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Mainstream, VOL L No 27, June 23, 2012

Legalising Gambling: Is Vietnam Prepared?

Wednesday 27 June 2012

by AMRUTA KARAMBELKAR

Inspired by Singapore’s successful gambling industry, the Government of Vietnam is consi-dering legalising casino-gambling and sports betting. This article is presenting different sides of this issue while looking into the following questions: Why is the government considering this policy? Can the gambling industry deliver as envisioned in the present state of affairs? Would the social cost of gambling industry outweigh the economic benefits?

Background

IT would be useful to understand how this idea evolved. With American gambling markets witnessing a slowdown, Asia is drawing the attention of casino companies. Vietnam in particular is a major attraction with its large population of 90 million and a thriving gambling culture. Many casino companies are trying to encourage the Vietnamese authorities to allow integrated casino-and-convention resorts in the country. The government has been considering legalising gambling and sports-betting since 2008. The idea resurfaced following a visit by Vuong Dinh Hue, the Finance Minister of Vietnam, to Singapore to understand success of Singapore’s betting industry. (The Financial Times, 2012)

Until 2003, except for the state-run lottery, gambling of any kind was illegal in Vietnam. Thereafter the government allowed a few five-star resorts to run small-scale and low-profile casino or electric gambling to cater to foreigners only. There is no licensing policy for these gambling centres; they are approved directly from the Prime Minister’s Office. Vietnamese citizens are, however, banned from entering these casinos. The new policy may adhere to this principle. Investors from the business point of view have, however, a different opinion. They demand allowing local citizens to play in casinos. According to potential investors, Vietnam should also have a proper regulatory framework for the success of this policy. In recent times the Vietnamese economy has been suffering from a high rate of inflation and an underperforming banking sector. The government hopes to improve the situation through wide range of reforms generating more revenue, where casinos seem an attractive option. The Finance Minister sees casinos as business with potential. The policy would eventually also have larger benefits. More number of casino resorts would develop once gambling is allowed. This would generate more revenue. (The government aims to increase the contribution to the GDP from lottery to 4-5 per cent. The present share is about 2.5 per cent.) Subsequently, the government also hopes to increase its tourism potential—like MGM casino resorts will be built around prime locations such as the coastline of the South China Sea. It is argued that by legalising gambling the government would earn the revenue that it loses out to illegal bookies and offshore websites.
Gambling is very common amongst the Vietnamese people. Since there are restrictions on gambling, Vietnamese citizens regularly travel to neighbouring countries like Cambodia and Macau to gamble. They participate in online lotteries (which are of course illegal). It is said that the government wants to cash on money that the locals spend on gambling outside the country by providing similar avenues at home (with appropriate tax policies).

Until 2003, except for the state-run lottery, gambling of any kind was illegal in Vietnam. Thereafter the government allowed a few five-star resorts to run small-scale and low profile casino or electric gambling to cater to foreigners only. There is no licensing policy for these gambling centres; they are approved directly from the Prime Minister’s Office. Vietnamese citizens however, are banned from entering these casinos. The new policy may adhere to this principle. Investors from the business point of view, however, have a different opinion. They demand allowing local citizens to play in casinos. According to potential investors, Vietnam should also have a proper regulatory framework for the success of this policy.

Can Vietnam Implement Singapore-style Model?

THIS section would critically look at Vietnam’s capacity to launch the gambling industry, be it preparedness in terms of infrastructure along with the anticipated ramifications on society. The development of tourism that government envisages from gambling is scrutinised as well.

I

Assessing domestic infrastructure and business environment:

A successful industry requires proper regulation. The Singapore casino model, called ‘the limited free licence model’, is competitive, tightly regulated and free from criminal influences. In this model interested casino companies have to first bid for a limited number of licences. Licences are given on fulfilling set criteria, which is that the companies must be able to attract tourists significantly. So companies build holistic entertainment centres and not just standalone gaming centres. Many gaming centres are actually integrated resorts, named as convention and business centres, that host shopping complexes, art galleries.

Singapore is known for its intolerance towards corruption. It is thus assumed that the bidding process in allotting licences will be done fairly on the basis of fulfilling set criterion. Applications are robustly evaluated to determine the appli-cant’s suitability, financial soundness, sources of funds and suitability of associates and employees. Second, Singapore has a Casino Regulatory Authority to manage the gambling industry. A separate police unit deals exclusively with gambling related crimes. A proper regime ensures safeguards and monitoring.

Contrast all these with Vietnam where corruption is widespread. Although the economy is liberalised, the business environment is not very conducive. This is because of rampant red-tapism and lack of transparency. Central and provincial laws often overlap causing less predictability, unevenness, and inconsistency in policy implementation at various levels. Policies regarding land acquisition are esoteric. Capital mobilisation (financial as well as land) is very difficult. Infrastructure is not adequately developed to encourage large investments. The quality of public services is low. For instance, power cuts occur and these increase operational costs and also discourage companies to go for hi-tech investments.
So far many of the sanctioned projects are not executed due to complicated governance. It is uncommon that thorough assessment is done before granting licences to mega projects. Investors therefore have to find loopholes or bribe to get through. Domestic regulations in Western countries, for example, do not allow such ways. Therefore many serious investors find it extremely difficult to function. So far, a majority of Chinese companies have been able to establish in Vietnam. There is a significant gap between licensed projects and projects that are actually implemented. These observations cast a doubt on the growth projections and benefits claimed by the government.

