GAMBLING WITH THAILAND

Gambling with Thailand

Pasuk Phongpaichit

Draft extract from Utsahakam kan phanan, February 1999

There is a lot of gambling in Thailand. An estimated 70 percent of adults gamble regularly, and the total value added involved is huge—possibly over 200 billion baht a year. With some small exceptions, all of this gambling activity is illegal.

Should gambling be legalized? Some people think so. Some people oppose the idea very strongly. It is a subject which excites very strong opinions.

In this book [Utsahakam kan phanan, the gambling industry], we do not support legalization, and we do not oppose it. Rather, we do not think it is up to a few people—whether they be academics, politicians, or businessmen—to decide. It is an issue for the Thai people as a whole.

And it is a very complex issue. It involves questions of principle, and also of practicality. We take the view that the issues of principle are up to each individual, and we do not address these questions in this book. But the issues of practicality deserve to be explained, so that people can understand them better.

In recent years, many countries around the world have legalized certain forms of gambling. So the question of practicalities can be discussed with reference to the real experience of other countries. We have made a study of these countries, so that the Thai people can have the benefit of these other countries’ experience.

From our study, we believe this issue of practicality has two main parts. First, whether it is legal or illegal, gambling always has a social and economic impact. From the experience of other countries, what difference does legalization make to this social and economic impact? Second, there are many different ways in which a country can manage legalized gambling. We look at the legal structures and management frameworks in some of the major countries with legalized gambling. If the Thai people do decide they want legalized gambling, this information can act as a guide.

A Large and Attractive Industry

In our study of the size of Thailand’s illegal economy in 1994–95, we included three major forms of gambling. We came up with the following estimates:

Estimated turnover Estimated value-added

Bn baht/year Bn baht/year

Underground lottery 81-98

Football gambling 12-16

Casinos 45-163

In addition to those we studied, there are other forms of gambling including horse-racing, the stock-market lottery, and betting on boxing, cock-fighting and similar events. Only horse-race gambling is legal, and even then most of the betting takes place outside the legal channels. As a rough estimate, we expect the total gambling industry is 20-30 percent larger than the total of the three segments we studied. Since our study related to 1994-5, football gambling has probably increased, especially with the interest surrounding the World Cup in 1998.

These figures are large. But it is not true that Thais are excessive gamblers compared to other countries. The proportion of people who gamble, and the amount as a percent of GDP, are about the same in Thailand as in Australia and other countries.

In recent years, several governments around the world have legalized gambling to raise revenue. In Thailand, there are certain people who would like to do the same. In particular, they would like to legalese casinos.

In fact, we already have a semi-legal form of casinos. There are now at least several casinos located just beyond Thailand’s borders, but easily accessible by Thai nationals: on Victoria point in Burma, accessible by shuttle boat from Ranong; at the Ko Kong border crossing and at Phratabong in Cambodia; across the Burmese border in Chiang Saen; and at some places in Laos. One of the worst injuries suffered by a Thai soldier in 1998 resulted from a fight in one of these casinos. The soldier was gambling in the Ko Kong casino when Khmer Rouge troops attacked to claim unpaid protection money. He was hit by shrapnel.

One common theme of these cross-border casinos is the involvement of Thai political figures and businessmen. According to press reports, four big Thai loggers and border traders are investors in the Ko Kong venture; the “son-in-law of a big politician” has a stake in Victoria Point; an “elder brother of former deputy finance minister Praphat Phothasuthon” heads the group running the Chiang Saen project; and a businessman with close links to the New Aspiration party, is involved in another.

During the term of General Chavalit’s government 1996-7, the Interior Minister, Snoh Thienthong, actively campaigned to legalize casinos. In particular, he promoted the idea of a casino on Phuket island to promote tourism.

Hearing of our interest in the gambling industry, General Chavalit (while prime minister) summoned this research team to discuss the issue with his advisers. He hope we would support legalization of casinos on economic grounds. We said that the government should reform the police first. As long as the police are a problem, legalizing casinos will not eliminate the illegal ones. Besides, legalization is a sensitive public issue, and Chavalit’s government might come under attack for espousing it. One of Chavalit’s advisors responded sharply: the research team should give advice only on economic issues, and leave political concerns to the politicians.

Besides this approach, we were also approached by foreign gambling businesses who hoped we would support legalization. Our response to all these enquiries was the same: we are not campaigning for or against legalization, merely collecting data for educating the Thai public.

We mention these approaches to emphasize one point. There is pressure to legalese gambling in Thailand, coming from both local and foreign interests. That is not surprising given the amounts of money involved. Moreover, this pressure comes from powerful politicians and heavyweight international business interests. There is a clear danger that the issue could be decided by the pressures of power and money, rather than proper public debate.

