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Russia: Kremlin Sets Its Sights On Gambling

(RFE/RL) PRAGUE, October 19, 2006 (RFE/RL) -- Speaker Boris Gryzlov has announced that the State Duma is set to consider the first reading of a new bill that would push the bulk of Russia's gambling halls into four Las Vegas-style "colonies."

Gryzlov, reacting to President Vladimir Putin's initiative and subsequent suggestion that his gambling bill be approved as soon as possible and without obstruction, on 17 October predicted that the Duma would overwhelmingly approve the measure. The third and final reading, Gryzlov predicted, could come as soon as November.

Presidential Message

During the course of an October 4 meeting with the heads of Duma factions in which he outlined the lower house of parliament's top priorities, Putin pulled no punches in criticizing the country's gambling industry. Equating Russia's gaming addiction with the serious "material and moral damage" inflicted by alcoholism, Putin said severe measures were in order.

To this end, he presented the lawmakers with his new bill. It calls for the federal government to reimpose state regulation over gambling, and to sweep small-time casinos and slot machines from the streets of Russian cities.

Instead, the gambling industry would be concentrated by 2009 into four regional gaming colonies -- two in European Russia, one in Siberia, and one in the Far East. His bill, however, does make a provision for another type of gaming zone that would allow regional and municipal authorities to oversee smaller gambling centers on their territory, albeit under very restricted and specific conditions.
Slot machines are a common sight in Russian railroad stations, grocery stores, clinics, bus stops, and community centers.

Many observers linked the timing of Putin's initiative to Russia's political crisis with Georgia. This argument followed on the shuttering of four large casinos in Moscow with ties to ethnic Georgians.

But a more likely scenario is that Putin merely saw the opportunity to use the Georgian crisis to his advantage. In regaining state oversight of the gambling sector, he could take control one of the most rapidly growing and problematic sectors of the Russian economy. In addition, the Kremlin could also benefit by using the growing antigambling movement as a populist platform ahead of the 2007-08 parliamentary elections.

Gambling Boom

Gambling in Russia was relatively underdeveloped in the 1990s, when the country was making the transition to a market economy and the majority of its citizens were too poor to take an interest in games of chance. But the situation changed radically by 2002, as rising oil revenues began to trickle down to ordinary Russians. This phenomenon coincided with the state's relinquishing of control over gambling to the State Sports and Tourism Committee and to regional and municipal governments.

In anticipation of huge tax revenues, local authorities issued gambling licenses very liberally and ushered in a period of exponential growth. Some estimates have placed the number of slot machines in Russia today at 400,000 or even 500,000, compared to 70,000 one-armed bandits in 2003. Combined, the major U.S. gambling centers of Las Vegas and Atlantic City have only about 280,000.

Slot machines are everywhere in Russia -- they are a common sight in railroad stations, grocery stores, clinics, at bus stops, and community centers. As for more traditional settings, Russia's 5,000 casinos are more than double the number found in the United States.

Moscow accounts for the lion's share of the country's $6 billion gambling business, boasting 56 casinos and 5,000 slot halls with some 56,000 slot machines. Another 9,000 slot machines can be found on the streets. In the wake of Putin's initiative, Mayor Yury Luzhkov publicly touted Moscow's plans to have just 540 casinos and gambling centers in operation by the end of the year.

Gambling is also pervasive in the provinces. Channel One television reported on October 8 that there are more than 2,000 gambling centers in Vologda Oblast's Cherepovets -- a city of just 300,000. On a smaller scale, Volga Oblast's Krasnoye has 10 slot halls to serve its 9,000 residents.

National Epidemic

The rise in gambling has led to a rise in problems associated with it. According to the "Face of Russia 2006" published by the Moscow City Duma, the city had nearly 330,000 gambling "addicts." Russian sociologists have decried the effect on unemployed teenagers, students, and pensioners who gamble away what little money they have. In this connection, some Duma deputies have gone so far to suggest that "addicts" be identified and registered, and their assets frozen.

Also evident is the political leverage the industry has gained. Close ties to organized crime, powerful lobbies, and strong media influence helped foil municipal authorities' dreams of seeing high returns from tax revenues.

As public uproar over what was increasingly seen as a national gambling epidemic gained momentum, the Duma in March passed in the first reading a bill aimed at regulating the industry. However, gambling advocates effectively stonewalled the effort by introducing more than 500 amendments and arguing that such strict regulation would push gambling underground. The resistance was so strong that presidential intervention was eventually requested, leading to Putin's new bill on October 4.

Gaming Zones

Within a week, the Duma rejected the earlier legislation and was focusing on ironing out the details of the new bill. Potentially contentious are passages regarding the establishment of gambling zones. The legislation leaves open the possibility for some gambling to be conducted within cities or regions that are approved for municipal zones. The four large federal zones, according to the bill, should be created in uninhabited and undeveloped areas.

The first stage of the president's initiative would shut all gaming centers with fewer than 50 registered slot machines, 10 gaming tables, or 600 million rubles ($23 million) in capital by July 2007. Those that passed the first cut would then be allowed to operate until January 1, 2009, at which time they would have to move their business to the four designated federal zones or, possibly, to the select municipal zones approved by the federal government and regional administrations.

A South African gaming group has announced it is putting the finishing touches on a multibillion-dollar joint venture with Russia's Belaya Dacha Group to build a massive entertainment complex outside Moscow.

The four federal zones are to be built by 2009 on federal land and with private funding. Their exact location supposedly is to be kept secret -- Liberal Democratic Party of Russia co-Chairman Vladimir Zhirnovsky has warned that massive lobbing and corruption would disrupt the effort should the names of the locations be disclosed.

However, Duma Speaker Gryzlov revealed that Vladivostok is in the running for a federal zone during a visit to the city on October 7. He said that the Far East gambling center should attract gamblers from Southeast Asia. "Our neighbors, the Japanese and Chinese, are excitable people, let them come and play here."

Khabarovsk, where Chinese tourists are already ambling across the border to try their luck at the gaming table, is seen as a Siberian front-runner.

Kremlin Favorites

Fully aware of the pending legislation, the South African gaming group Sun International announced on October 10 that it was putting the finishing touches on a multibillion-dollar joint venture with Russia's Belaya Dacha Group to build a massive entertainment complex outside Moscow that would include casinos, hotels, a convention center, sport facilities, and a world-class golf course.

And it is no secret that the Kremlin favors a southern site that can attract tourists from the Middle East. Sochi would presumably be the front-runner for the second European federal zone, but that would dash the hopes of Russia's Kaliningrad exclave, which depends on the much-needed revenue it currently receives from gambling and which could theoretically attract gamblers from Germany and elsewhere in Europe.

Meanwhile, the president of Kalmykia, Kirsan Ilyumzhinov, has touted the republic's location just hours by air from Turkey, Israel, and numerous Arab states, where gambling is prohibited.

Observers note that Putin's bill also contains severe restrictions on other forms of gambling -- including via the Internet and by mobile phone. They also warn that the reforms could hand over the gambling sector's assets directly to the Kremlin. Thus, despite the president's wish for a rubber stamp from the Duma, the legislation will likely encounter strong resistance from powerful players intent on preserving the status quo.

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RFE/RL Russia Report

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