope of the licensing regime.
Private establishments, which were previously permitted to offer gambling on their premises without a license (e.g. recreational clubs and societies) should also consider the impact of the new licensing requirements on their activities. Independent legal advice may need to be sought as to how the new laws impact the business of gambling operators.
Interestingly, during the parliamentary readings and debates on the GC Bill and GRA Bill, the Minister of State reiterated that current Singapore law and regulations do not consider chance-based loot boxes as gambling, as long as there are no in-game monetization facilities (i.e. facilities that allow players to exchange virtual prizes for real-world payouts, such as money or merchandise).
The Minister made express reference to the position as set out in the 2015 advisory issued by the Infocomm Media Development Authority (IMDA) on the scope of the Remote Gambling Act. The position was not previously entirely satisfactory as the IMDA advisory is a ministerial statement that is not set out in legislation. It was also not entirely clear whether the IMDA advisory, which was made in the context of the Remote Gambling Act, which will be repealed and replaced by the GC Bill, would continue to apply in the context of the GC Bill. The statements made by the Minister of State in parliament perhaps suggest that the position under the IMDA advisory would continue to apply and that the GC Bill similarly would not target or prohibit social games which do not allow players to convert in-game credits to money or real merchandise.
In response to a query from a Member of Parliament as to whether loot boxes will be considered a lottery if virtual rewards cannot be monetized in the real world, the Minister responded that since these virtual rewards have no real-world value, such loot boxes will not be considered gambling under the GC Bill. The Minister, however, also stated that the Singapore government would be reviewing the landscape of online games of chance, including how to regulate advertisements of online games of chance that fall within the definition of gambling under the Gambling Control Bill. It appears that the advertising of online games of chance that may be considered gambling remains a key concern of the Singapore government and we may see additional regulations in the future in this regard.
The Minister also clarified that creating, or trading NFTs, is not considered gambling unless there is an element of chance involved in their creation or trading. However, gambling services that use NFTs as a stake or prize will be covered under gambling legislation.
Government gambling sees online boom, pachinko/pachislot suffer
By Joji Kokuryo*
When it comes to gambling in Japan, the world has been keenly focused on the development of an integrated resort industry. However, as Joji Kokuryo, managing director of Bay City Ventures writes, the country already has a vibrant and evolving gambling scene.
From the tea-tasting competitions known as To-Cha, the popular Cho-Han dice game often seen in samurai films, to the bright lights and sounds of the modern pachinko parlor, gambling has always been a part of the social fabric of this island country.
These days, Japan has gained international attention with the integrated resorts’ policy that essentially legalizes land-based casinos within its borders. However, casino gaming is a very late addition to the array of governmentmanaged gambling after horse racing, cycling, motorbikes and motorboats. There is also the national lottery, scratch cards and the Toto sports lottery. In a separate category is the “entertainment machine” industry known as pachinko and pachislot.
Land-based gaming regulation is still in its infancy and the newly formed Japan Casino Regulatory Commission should have ample time to prepare for the first casinos to open. In the meanwhile, the past few years have seen notable trends in the operation and regulation of gambling in Japan.
The first and most obvious trend has been the operational success with digitalization in government-managed racing. The national Japan Racing Association (JRA) recorded a betting turnover of over 3 trillion yen ($25.3 billion) in 2021, the first time it has hit the 3 trillion mark since 2003. This is despite Covid-19 causing intermittent closures of satellite betting stations and most racing days being held with no crowds. An all-time low one-year total attendance of 722,670 at live race tracks is about 11 percent of the expected turnout in a non-Covid year.
The JRA owes its success and its 10th consecutive year of growth to the successful transition of users to their online betting platform. Connecting directly with user bank accounts, it became easier than ever for Japanese citizens to bet from home. In 2020 alone, the number of JRA internet members increased by 590,000 and the total number of registrants reached 5 million for the first time.
In March 2021, Japan was included in Google’s list of countries where gambling apps would now be allowed on Google Play. While ears perked up in the international online gaming industry, this change was made strictly for the aforementioned government-managed forms of gambling.
Naturally, similar patterns of digitalization success can now also be seen with all of Keirin cycle racing, Kyoutei motor boat racing, Auto Race motorcycle racing, the national lottery and the Toto sports lottery.
In legislative updates, the national Toto sports lottery, which has always been based on professional football results, will soon be adding domestic B-League professional basketball to its purchase options. Known officially as the Sports Promotion Lottery, the law to introduce Toto was passed in 1998 and the lottery began operation in 2001.
A revised law passed in December 2020 will soon allow for lottery results based on B-League games. This is the first addition to the event slate since the FIFA World Cup, the English Premier League, FA Cup and Football Leagues, and the German Bundesliga. It is very telling that an up-and-coming developing sport in Japan like basketball was chosen and not the uber-conservative yet immensely popular Nippon Professional Baseball League.
