Regalado, Julie Ann: Enforcement of Anti-Gambling Laws on Non-PAGCOR Accredited Online Gambling Sites

SY 2008-2009, First Semester


INTRODUCTION

It has been said that Filipinos are natural-born gamblers, from the humblest barrios to the most affluent villages, Filipinos are into gambling. The abundance of casinos, lotto and bingo outlets in some of our most luxurious hotels, as well as the propagation of municipal cockpit arenas, card games and “cara y cruz” on city streets could very well attest to the fact that indeed, we are naturally-born gamblers.

A recent study suggests that gambling has its roots in traditional Asian culture. The Chinese, in particular, are said to hold strong beliefs in luck, fate, and chance — concepts that many Filipinos, given China’s strong historical influence in the Philippines, also live by, and thus explain their gambling ways.

While many would justify gambling as just a form of recreation, further referring to it as a “harmless pastime”, it is still undeniable that a lot of precious time and money are being wasted in this kind of activities. The amounts of money, no matter how small they are, which were lost to wagering could have been use to a more productive pursuits such as investing or spent to provide for a families basic needs.

Base on the present trend, it is expected that the addiction to gaming will increase as the Internet allows a gambler to compete with anyone in the world, twenty four (24) hours a day. Nowadays, the Philippines is becoming a popular destination for global operation of gambling sites due to the government’s ability to issue online gambling licenses for online casino sites. This move, as claimed by the authorities, is our government’s last straw to boost its income since online casino operators in the Philippines pay a 2 percent tax on their gross winnings. This move even it tantamount to tolerating Filipino’s gambling ways does not seem to sway our government pursuit to a greener pasture.

Having said this, I will now try to tackle the issues surrounding the legality of online gambling which is now being promoted by our country, touching on the issues on how it is being regulated by the government and what could done to suppress its adverse effects.

GAMBLING GOES HI-TECH

In line with the modernization and the emergence of computer technology, our country surely has gone a long way compared to how were in the early days of gambling. The “bookies” who jumps from one house to another, or rounds the entire “barangay” asking people for their bets may in the near future lose their source of income over a computer that could take people’s bet in the convenience of their homes through the use of their credit cards. Too bad for them, the popularity of the Internet allowed the surge in online gaming, as well as in online gambling.

As defined, Internet gambling is the transformation of casino games of chance and skill to the internet, through the use of technology that recreates the experience found in a land based casino.

The concept of playing a computer-based game while sitting in a multi-billion dollar casino may be a stretch of the imagination for some, but the technology that is moving rapidly made it possible thereby enhancing the gambling experience.

When compared to the land based games, little difference exists between the contents of an actual gambling room and the online venues that can be accessed from most anywhere by anyone who has a computer and an internet connection. Minus the perks of having your own cocktail waitress and endless dose of alcohol, the games played in front of one’s computer are within reason the same with the real thing. It could be said that the land or in some cases the riverboat gambling venues provide the gambler with the same service, only at times fewer choices of games to play due to local ordinances determining available games.

The Philippines, a deeply conservative Catholic country, is not exactly familiar with online gambling. Perhaps, the only idea of Filipinos have of it is the failed and short-lived attempt of a company called Sage to introduce online gambling in the country a few years back. So far, the closest thing to Internet gambling that Pagcor (Philippine Amusement and Gaming Corporation), the agency that has the sole mandate to operate legalized gambling in the country, has initiated is an online version of the once popular basketball “ending” betting game. This game which is described as “first Internet gaming offering” of Pagcor allowed bettors to play by logging on to the website (http://www.basketballjackpot.net) using prepaid cards sold in Internet Sports Betting Stations. In order to play, a bettor must be of legal age and residing in the Philippines. A corresponding prize is given to the player who correctly picks the right number combinations in the final score of a game in the PBA (Philippine Basketball Association) or PBL (Philippine Basketball League).

However, only recently, having realized the financial opportunities which may be derived from this kind of activities granted the government (also through Pagcor) granted a ten year contract to broadcast live, in-progress casino table games from Filipino casinos to Kenilworth using Roulabette.