The debate.

As part of the illegal economy study, we conducted a survey on attitudes to legalization of gambling. The survey did not attempt to represent the whole population, but simply to take a preliminary reading of urban middle-class opinion. The methods included both questionnaire survey and focus-groups, so that we could gauge not only the distribution of opinions, but the reasons behind them.

The survey found opinions divided almost equally for and against legalization. More importantly, the probe into the reasoning behind the two camps revealed a very wide gap of difference.

Those who favour legalization argue from a standpoint of practicality. Gambling is already widespread. Suppression does not work. The income currently supports "influential" and corrupt people. Legalization would capture some of the income for social purposes, enable better controls, and counter the role of "influence".

Those opposed to legalization approach the issue from a standpoint of principle. They argue that the state has a duty to suppress vice; and that the state should not be seen to condone, encourage, or profit from an activity which is opposed to Buddhist precepts. Legalization would amount to legitimation, endorsement, and encouragement. It would send a message to society that gambling is an acceptable activity. It would increase access to gambling games and encourage compulsive gambling. It would result in an increase in the negative effects which result from gambling—poverty, debt, idleness, irresponsibility, broken families, crime.

Another aspect emerged when this issue was further debated at a national seminar on this research and on subsequent phone-in programmes on radio and TV. Many people distrust the current police force and politicians. They believe that legalization would not be appropriate without police reform and political reform. In the absence of better law enforcement, they fear that legalization will not reduce the importance of illegal gambling enterprises, but rather give them more legitimacy. They do not believe the police will be able to control access to gambling for young people. They think that legalized gambling will provide ways for people with political connections to make more money. In short, they fear that legalization will result in no net social benefit, only private gain.

These attitudes are very far apart. The pro‑legalizers contend that such arguments from principle are irrelevant because the state simply does not have the will or power to suppress gambling. The anti‑legalizers ignore the practical aspects on grounds that principle comes before everything.

This is a stalemate. The short-term result is that gambling will continue to flourish, but increasingly beyond the reach and control of the authorities. Influential people will continue to benefit from protection. The damage to society and economy is certainly greater than would occur if gambling could be better controlled.

The present policy of making gambling illegal may benefit society to some extent in that it makes some gambling games less accessible. But it does not mean that such a policy entails no social cost. One of the major costs is the corrosive effect on the police. There are many honest and good policemen who are not involved in protection of gambling. But they can be disheartened and discouraged by the behaviour of some colleagues. Good policemen may not receive due promotion on account of their work and their integrity alone.

Another cost lies in the connections between gambling and organized crime syndicates which have links with some important policemen and generals. These syndicates also extend their protection rackets to other businesses.

There is clearly no easy answer to the legalization issue. Any way ahead must win the support of a significant majority in Thai society. That way ahead can only be found by bringing the issues into the realm of public debate.

Not an Easy Issue

Legalizing gambling looks like an easy way for government to make some extra revenue and increase foreign exchange inflow. The money our big-shot gamblers take overseas will stay here. Foreign gamblers and tourists will be attracted here. Government can make more revenue with little investment.

But it is not quite so easy. It is not easy to manage. It is not a trouble-free pot-of-gold for the tax-gatherer. In this study, we looked at the legalized gambling industries in the UK, USA, Australia and Malaysia. We visited these countries, looked at the casinos, and talked to owners, regulators, gamblers, and other interested parties. Here we summarize some of the key issues.

Gambling is now a globalizes business. This has two important consequences. First, most of the profits go to international operators who have the technology and experience. The casino at Ko Son (Victoria Point) in Burma may be owned by Thais and patronized by Thais, but it is operated by an Australian company and staffed by Filipinos. Second, the market is global. High-roller gamblers travel to the most attractive locations. If Thailand is to succeed in this business, it must have some special advantage to attract this mobile market. At present, on a global scale, the market is over-supplied. Many countries have launched into the casino business in recent years because it looked like easy money. And most now are not doing well because the world-wide supply of casinos exceeds demand.

Legalizing casinos increases the amount people spend on gambling, and reduces the amount they save. Many studies show that open legal casinos attract people who have never gambled before, increase the amount of compulsive gambling, and raise total spending on gambling, particularly among lower-income groups. In Melbourne, Australia, the rate of saving by households dropped from 10 to 3 percent after a legal casino opened.

Lower-income groups are the most vulnerable. Supporters of casinos always talk about the easy profits from high-rollers who have enough money to lose. But experience shows this is a small part of the business. The big profits come from developing a mass-market for low-stakes gambling and slot machines. Casino-operators know this, and they use high-pressure techniques to develop this market. They provide free transport for bored housewives and old people, and offer incentives (free drinks, meals) to increase spending levels.