The revival and growth of governmentmanaged gambling has not been applicable to the much-ballyhooed Pachinko/Pachislot industry. The market is facing strong headwinds, as the turnover, player counts, number of machines and the number of parlors have all seen varying degrees of decline in recent years. The total number of machines decreased by 4.5 percent from 4,195,751 units in 2019 to 4,004,611 units in 2020, however the bigger issue was the accelerated closures of smaller parlors. The number of total parlors dropped 6.3 percent from 9,639 in 2019 to 9,035 in 2020. Overall revenue drops are also large corporate issues and another topic on its own.
While there are many social, business and Covid factors that have led to a downturn for this bricks and mortar industry, there have also been notable regulatory changes in the operation of the pachinko and pachislot machines that have had an effect on players, parlors and manufacturers alike.
One such change was the revisions released in February 2018 and which have already been put in effect for gradual transition. In a nutshell, the changes called for new specification requirements in how gaming machines paid out credits (in the form of pachinko balls and pachislot medals). Anytime a new set of regulations is put into effect, all suppliers need to produce and test their new games under the new regulations, and all parlors need to eventually replace their machines after a set period of time. Unlike the casino gaming industry, this is not just a change of game media in the same cabinet, a new game means a new box. This in itself takes a financial toll on development, testing and approval costs for suppliers, as well as procurement, marketing and operation costs for the parlors.
From a user perspective, both pachinko and pachislot games are to be less volatile and will prevent players from losing large amounts in a short period of time. The pachinko side has had it better with their new P-Machine regulations and it looks like suppliers have found a balance within the regulations to keep their games somewhat interesting. There were also revisions made in 2019 and 2020 to allow for a bit more leeway on pachinko game volatility. The biggest hit, however, is on pachislot games, which under the new Generation-6 regulations are now required to have clear limits on how many medals can be paid out in one consecutive winning feature. On top of all of the regulatory challenges for the entire industry is the everdwindling player numbers and difficulty in attracting younger generations.
Joji Kokuryo is the Japan-based managing partner of Bay City Ventures.
AUSTRAC Crown probes carry potential for major financial pain
By Jamie Nettleton* and Brodie Campbell*
Investigations into the Australian casino sector are extensive and ongoing, write Jamie Nettleton and Brodie Campbell, a partner and solicitor respectively, with law firm Addisons. In this article, the lawyers outline some of the key updates and their implications.
On 1 March 2022, the Federal financial crimes regulator, the Australian Transaction Reports and Analysis Centre (AUSTRAC), commenced proceedings against Crown Melbourne and Crown Perth concerning non-compliance with Australia’s anti-money laundering and counterterrorism financing (AML/CTF) laws.
Australia’s AML/CTF laws are comprehensive, apply to a wide variety of entities, including casinos, and are directed at ensuring that relevant entities have in place sufficient measures to adequately deter, detect and disrupt money laundering, the financing of terrorism, and other serious financial crimes.
Consistent with findings made in connection with evidence given to an inquiry in New South Wales and the Royal Commissions in Victoria and Western Australia, AUSTRAC has alleged systematic noncompliance by both Crown Melbourne and Crown Perth with their obligations under AML/CTF laws. In particular, AUSTRAC has alleged that Crown Melbourne and Crown Perth failed to:
• appropriately assess and respond to AML/ CTF risks;
• implement appropriate AML/CTF programs and risk-based systems and controls;
• establish an appropriate AML/CTF oversight framework;
• implement an adequate transaction monitoring program to identify suspicious activity; and
• implement an enhanced customer due diligence program and conduct ongoing customer due diligence.
AUSTRAC has alleged over 500 breaches by Crown Melbourne and Crown Perth combined in respect of one provision of the Australian AML/CTF Act alone, namely section 36, which relates to requirements regarding ongoing customer monitoring. In some cases, the breaches alleged by AUSTRAC are ongoing and are too innumerable to quantify.
The maximum penalty that can apply for each contravention ranges from $18 million to $22.2 million.
Similar proceedings have been initiated by AUSTRAC previously, each of which resulted in the imposition of substantial fines. For example: in October 2020, the Federal Court of Australia ordered Westpac Banking Corporation to pay a penalty of $1.3 billion, while in June 2018, the Commonwealth Bank of Australia reached an agreement with AUSTRAC to pay a penalty of $700 million.
AUSTRAC is also looking at several other casino operators in relation to compliance with Australia’s AML/CTF laws. For example, in addition to the Federal Court proceedings against Crown, AUSTRAC has announced that it is currently investigating The Star Entertainment Group, which runs casinos in New South Wales and Queensland, and SkyCity Adelaide.
The potential for money laundering to occur in venues is also being closely scrutinized by the New South Wales Crime Commission (NCC). The NSW Government announced in December 2021 that the NCC was conducting an inquiry into money laundering at licensed premises in NSW. The inquiry will examine the nature and extent of money laundering that may be occurring in NSW pubs and clubs (particularly through electronic gaming machines) and potential vulnerabilities with NSW legislation governing gaming machines, which could be exploited for money laundering.