The PAGCOR’s Roulabette(TM) is a method and system for placing wagers on live, in-progress casino table games such as roulette, baccarat and dice from locations remote from the actual casino tables at which the games are taking place. The system begins at the casino, where television cameras in strategic locations above the casino table games follow the games being played at the casino tables, and microphones pick up the sounds of the table play. The game play is transmitted via digital satellite and cable transmissions to subscribers who are able to wager by using set top boxes which receive the broadcast of the game and record wagers and results. It is expected to boost the revenue of the government, which in turn will be used to fund various government projects.

In addition to this, Internet Gambling does not only refer to the playing of casino style games via a computer, it extends to other electronic mediums such a the multimedia cell phone, handheld computing devices, interactive television, and the like. In our country where almost everybody owns a cell phone or a television unit inside their homes, it is inevitable that we may have participated in a wagering activity which we could now aptly consider as Online Gambling. While many states have horse racing and other forms of sanctioned gambling whereby the player funds the account and then either using the telephone or an interactive television terminal selects races, places a bet and awaits the outcome. Ours include regular sports betting services like basketball or football games and even cockfights as well. These gaming accounts have the potential to be applied to lottery subscriptions, cell phone based sports betting and electronic scratch off tickets as well. The result of which is a potential for revenue generation and an expansion into a market that is more technologically savvy then the average player of today.

Indeed, the computer has come of age in gambling and the progression towards home-based entertainment is more logical than the prohibitionist policies that have attempted to dominate it.

PHILIPPINES: NEW INTERNET GAMBLING MECCA?

The transition of online gaming has really come a long way and it seems that the Philippines is embracing this in strides.

In the northernmost municipality in the province of Cagayan, a new kind of IT activity is emerging: and unknown to many, these are real online casinos being hosted right on Philippine soil which is better known as on-line gambling.

Good thing is, it is off-limits to Filipinos.

These online casinos are being managed by a Filipino-led company located at the Cagayan Special Economic Zone and Free Port (CSEZFP) in Sta. Ana town where it now operates an online gambling hub. The company, First Cagayan Leisure and Resort Corporation, has been awarded by the zone’s administrator, the Cagayan Economic Zone Authority (CEZA), with a “master license” to operate “Internet gaming.”

This master license allows First Cagayan to issue seven (7) year interactive gaming licenses successful applicants (foreign entities) who would want to operate online gambling. Being the Master Licensor, Cagayan First shall be in charged of processing applications and determining suitability of prospective operators. Applications fees are at Forty Thousand US Dollars ($ 40,000), Twenty Five Thousand Dollars ($ 25,000) of which is refundable should the applicant not be successful. The application fee includes the first year’s annual fee. In the second and subsequent years, annual fees are set at $ 40,000 per annum and includes up to $ 15,000 as an advance against future taxes. Taxes as set at two (2) percent of gross win.

According to Mr. Albee Benitez, President of First Cagayan, the company is allowed to issue as many licenses as possible. These licenses allow successful applicants to conduct all approved forms of Internet gaming, with little or no restrictions. Operators will be afforded the luxury of expanding their business to encompass all forms of online gaming, under one license.

To date, First Cagayan website lists sixteen (16) foreign corporations that have been given licenses to host their services at the economic zone. This, according to Mr. Benitez, is due to the fact that operators receiving a Cagayan license enjoy the benefits of a competitive fee structure, low tax regime, proximity to the lucrative Asian market and sensible levels of regulation.

LEGAL BASIS OF ISSUING THE “MASTER LICENSE”

The Cagayan Economic Zone Authority (CEZA) officials pointed as legal basis a provision of Republic Act 7922, the law that created the special economic zone and which was passed in 1995 with Sen. Juan Ponce Enrile as the main author.

Section 6 (f) of the said law gave the CEZA the right “to operate on its own, either directly or through a subsidiary entity, or license to others, tourism-related activities, including games, amusements, recreational and sports facilities such as horse racing, dog racing, gambling casinos, golf courses, and others, under priorities and standards set by the CEZA.”

