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2 June, 2011  ▪  Bohdan Butkevych

Pony Up

Ukraine may very soon see the revival of the gambling industry, but the windfall profits will go only to those closely linked to the current government

There are at least 500,000 active gamblers in Ukraine. Over 50% of them regularly bet at international gambling sites leaving millions of dollars in the pockets of witty dealers every year. Subject to persecution by law in most Western countries, virtual casinos are openly advertised on national TV channels in Ukraine.

VIRTUAL ADRENALIN 

The law which bans playing and running the gambling business in Ukraine was passed in 2009 and is still in place. It classifies any “game involving bets by players and prizes where the outcome is partly or fully random” as gambling. The law defines gambling business as “the activities of arranging and running gambling at casinos, gambling machines, bookmakers, and virtual casinos for the purpose of earning revenues.” After this bill was passed and licenses previously issued were cancelled en masse, casinos were forced to camouflage themselves as Internet clubs where players were offered online gambling instead of fruit machines. On 5 April 2011, the Verknovna Rada passed a bill in the first reading envisioning a complete ban of online gambling as well. The purpose was to eliminate any form of gambling business in Ukraine.

“Most casinos closed or found a new form in which to exist. Pretending they are computer clubs, they remain gambling spots – only the bets are placed online,” explains Yuliya Tymoshenko Bloc MP Nataliya Korolevska, the sponsor of the bill. “They often use foreign sites to avoid troubles with the police. That’s why I suggested amendments to the law which bans gambling. Our bill covers any games involving cash bets and prizes. The primary purpose of the bill is to eliminate online gambling.” 

Experts say most Ukrainian gamblers have switched to online poker over the past two years. The web offers a widespread network of virtual poker clubs where people can play from home computers, while owners don’t have to pay the rent for Internet clubs or feel the constant risk of police raids. 

Law enforcers admit that the effective legislation does not give them sufficient authority to fight fake Internet clubs, which effectively provide access to virtual casinos and poker clubs.  “Last year, the police withdrew nearly 3,000 game imitators and servers in Kyiv,” says Volodymyr Polishchuk, Head of Public Relations Department at the Interior Ministry’s Headquarters in Kyiv. “We are working to remove gambling facilities, but we cannot go beyond effective legislation. Of course, we can close down a gambling club, but we are in fact unable to convince players who gamble on foreign sites from their PCs to stop.”

A PATH TO UKRAINE

Most Ukrainian gamblers play on websites which are part of poker networks registered at game servers outside Ukraine (see chart). “There are virtually no Ukrainian online casinos and poker clubs, only a few closed clubs for VIP guests,” says Oleksandr, an experienced online poker player.  “Mostly, people play on American sites – they are well-advertised and have systems to guarantee that your prizes and bets are safe. And the police won’t catch on you.” 

Ukrainian legislation bans placing game servers in the country, yet they can be rented in countries where gambling is not a crime and there is no chance of charging the tenant. 

The struggle with gambling on the Ukrainian Internet, including poker games, unfolded at the same time as a big scandal on the opposite side of the Atlantic. On 15 April the US Attorney General charged the owners of Full Tilt, PokerStars and Absolute Poker, the biggest online poker companies in the US, with illegal bank transactions, money laundering and illegal gambling. Eleven individuals were charged, including the founders of the portals.  Federal prosecutors in Manhattan claimed that these companies were trying to evade US laws which banned banks and credit card holders from paying bets and prizes through banks. Billions of dollars went through the accounts of shell companies processed as payments for golf balls or jewellery. According to the Attorney General's office, the dealers lured bankers into transferring funds through these specific offshore accounts in exchange for multimillion-dollar investments.

 Persecuted by Attorney and the FBI in the US, online casino operators flourish under the jurisdiction of Ukrainian law enforcers. PokerStars, a virtual casino, promises valuable prizes to everyone who joins the gambling community on prime-time Ukrainian national TV channels. Mega and NTN TV channels which are part of the media holding owned by Valeriy Khoroshkovsky, Chief of the Security Service of Ukraine, broadcast poker tournaments hosted by PokerStars. The chance to audition for the show costs nearly US $600. Poker fans have told the Ukrainian Week that the number of players in virtual casinos always grows after such programs.

A GUIDE TO POKERONOMY 

"I have a card to pay for playing online. It’s a regular Visa card,” says Oleksandr. “I just go to any bank, put some money on the account and entertain myself. It’s quick and convenient. You can’t lose more than the amount on your account because they don’t allow overdrafts.”