It is clear that the potential for money laundering to occur in gaming venues is something that will be subject to close attention by AUSTRAC and other Australian regulators. This is also an issue that is likely to be canvassed during the public hearings into The Star, which are currently being conducted by the NSW regulator and which follow alleged AML/CTF shortcomings at Star’s Sydney casino.
Before the AUSTRAC proceedings, Crown had already come under intense scrutiny over money laundering risks and alleged infiltration by organized crime through dealings with overseas junket operators. Both the inquiry in New South Wales and Royal Commission in Victoria made damning findings in relation to Crown, each concluding that Crown was not suitable to hold casino licenses in the respective jurisdictions and recommending that extensive structural and governance changes be implemented by Crown before suitability could be achieved.
In addition to the NSW inquiry and Royal Commissions in Victoria and Western Australia, Crown was also issued the maximum fine of $1 million by the Victorian gambling regulator in April 2021. This fine was related to an alleged failure to comply with regulatory requirements concerning junket operators.
In December 2021, the Victorian gambling regulator again fined Crown the maximum fine of $1 million, also over an alleged failure to comply with regulatory requirements relating to historical junket operations. Following the Royal Commission into Crown Melbourne, the Victorian Government has since increased the maximum penalty that may be imposed by the Victorian gambling regulator to $100 million.
In Victoria, the Royal Commission into Crown Melbourne has already resulted in widespread changes to the Victorian gambling regulatory regime. New South Wales similarly has committed to the establishment of a new independent casino regulator. The extent to which the Perth Royal Commission will result in changes to the Western Australian regulatory regime remains to be seen.
* Jamie Nettleton is a partner with Australian law firm Addisons and Brodie Campbell is a solicitor with the same firm.
Harmony needed in gaming regulations
By Felix Ng*
A slew of gaming industry wrongdoings and compliance mishaps over the last two years have sparked calls from the industry for a more consistent approach to gambling regulation.
During an Australian gaming conference in March, it was argued that the piecemeal approach to gaming regulation has made it extremely onerous for those operating to fight problem gambling and gambling-related financial crime.
Australia’s gaming industry regulators, lawyers and operators said that a harmonized approach needs to not only apply between states and territories, but also across different regulating bodies and industry sectors.
Crown’s chief risk officer, Steven Blackburn said the operator has been facing “interesting challenges” when the responsibilities of state and federal regulators overlapped.
“One of the challenges we at Crown are facing, and that I think many of the other industry players will face in the not too distant future, is that the approach by jurisdictions is different.”
“And I’m certainly not the first you will hear say that harmonization is necessary.”
“I respect that it’s not easy to do. But state and Commonwealth legislation at this point can create division, where collaboration should exist to truly build a beneficial responsible gaming regime and financial crime regime.”
Shared problems
“We need to start with an understanding that the challenges in these spaces do not change because of some arbitrary line in the center of the Nullarbor or along the Murray River. They simply don’t change. They are the same problems in each jurisdiction.”
Even the NSW Bergin Inquiry in 2020-21 recognised that a uniform national regulatory model could be adopted “to afford greater protection for casino operators to the disadvantage of the organized criminals and money launderers”
However, David Green, a veteran in the gaming industry told AGB last year that state governments will be unlikely to relinquish their power to grant and regulate casinos in their territories to the commonwealth government.
This lack of uniformity can also be witnessed in the soon-to-be launched self-exclusion program by Australia’s media watchdog ACMA in mid-2022.
The NSER, as it is currently named, allows individuals to voluntarily exclude themselves from online or phone wagering across the country, including related advertising.
Unify exclusion laws
But the register does not apply to retail betting venues, Keno, lottery, or land-based gaming venues - each of whom have their own venue specific exclusion programs.
“People experiencing gaming-related harm cannot be assisted if they simply jump from a casino that has tighter controls to another casino across the harbor or to a pub or club in the West End,” said Blackburn during a speech at the conference.
Josh Landis, CEO of ClubsNSW made a similar argument in relation to money laundering during a panel discussion on building sector capability - arguing that it did not make sense that a pokies club would not have access to the same information that would lead a casino to ban a certain patron.
“It’s no secret that the New South Wales Police identify for The Star casino who they think is at risk of being a money launderer and should not be allowed in the casino.”
Widen tip offs
Landis said that under “tipping off ” laws, a casino that has banned an individual for suspected money laundering is not allowed to share these details with other parties, such as other gaming venues.
“Change the law. We’ll ban those people too. If it’s good enough to ban them from a casino, then we’ll ban them from a club,” said Landis.
Reflecting on the five-day educational program, Paul Newson, principal of Senet Advisory said that the conference increased the emphasis on collaboration and partnership between regulators and the industry to achieve better outcomes, particularly for responsible gambling and financial crime.
“We are thrilled with how Regulating the Game has been received and key themes that have surfaced throughout the week including the dominance of culture in shaping how effectively key RG and AML related initiatives are implemented, the merits of all stakeholders being active in the public square contributing to public policy discussions, the need for better RG training to support early engagement with customers and support a safer gambling experience.”
* Felix Ng is AGB’s Asia Editor