Early on, legal debates regarding to the establishment and operation of casinos within the eco-zone have already been conducted by various tribunals and quasi-judicial bodies. However, all of these seemed to have been resolved in favor of the legality of the provision. While the law did not specifically cite “Internet gaming” or “online casino” as among those classified as tourism-related activities, the CEZA said it has already resolved this issue through legal discussions, including one which it conducted with Pagcor.

Due to this provision, the Cagayan eco-zone is currently the only eco-zone in the country that has the legal capacity to host and issue online gambling license to offshore companies.

But then, the real question is — how is CEZA able to offer online gambling without infringing the license of Pagcor and encountering the legal roadblocks that have doomed the earlier effort of Sage? According to CEZA, licenses are given only to offshore-based corporations in order not to intrude in the territory of Pagcor which is the only agency allowed to operate games of chance in the country.

This means that players based in other countries are the only ones allowed to access and place bets on the online games hosted at the CSEZFP. Operators cannot accept bets originating from within the territorial jurisdiction of the Philippines and/or on sporting events held within the country.

THE GOVERNMENT’S STAND ON ON-LINE GAMBLING

The state-owned and controlled Philippines Amusement and Gaming Corporation [PAGOR] is the sole authorized gambling operator in the Philippines. The company operates casinos, bingo, sports betting and betting exchanges online and through brick-and-mortar establishments.

In 2000, PAGCOR authorized the Sports and Games Entertainment Corp as the exclusive operator of the Philippines’ only online casino. The company launched http://www.sagecasino.com in August of 2000 while facing opposition from the Philippine government. In 2001, the online gaming industry was nearly shut down by the President of the Philippines, but Internet gaming survived the incident due to the leader’s impeachment in the same year.

2002, the government opened its Internet gaming industry to competition when it granted Philweb Corporation control of online casinos. Philweb works in cooperation with PAGCOR to regulate and tax online gaming sites based in the Philippines.

January 17, 2004, the Supreme Court has unanimously declared null and void a franchise for online gambling that was given to private firm by Philippine Amusement and Gaming Corp. In its 10 (ten) page decision the high tribunal said Pagcor acted beyond the limits of its authority when it permitted Sports and Games and Entertainment Corp. (SAGE) to operate sports betting and Internet gaming stations.

Without ruling on the jurisdiction of PAGCOR over internet gambling, the Supreme Court seems to agree with the contention of Senator Robert Jaworski that PAGCOR is not authorized under its legislative franchise, P.D. 1869, to operate gambling on the internet for the simple reason that the said decree could not have possibly contemplated internet gambling since at the time of its enactment on July 11, 1983 the internet was yet inexistent and gambling activities were confined exclusively to real-space and that the internet, being an international network of computers, necessarily transcends the territorial jurisdiction of the Philippines such that the grant to SAGE of authority to operate internet gambling contravenes the limitation in PAGCOR’s franchise, under Section 14 of P.D. No. 1869 which provides:

Place. – The Corporation [i.e., PAGCOR] shall conduct gambling activities or games of chance on land or water within the territorial jurisdiction of the Republic of the Philippines. x x x

Also in 2004, the Philippine Amusement and Gaming Corp. (Pagcor) had given its approval to listed gaming firm PhilWeb Corp. to operate an internet casino. Pagcor will keep half of the winnings from the country’s first online casino. From this agreement, Pagcor would operate thirty-three (33) Internet casinos in Metro Manila, One thousand (1,000) betting stations nationwide and will launch an Internet sports betting site called BasketballJackpot.net.

November 2005, the National Bureau of Investigation (NBI), on behalf of Philippine Amusement and Gaming Corp. (Pagcor), raided a hangar leased by British Grand Vision International Co. and TransGlobal Pacific Airways after weeks of surveillance. The NBI team led by special agent lawyer Renato Murcuap confiscated various casino and online computer gaming paraphernalia, resulting in the filing of cases illegal gambling against the two firms’ employees and officials. The case was however dismiss by the City Prosecutor by holding that the Internet gambling was not covered by Presidential Decree 1602 (prescribing stiffer penalties on illegal gambling) and that a law that prohibits gambling over the Internet is necessary to prosecute suspected operators.

