Casinos: All that glitters is not gold

What Could Go Wrong?
As outlined in my 2009 article, there are some negative issues to be confonted and, in particular, criminal, social and economic. My experience as a risk management consultant with companies in the gaming industry in the Far East leads me to reflect on these three risk exposure areas and what the Cyprus authorities may have to deal with. In this article, I do not want to dwell on the social and economic downsides. Although clearly the latter two exist and cannot be eradicated, I believe that they are less problematic and, with appropriate safeguards, should be kept under control. Gambling addiction, for example, is not created by the advent of casinos but, for such addicts, access to casinos may encourage excess.
Gambling addiction involving serious personal debt may lead to crime and a negative impact on families and society. In response, some countries, such as Australia and Singapore, require casinos to maintain a register of known gambling addicts who must be refused entry. Gambling addicts (or their families) can add their name voluntarily in Singapore. Perhaps Cyprus should adopt a similar system.
In my latest book Corporate Risk and Governance*, I present the case study of a finance manager at Asia Pacific Breweries in Singapore, Mr Chia Teck Leng, who forged company documents in order to cheat a number of banks out of €90.6 mln to feed his casino gambling addiction. In 2004, he was jailed for 42 years. There are countless lesser cases of individuals commiting fraud and theft to fund their gambling addiction. There are many documented cases of suicides and murders of desperate gamblers in Hong Kong and Macau who have fallen victim to loan sharks and credit stings. As stated above, casinos are not the cause but a catalyst.
As for potential economic distortion created by a mega casino complex, for a small country such as Cyprus having a limited number of principal revenue sectors, I will refer readers to my 2009 Risk Watch article and leave further discussion of this to the economic experts. The economic benefits are clearly attractive and, in my view, outweigh any economic disbenefits.

Internationally Organised Criminals
Casinos are like a honeypot for legitimate operators and organised criminals alike because of the huge sums of cash in takings. By owning, or more likely secretly controlling a casino, a criminal enterprise can do double book-keeping and declare false low earnings, thereby paying far less tax and siphoning off the undeclared money. In addition, casinos provide an ideal vehicle for laundering ‘dirty’ money coming from other criminal activity. Casinos also provide a hub for other criminal activity, especially trafficking of drugs and people, often involving prostitution.
The bigger the casino opportunity, the more likely that the criminals attracted to it will be ‘big fish’ from outside the country. The international gangs are better organised, more sophisticated, better funded and far more ruthless and quickly take over or eliminate any local criminal influence or control of casinos. Once embedded, they are notoriously difficult to root out.
The priority for government and law enforcement is to prevent criminals of any sort from owning or otherwise controlling any casino or from ‘setting up shop’ anywhere near a casino. Keeping organised crime, especially the international gangs, out of gambling is a major headache for the authorities in countries that already have casinos. It will be a huge task for a small country such as Cyprus. The sheer scale of the new threat will probably overwhelm the existing resources of the local police. A whole new approach, strategy and specially trained resources will be needed to combat the threat now long before the casino complex is built and opens.
Unlike Hong Kong, which has an effective Independent Commission Against Corruption working closely with the HK Police and the HK Jockey Club, Cyprus has no such robust protective framework for the gaming industry. Singapore has an extremely effective national criminal intelligence system working proactively and closely with the immigration department, the police and economic crimes unit to keep organised criminals out of Singapore let alone the gaming industry. Unlike Singapore, Cyprus just has MOKAS (the anti-money laundering unit) working reactively and piecemeal with the police if and when the Attorney General decides to pass it a case to investigate. By then it is usually far too late. And, of course, the exclusive focus on money laundering bypasses other financial crimes. The track record of prosecutions, successful or not, against major organised criminals, other ‘white collar’ criminals and the corrupted individuals that they all rely on in any sphere, not just gaming, appears to be almost zero. No doubt they would counter that the reason for no prosecutions and convictions is that such criminal activity is infinitessimally small! Hmmm, really? What about all the money laundering allegations? What about the current spate of revelations and allegations concerning activities in BoC and Laiki/Popular prior to and possibly after the March 2013 financial crisis? What about the CYTA pension fund land purchase at Dromolaxia? Any bets on whether any criminal proceedings will result from any of these?
Until relatively recently, the government’s position was that corruption is not a significant problem in Cyprus, arguing that its small population is a deterrent per se against corruption as evidenced by so few cases being identified. The Council of Europe’s GRECO (Groupe d’Etats Contre la Corruption) reports on Cyprus (2005 and 2010) stated bluntly that a small population was in fact a greater threat because of familial and friendship ties and suggested that the reason for so few court cases was more to do with lack of motivation and willingness to investigate and prosecute than to the existence of corruption. As Andreas Chrysafis put it in 2010:
    Unfortunately, laws have also become victims of corruption. They are forever being broken and abused by corrupt officals under the very noses of the authorities, and yet, those responsible to uphold the law frequently refuse to take positive action on prosecuting the offenders. The reason for this is simple: nepotism and corruption!
The relevance of corruption to the new casino context is two-fold. First, with such a large investment involved, there will be temptation for project bidders, contractors and others to engage in bribery and corrupt relationships so as to secure lucrative outcomes for themselves. Officials working in the various authorities that will be involved in the issuing of licences, obtaining due diligence reports, selection of bidder lists, awarding of contracts, approval of financing, etc. are particularly a target for bribery and corruption. This is where the second cancer attacks. Organised criminals seeking to control the Cyprus casino industry will set out to bribe, corrupt and, if necessary, intimidate and coerce at all levels as many police officers, lawyers, deputies, judges, public officials and company directors as they possibly can.
A thorough review of the law enforcement capacity and resource requirements in Cyprus in relation to the new casino industry is therefore now urgently required in order to combat this threat on a scale unseen in Cyprus before. Without it, I regret that Cyprus could be turned into a rather nasty and possibly violent place.