Governments get hooked on gambling even more than the players. Once a government earns revenue from gambling, it has a vested interest in increasing that revenue. Gambling operators know this, and know how to put on pressure, especially when the revenue falls because of recession or market competition. In Australia, authorities started out with a commitment to limit the number of slot machines because these machines attract lower-income customers and are very compulsive. But later the authorities found these machines very attractive. The return is high. Control is easy because it can be managed electronically. So the authorities let the operators lobby them to increase the number. Victoria how has 27,500 machines and New South Wales has 80,000. The result is a very regressive form of tax because the slot-machine players are mostly low-income earners.

Financial control is far from easy. The casino industry is all about money, and government has to be very careful if it wants to get its allotted share. All governments which allow legal casinos have large official monitoring bodies. In Las Vegas the Gaming Control Board has a large staff for investigation, enforcement and auditing. In Melbourne, the police has units stationed permanently inside the casinos. In all states in Australia, officials and casino staff sit every day in a room surveyed by video cameras to count the takings. The government has invested in mammoth computer systems to hook up all the tens of thousands of slot machines scattered around the state. Anyone supplying the casino, even for something as simple as food and drink, has to go through rigorous security and probity checks. Police and officials patrol the casinos 24-hours a day. Video cameras scan every inch of the premises. Employees have their identity cards checked at random.

Why this care and expense? Obviously because a business with so much money sloshing around is prone to crime and cheating. These countries have bureaucracies and police forces which are relatively free of corruption. How would we apply similar levels of control in Thailand? Would it work? What would it cost?

Organized crime targets the casino business. Big international mafia groups have a lot of experience with casino operation and are keen to get involved. The authorities in both the USA and Australia impose very stringent conditions on licensees, and use rigorous security checks and public hearings to screen out gangsters. Still they are not always effective. In the USA recently, mafia groups came in the back door by first taking up subcontracts to supply food and drink to the casinos, and then gradually controlling the licensees through influence and blackmail.

Elsewhere, organized crime simply finds casinos useful places to launder their money. Casino operators refuses to acknowledge this for fear of losing wealthy clients. Authorities turn a blind eye unless violent crime breaks out. Anti-money laundering laws provide some constraint but are not 100 percent effective.

Casinos attract other forms of organized crime, especially loan-sharking. In Australia, organized gangs are expert at giving loans at very high interest to addicted gamblers. Recently there has been a series of high-profile murder cases resulting from these loan-shark operations; and cases of women forced into prostitution by the loan-sharks.

Political interests are attracted by gambling. Governments in the USA, UK, Australia and other countries have strict laws to bar companies which have any political associations from operating casinos. But this also is very difficult to manage. Despite these laws, in one Australian state the treasurer of the ruling party and another friend of the premier have major stakes in the casino company. In the UK, the award of the contract for the national lottery was very controversial, and an executive of the winning company has since been convicted of attempted bribery. Again, how would we manage this in Thailand?

Promoting gambling can mean promoting crime. Because of the global over-supply in the casino business, casino-operators compete to attract the wealthy players. So-called “junket operators” are paid to fly in tour groups of high-rollers. The authorities and junket operators are supposed to screen out undesirable players. But the fact is, many of these high-rollers are drug-dealers and the like. A police consultant in Sydney described to us how he had identified major drug-dealers from Thailand, Taiwan and elsewhere among the junket tours.

Summary

These are the realities of the international casino business today. These realities do not necessarily mean that Thailand should give up the opportunity to have legal casinos to increase revenue and foreign exchange. But we will have to deal with these realities.

If we think this business is easy to launch and manage, then we may make a big mess of it. International mafia gangs. Loan sharks. Increased compulsive gambling. Proliferation of slot machines. Lower household savings. Political interests tied up in management. Big leaks in revenue. Even more corruption among police and authorities. We have difficulty managing VAT and airport tax revenue. How well do you think we will do with casino revenue?

Several Australian states recently launched casinos after careful studies and with very stringent laws. But the business is now in the doldrums. In Australia and many states in the USA there are now calls for major re-evaluation of the casino industry.

Many of these problems are manageable. But we would need very strict legal controls. We would probably want to bring in expert management with a clean track record from outside. We might have to subcontract monitoring systems to outside experts also. We should think carefully about location, access, slot-machines and other issues which have social consequences.

Most of all, we must make sure that the politicians and others who support legalization are not simply creating a lucrative source of private profit for themselves, at high social cost. We have enough of that sort of thing already.