December 2006, Judge Omar Viola of the Regional Trial Court granted the motion to invalidate the search warrant used by the NBI in raiding the suspected Internet casino’s premises at the Civil Aviation Complex inside Clark.

At present, the NBI has filed a petition for review of the case, which is pending with the Department of Justice. The NBI maintained that although there were “no live players,” there were actual online players who bet money on games that depend wholly or chiefly upon chance or hazard—which is outlawed by PD 1602 and Article 195 of the Revised Penal Code.

The outcome of the DOJ’s review would resolve whether or not the case could be elevated to the court. Aside from the pending petition for review at the DOJ on the dismissed illegal gambling case, the NBI is also defending the legality of the raid it conducted on a suspected Internet casino at the Clark Special Economic Zone on Oct. 17 last year.

The said case now undeniably stands as the gateway legislation that, if properly upheld, could help regulate the onslaught of widespread, illegal gambling

A LUCRATIVE MARKET

In the meantime, the legal issues on online gambling are hounding countries around the world. How the government will regulate online gambling and to what extent it will be restricted are a few of the many complex issues that must be addressed.

While some country such as the Unites States, has already implemented rules to implement the Unlawful Internet Gambling Enforcement Act passed by Congress in 2006, our country seems to veer on the opposite direction.

Obviously, the reason behind this is that our country is need of additional funds and the internet gambling industry is one lucrative opportunity for us to raise additional income for the government’s national funding requirements. While it is stressed that the grant of this franchise will also help regulate Internet gaming in this country, it would seem that our government would still enter this agreement without considering the latter benefit because of dire necessity of earning more money.

There is no question that Pagcor has been raking in more and more money under the present administration. In the last seven years, state-sponsored gambling in the country has expanded at great speed across geographical regions, games, and onsite and online platforms. Pagcor today operates a virtual gaming kingdom: 13 casinos in major Philippine cities, eight VIP (very important person) clubs, three slot-machine arcades, 180 bingo parlors, and a lucrative Internet casino platform using prepaid cards.

Online gambling, or what it calls interactive gaming, is indeed a lucrative niche market. From a business perspective and at more realistic point of view; the Internet Gambling industry is a multi-billion cash cow, with revenues anticipated to grow at double digit rates over the foreseeable future.

INDUSTRIES’ REGULATOR

This brings us to the topic of regulation. Countries, like ours, which allow online casinos to operate must implement strict guidelines and regulations that make sure the casinos operate legitimately. We must make sure the casino pays out when players win, and that they ensure that published odds match the actual odds programmed into each game. Some countries are not so strict about regulation and may be more interested in taxing the casinos than making sure that they play fair however it is the state which issues the certificate that will be put on the spot when their licensee are involved in any shenanigans.

The following are some of the measures implemented by our State to regulate on-line gambling —

PAGCOR’s Three-pronged mandate

Pagcor was created in 1977 by then-President Ferdinand Marcos, through Presidential Decree 1067-A, as a 100-percent government-owned and -controlled corporation. The agency acquired a 25-year charter on July 11, 1983 under Presidential Decree 1869, and was allowed continued existence by Marcos’ immediate successor, Corazon Aquino, as well as by subsequent presidents.

The charter assigned Pagcor with a three-pronged mandate: regulate all games of chance, particularly casino gaming in the country; raise funds for the governments’ socio-civic and national developmental efforts; and help boost the country’s tourism industry.

Under that old charter, Pagcor alone was allowed to run and operate legal gaming and gambling, and typically, in what are called “special economic zones.” But since Pagcor was granted a new charter last year, it can now set up, sub-franchise, and approve casino operations anywhere in the Philippines.

The caveat is that under the new charter, as it was in the old, Pagcor can do so only with the consent of local government units.

Special laws and penal sanctions

Through the implementation of Presidential Decree 1602, the Philippine Gambling Laws such as Articles 195-199 of the Revised Penal Code (Forms of Gambling and Betting), R.A. 3063 (Horse racing Bookies), P.D. 449 (Cockfighting), P.D. 483 (Game Fixing), P.D. 510 (Slot Machines) in relation to Opinion Nos. 33 and 97 of the Ministry of Justice, P.D. 1306 (Jai-Alai Bookies) and other City and Municipal Ordinances or gambling all over the country which prescribe penalties inadequate to discourage or stamp out this pernicious activities; has now been amended to prescribe a stiffer penalties on illegal gambling in order to make these laws more effective in combating this social menace which dissipate the energy and resources of our people.