Ultimately online sports betting require strong financial institutions and regulations to monitor fund transfers. Taxing the gaming and betting activity is a concern for governments across the world. Proliferations of these activities increa-singly circumvent the tax net. Keeping these risks in mind, Vietnam needs to build a strong net to avoid tax evasions. Presently, its monitoring mechanisms are not foolproof. To substantiate, some foreign invested enterprises take advantage of the ineffective transfer pricing mechanisms in Vietnam and claim losses. Even experienced tax officials are not skilful enough to monitor this.

II

The development argument:

The government seems convinced in the potential of the casino industry in promoting tourism. This argument needs to be looked at critically as well. While it is plausible to believe in the eventual development that tourism brings in, it is important to understand that it is a cyclical process. A country needs to build infra-structure in line with its goal. Tourism in Vietnam is not as popular as in other countries in the region. The existing infrastructure is not prepared to host world-class tourism experience.

Vietnam may want to first determine what kind of tourism it wants to promote. Does it want to be a site of holistic holiday experience or does it want to be known for its gambling getaway? The latter model seems to be on the government’s mind. It appears that the government is leaning towards the budget tourism model. Recently a tourism park was opened at the southeast coast; its USP is ‘four-star attractions at two-star prices’. The proposed mega casino project, to be developed by MGM and Pinnacle in Vietnam, is, according to experts, modest by the industry standards. Nor is it viewed as high-return investment. A majority of tourists in Vietnam fall into the middle level and budget category. It is argued that once legalised, casinos will come up in large numbers across the country. Provincial governments believe that it would develop hitherto isolated areas. This is nothing but postulation. Interested casino companies are looking at areas around Hanoi and Ho Chi Minh City to establish those. These areas are prime and (by national comparison) already developed.

Besides development of tourism, the Vietna-mese Government targets an increase in employ-ment to support its policy. This again is a postulation. In Singapore, most of the casino employees are foreigners. If Vietnam puts restriction on locals to enter casinos, it is unlikely that it would allow them admission as employees. It may be a blanket ban on locals.

III

Social impact:

Gambling is extremely popular in Vietnam. But it is also a serious social and cultural problem. Many believe that legalising gambling will add to social problems. It will provide more avenues, so there would be more gambling and therefore more crime. It will worsen associated crimes like thefts and prostitution. These reservations need to be understood in detail.

Legalising gambling could see the rise in a number of foreign mafias operating in Vietnam. The most striking of gambling-related crimes is the Blackjack scam involving the Filipino mafia. These gangs talk tourists into a friendly game of poker which turns into extortion and theft. Reportedly many persons have gone into hiding after running into gambling debt with these mafias. The presence of the foreign mafia should be worrisome for the government which is striving to stop the outflow of money illegally. Also, there is a connection between gambling debts and prostitution in Vietnam. Many girls and women get into prostitution to pay off gambling debts. Criminal gangs are said to trap persons with young daughters into gambling.

As argued earlier, corruption is a chronic problem in Vietnam. More gambling avenues can exacerbate corruption as seen in Macau where many government officials are believed to be playing with gains from corruption. This money is also said to be pumped into organised crimes in China. Can similar occurrence be ruled out in Vietnam? The underlying argument is that if legalising gambling causes rise in crime, can Vietnamese law and order agencies in its present state tackle it?
Generally legalisation is seen as a solution to a problem. By allowing more freedom to an activity, the associated crime is said to be controlled. The experience in Vietnam is different. To imagine the impact of legalising gambling, an analogy could be drawn to legalising the farming of an endangered species in Vietnam. It is observed that this policy resulted in rise in poaching and theft of animals from wildlife. By expanding demand, it only accelerated extinction. One therefore wonders whether any serious deliberation goes in formulating important policies.
One may infer that Vietnam does not have appropriate monitoring mechanisms. Like wildlife conservation, legalising gambling has complexities involved and these need serious thought.

All the benefits of legal gambling that the government enumerated will be meaningful only if professional companies operate (apart from overall preparedness on the part of the govern-ment). These investors demand liberalising the gambling policy to allow locals. Investors are drawn to a population of 90 million that enjoys gambling. They do not essentially depend on a limited number of foreign tourists for business. That would increase the risk significantly. Logically, no investor would venture in such a territory. That leads to two possibilities. One, the government would allow locals to gamble (say by levying heavy entrance fee). If not (and two) then it is critical to look at the profile of investors who can comply with the govern-ment’s policy. In the latter case, the policy impli-cations argued throughout in this article gain prominence. The potential and intention of such investors must be carefully understood.

Conclusion

FIRST and foremost, the Vietnamese Government needs to critically examine whether it is ready to establish the casino industry. The existing casinos have not helped tourism. As a matter of fact, none of these casinos has expanded in the last eighteen years. Meticulous homework is indeed necessary. Pros and cons must be studied in depth. Liberalising gambling would need robust institutional preparations and systemic enhancement in law and order. Regu-lations need to be consistent and transparent with uniform execution; else, it will only add to the existing problem of corruption.

Launching any big industry requires that serious consideration is given to its execution and holistic implications. Singapore is successful because of its governance. In the present state of affairs in Vietnam, the economic benefit visualised through gambling is an over-expectation. Unless there is a systemic overhaul, the gambling industry will only benefit those in government and the police.

Amruta Karambelkar is a Research Officer, Southeast Asia Research Programme, Institute of Peace and Conflict Studies, New Delhi. She can be reached by e-mail at amruta@ipcs.org

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