All gamblers polled by the Ukrainian Week believe that US law enforcement is just wasting its time trying to eliminate virtual gambling houses as in most cases servers are located outside the US. “Most players on American websites are Europeans, especially Eastern Europeans,” Oleksandr explains. “A lot of experienced Ukrainian gamblers go to PokerStars at night when many Americans play there. They are much less skilled than Europeans in turning an easy game.”

“I have friends who quit their jobs and lived on poker alone,” another gambler shares. “Their hobby turned into work. It’s hard for amateurs but professionals can earn a decent amount, especially once they become residents of a popular online club representing it in their country. It’s a profitable business which nobody wants to quit. People who hang out at PokerStars and other websites are not stupid at all – they are doing their best to develop their businesses.  Now you can create your own small clubs within a portal. I set up one for my friends so that we could easily play at work. It has 20 members.”

According to expert estimates, at least 500,000 active poker players live in Ukraine including 250,000 regular online gamblers. An average bet is around US $50. “My biggest win was US $2,500 for a game,” says Oleksandr. “I won on Friday night and got the money on my card account next Wednesday.”  The scale of gambling is huge: PockerStar alone hosts 2,000-5,000 tournaments at the same time, while the number of players often exceeds 100,000.” Virtual casinos charge US $0.01-$0.05 of each pot for their organization services. The hosts can earn over US $1m over just one day.  

OFFICIALLY PROTECTED 

Many Ukrainian poker fans are members of the Ukrainian Sports Poker Federation which is legitimately on the list of non-for-profit NGOs. Two years ago, when gambling business was banned by the special law, the Federation forced the Justice Ministry to classify poker as a sports game, not gambling, through a court verdict. The Justice Ministry did not object too much. However, having obtained the sport status for its business, the Federation has not quit hosting tournaments with bets in cash. Notably, the Federation is chaired by Oleksandr Yedin, an MP from the Party of Regions. 

The statements that the Federation has nothing to do with gambling look even more absurd given the reputation of its Board Members. They include Oleksandr Rykov, the founder of Sportum, a privately owned gambling organizer; and Oleksandr Antonov, the co-founder of Donetsk-based NGO called the Association of Gambling Business Employees. This proves that the Federation is backed by people involved in the gambling business and is not merely for fans of a card game of skill. 

Many who participate in tournaments arranged by the Federation claim that the brand is widely used as legitimate cover-up for gambling. “They arrange a tournament for 20 teams,” says player Mykola. “Three teams play under legitimate rules and everyone else places bets in cash.”

Surprising as it is, rumours have it that the parliament supported the above mentioned initiative to ban gambling thanks to the promoters of the gambling business. They are interested in demolishing all alternative forms of the industry to later bring it back as a legitimate business with all rules crafted to their taste. “The Verkhovna Rada already has a bill registered to legalise gambling,” Ms. Korolevska said, adding. "Parliament is likely to consider it very soon.”

She is talking about bill #8401 On Gambling, submitted to Parliament on 18 April by Serhiy Osyka, a Yuliya Tymoshenko Bloc MP. Despite his membership in the opposing faction, Osyka is believed to be linked to Oleksandr Yedin and a group of lobbyists promoting the revival of the gambling business. The bill entails state monopoly in arranging cash lotteries and other gambling. If it is passed, the National Gambling Organizer will be the only authorized agency to regulate lotteries, betting houses, and casinos – physical and virtual. It will license the gambling business across all of Ukraine. Moreover, it will decide on the number of licenses and how much they cost, as well as enforce gambling laws. Consequently, those who manage to gain control over this national authority will in fact become the private owners of the entire gambling industry. A look at the sponsors of the bill makes it clear who is vying for the status. 

Experts are already raising the alarm. “In Ukraine, this National Gambling Organizer idea has every chance of turning into trivial corruption,” says Serhiy Skok, Director General of SV Solutions law firm. “It looks like the government is going to re-legalise gambling by 2012.” European football finals are expected to lure many tourists to Ukraine next year and gambling dealers can’t wait to shake their wallets.

Bill #8401 also entails tough financial requirements for gambling business operators including statutory capital of at least UAH 75mn and equity of EUR 5mn. Obviously, this requirement will serve as a filter guaranteeing that only huge operators get licenses. Before gambling was banned in Ukraine, companies with Russian roots had been the leaders in the local gambling market. The system proposed today also looks convenient for the international gambling industry. So, if PokerStars shares its revenues with the local lobbyists, it will become perfectly legitimate in Ukraine.  

An average online bet is nearly US $50. Gambling operators can earn US $1m over one day 


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