CEZA’s Control

While CEZA, and consequently First Cagayan as the master licensor, appear to have the necessary legal foundation to issue licenses for offshore-based online gambling operators, CEZA should still exercise diligence in giving out licenses as these may be exploited by unscrupulous entities and allow the latter to operate legally. Ultimately, the Philippines will be put on the spot should an operator commit any fraudulent acts since its certificate was issued by our government.

It would seem that, there would be no problem in allowing offshore-based online gambling firms to host their services here as long as they do not offer the games to the local population, otherwise they would be infringing PAGCOR’s jurisdiction.

According to First Cagayan’s President Albee Benitez, the company has instituted strict rules and regulations for the protection of the operator, the players and the public as well, these measures are as follows:

a) A license will not be issued until the operator’s software has been tested and certified by a recognized testing agency. A comprehensive reporting system will be in place along with stringent security measures that ensure the operation and its software are fair and remain accountable;

b) To ensure that players would be paid with their winnings, the operators would be required to maintain sufficient funds in a bank account to meet player winnings. These funds will be monitored by the regulator.

c) In the event of a dispute between the operator and the players, the regulator will arbitrate in all cases. There are also severe penalties involved for operators that do not comply with the company’s code of practice.

d) As for the processes that cover underage gambling, self-exclusion and blocking wagers where internet gambling is illegal, the company’s code of practice addresses this issue by prescribing penalties for their violation or non-compliance. Cagayan First also encourages operators to use procedures and systems that would identify problems and illegal gambling. A self-exclusion option is also mandatory.

LEGALITY OF ONLINE GAMBLING IN OUR COUNTRY

While other countries have already made their stand for or against on-line gambling, ours seem to be placed somewhere in the middle. While we already have established laws, primarily criminal statutes which seeks to penalize those who participate in illegal gambling, we are yet to determine whether these laws could actually be applied to online-gambling activities. Moreso, issues of jurisdiction and sovereignty make gambling laws even murkier. Since the players are gambling within the privacy of their own homes it became difficult to prosecute and convict online gamers. And because players are almost never prosecuted, we’re left with an illegal act that generally goes unpunished. Such that, if an off-shore casino decides to cheat a player out of winnings, and online gambling is illegal in that player’s locality, the player will have a difficult time suing the casino.

CONCLUSION

Going through a lot of articles, materials and sites regarding illegal gambling, gave me more questions than answers. My search on the internet for the latest jurisprudence or laws that were issued by the government which would suggest the jurisdiction of non-PAGCOR on-line games, proved to be futile. What I only have with me (and which I am submitting together with this report), is a list of the proposed bills related to on-line gambling drafted by several members of the House of Representative which are still pending at various Committees of the the House at the time I accessed the Senate of the Philippines Website last September 16, 2008. For lack of additional materials that are available regarding this matter, I’m slowly beginning to think that the decision of the city prosecutor who dismissed the case filed against suspected illegal online-gambling operators in Clark might have been right after all. The City Prosecutor’s conclusion that there is a need of an anti-internet gambling law to prosecute the suspects for their unauthorized gambling activities may have a ground to stand on.

All told, the control of gambling will always be a matter left up to the states under their police powers. Gambling involves not only the health, safety and welfare of a state’s citizens, but issues of morality.

These are almost always questions for state governments to decide. Our government is a government of limited power; its role is to aid their states in implementing state exercises of police power, and not to dictate morality for the entire nation. Our government could only implement rules, it is in their people to apply and obey them.


BILLS PENDING APPROVAL FROM THE SENATE RE: ONLINE-GAMBLING

Date Filed: 2006-07-20

Full Title: AN ACT PENALIZING FRANCHISERS, OWNERS, LICENSES AND OPERATORS OF GAMING OR SIMILAR ESTABLISHMENTS WHO ALLOW MINORS TO ENTER THEIR ESTABLISHMENTS OR BETTING STATIONS

Subject/s: GAMING, YOUTH

Principal Author: CATALINO V. FIGUEROA

Date Read: 2006-07-31

Abstract: The bill seeks to punish franchisers, owners, licensees and operators of gaming and similar establishments who allow minors to enter their establishment or betting station by arresto mayor and a fine of P20,000.

