Confusion reigns in online gaming policy

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Ben D. Kritz

The gambling industry that Philippine economic planners have somewhat dubiously decided is worth cultivating has many different forms, and potentially one of the most promising is the online gaming segment. Figuring out what to do with it, however, is proving to be a challenge for government regulators and investment facilitators.

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Online gaming or offshore gaming – the two terms are used interchangeably – refers to internet-based gambling activity involving customers who register and establish accounts with the operator.

Under Philippine Amusement and Gaming Corp. (Pagcor) regulations, only foreigners based in another country who are at least 21 years of age are permitted to take part in online gaming based in the Philippines. Filipinos here or abroad, or foreigners in the Philippines are not allowed to access Philippine-based online gaming providers. Gaming providers may be Philippine-based operations, or foreign operations based elsewhere. The latter presumably means operators who offer gaming services in the Philippines, or foreign operators who set up part of their operations here in the same manner business process outsourcing companies do; the rule is a bit ambiguous, which is just a hint of the confusion in policy.

The advantages of offshore gaming from the Philippine point of view are that, the basic regulations above being what they are, many of the potential social ills of gambling are eliminated. Filipino gambling addicts will have to go elsewhere for their fix, and money laundering through online gambling operations is several orders of magnitude more difficult than it is through a brick-and-mortar casino, although not impossible. The online gambling business can fit into the country’s existing office real estate landscape, since it has essentially the same space and infrastructure requirements as the BPO industry, and in that sense has some appeal for investors, who do not have to lay out capital for large-scale construction. It gives the country another way to employ its growing BPO workforce in the face of stiffening competition from countries like India and China, and of course, is a reasonably reliable source of tax revenue, if managed properly.

The disadvantages are that as of now, the Philippines cannot properly manage it; this was a tacit admittance by Pagcor earlier this week, when it said that the regulator was only in the process of procuring an audit system for online gaming. Pagcor doesn’t have an audit system now, and as a consequence, has no reliable financial data for the sector.

Another disadvantage is that there are a number of different types of businesses within the online gaming sector that naturally fall under different jurisdictions depending on what they do; this has led to conflicts between
Pagcor and other agencies, in particular the Philippine Economic Zone Authority (PEZA).

And finally, the Philippines has a demonstrated vulnerability to cybercrime. Online gaming is a tempting target, and the Philippines’ digital security framework is lacking both in physical and regulatory terms.

As a start to getting a handle on the industry, Pagcor is considering limiting to 50 the number of Philippine Offshore Gaming Operator (POGO) licenses it issues, although the regulator’s stated reason for this had more to do with potential government revenue than it did manageable regulation. As of now, there are 42 licensed POGOs, with applications pending from 12 more.

A thornier problem is that PEZA has taken a dim view of online gaming, and has threatened to revoke the accreditation of any PEZA-accredited building housing online gaming-related businesses. That may be within PEZA’s purview, but it is neither fair nor helpful if the intent is to attract investment and job creation, and may be difficult to enforce. POGOs are just one class of business involved in online gaming; there are also gaming platform/software providers, BPO providers, data and content streaming providers, system support providers, and providers of marketing and customer relations services, all of whom may provide services to clients outside the gaming industry. While restricting actual POGOs or gaming agents (representing wholly foreign operators) may be justifiable, extending those restrictions to ancillary businesses seems unreasonably meddlesome, and will probably discourage some potential locators.

It bears repeating that Pagcor, PEZA, and other concerned agencies are at this point trying to sort out a framework for monitoring and management of a business sector for which they have no reliable current data. Once Pagcor has acquired and deployed its audit system – and there is no word on when that might happen – many of the assumptions that are being made now may change.

If the government wants to develop an online gaming sector, it may be the best move to impose a moratorium on it for now, ensure there is an audit system and sufficient cybersecurity in place first, and then do a comprehensive assessment of the industry’s actual and potential contribution to the economy. The delay in development would certainly be less costly than the almost inevitable scandal that a poorly regulated internet-based industry involving a lot of money would create.

ben.kritz@manilatimes.net

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