Primary Referral: GAMES AND AMUSEMENTS

Bill Status: Pending with the Committee on GAMES AND AMUSEMENTS since 2006-07-31

Session No.: 13-1RS-022

Date Filed: 2004-09-27

Full Title: RESOLUTION DIRECTING THE COMMITTEE ON GAMES AND AMUSEMENTS TO INQUIRE, IN AID OF LEGISLATION, ON THE LEGALITY OF OPERATING ‘TEXT-GAMING’ BY THE PHILIPPINE CHARITY SWEEPSTAKES OFFICE AND THE PHILIPPINE AMUSEMENT AND GAMING CORPORATION

Subject/s: GAMING

Principal Author: SANDOVAL, FEDERICO II S.

Date Read: 2004-10-25

Primary Referral: RULES

House Committee Report No.: 00211

Date Approved on Second Reading: 2005-01-18

Bill Status: Adopted Resolution (Pending with the committee on GAMES AND AMUSEMENTS since 2005-01-18)

Session No.: 13-2RS-060

Date Filed: 2006-04-03

Full Title: RESOLUTION URGING THE CITY AND MUNICIPAL GOVERNMENTS, THE PHILIPPINE NATIONAL POLICE AND OTHER CONCERNED GOVERNMENT AGENCIES TO STRICTLY IMPLEMENT LAWS, DECREES OR RESOLUTIONS PROHIBITING MINORS IN BINGO ESTABLISHMENTS OR PLACING BETS IN ANY LOTTO, HORCERACING BETTING STATIONS, COCKPIT ARENA AND CASINOS

Subject/s: GAMING

Principal Author: MITRA, ABRAHAM KAHLIL B.

Date Read: 2006-04-04

Primary Referral: GAMES AND AMUSEMENTS

Bill Status: Pending with the Committee on GAMES AND AMUSEMENTS since 2006-04-04

Session No.: 13-2RS-065

Date Filed: 2006-05-18

Full Title: RESOLUTION DIRECTING THE COMMITTEE ON OVERSIGHT TO CONDUCT AN INQUIRY, IN AID OF LEGISLATION, INTO THE RELEVANCE OF EXISTING LAWS ON GAMBLING AND OTHER FORMS OF GAMES OF CHANCE, WITH THE END IN VIEW OF ENACTING LEGISLATION THAT WILL ESTABLISH THE NATIONAL GAMING COMMISSION

Subject/s: GAMBLING, GAMING, LOTTERIES

Principal Author: SUAREZ, DANILO E.

Date Read: 2006-05-24

Primary Referral: RULES

House Committee Report No.: 01882

Date Approved on Second Reading: 2006-08-29

Bill Status: Adopted Resolution (Pending with the committee on OVERSIGHT, GAMES AND AMUSEMENTS since 2006-08-29)

Session No.: 13-3RS-041

Date Filed: 2007-02-07

Full Title: A RESOLUTION URGING THE HOUSE COMMITTEES ON TRANSPORTATION AND COMMUNICATIONS AND GAMES AND AMUSEMENT TO CONDUCT INQUIRIES, IN AID OF LEGISLATION, INTO THE ALLEGED “TEXT GAMBLING,” ADVERTISED AS “TXTCITING” BY GLOBE TELECOMM INC. AND “TEXT TO MILLIONS” BY SMART COMMUNICATIONS INC. OTHERWISE GAMES OF CHANCE BY THE USE OF SHORT MESSAGE SERVICE (SMS) OR TEXT MESSAGING

Subject/s: GAMBLING, TELECOMMUNICATIONS

Principal Author: SYJUCO, JUDY

Date Read: 2007-02-08

Primary Referral: RULES

Bill Status: Pending with the Committee on RULES since 2007-02-08

Source: Official Website of the Senate of the Philippines


References

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