On 11 August 2020, the President of Ukraine signed into law the State Regulation of the Activities Related to the Organisation and Conduct of Gambling Games. Here, Andrey Astapov, managing partner at Eterna Law cuts through the legal jargon and explains what it means for the domestic market and beyond.
The legalization of gambling in Ukraine is a hot topic among foreign investors and politicians. To understand all the buzz about it, I’ll explore the origins of Ukrainian gambling history touching upon the reasons for prohibition and its failure to achieve the desired results.
I’ll also analyse how the legal regime introduced by the current law differs from the one that was in force util 2009, and why this time the law has more chances to succeed and provide adequate conditions for the creation of the market, which is, simultaneously, profitable and reliable.
The history of gambling in Ukraine dates back to Soviet times when the communist government allowed the operation of state lotteries and betting. At the same time, gambling also existed illegally in private underground casinos, hidden from any state control.
The first attempts to legalise gambling were made soon after the collapse of the Soviet Union when Ukraine gained its independence. In the early 90s, gaming machines became a new form of social entertainment, and its popularity increased to unbelievable and very unfortunate levels. No restrictions as to the location of gambling premises resulted in the ubiquity of gaming machines not just in specially created venues but also in cafes, cinemas, and other public places.
The regulation of gambling was fundamentally weak and did not correspond with the needs of the market. Such inability of the government to control the market led to total chaos when gambling was officially legalised but most operators existed in the shadows.
Any official and reliable statistics, which may demonstrate the popularity of the industry at that time, are absent. However, relying on data from social surveys, almost 20% of the adult population participated in gambling and spent around 1bn hryvnias ($35.3m) per year. Unfortunately, only 40% of gambling operators were legal.
As numbers show, the Ukrainian gambling market rapidly developed. In the meantime, the inability of the government to establish and enforce the systemic and comprehensive regulatory mechanisms contributed to the exponential growth of a black market. This all resulted in the full absence of control over the industry.
As a response, the Ukrainian government came up with nothing better than to ban gambling in total and annul all operating gambling licenses. On the 15 May, 2009, the Verkhovna Rada of Ukraine adopted the respective law and at once criminalised all gambling activities.
But was the prohibition really successful? History and related facts suggest exactly the opposite. The official ban did not only fail to eliminate or at least decrease levels of gambling in Ukraine, it generously contributed to further expansion of illegal gambling.
Any official data in relation to the number of illegal casinos and gaming machine venues cannot be found due to obvious reasons. However, the large amount of criminal cases concerning illegal gambling demonstrates that, for sure, the black market is present, thriving, and needs a better response than a ban on gambling.
On the 20 December, 2019, the Cabinet of Ministers of Ukraine made a very decisive step to combat illegal gambling and passed a resolution to close all illegal casinos, which hid their true activity under the guise of state lotteries. Just the night before, law enforcement agencies closed around 152 venues of such "state lotteries" and seized equipment in the amount of 46m hryvnias.
So, is excessive gambling going to emerge with the introduction of the new law in Ukraine? Probably not. According to all the above-mentioned facts, gambling has been operating in Ukraine for decades and continues to do so, but only in the shadows, unregulated and uncontrolled.
Why Prohibitions Never Work
If demand is too excessive, prohibitions prove to be not the best solution. It puts an excessive burden on the law enforcement and judicial systems, which, in most cases, may not adequately combat the illegal sector that arises. It also fosters corruption on all levels and, unfortunately, leads to the scenario when some illegal operators work undercover.
Ban on gambling is also not the best solution when it comes to the battle with ludomania. Despite some popular speculations of politicians, it may not raise the moral level of the society, which is more of a task for educational and cultural institutions in the country. By analogy, the ban on alcohol in the USA and the Soviet Union or the ban on light drugs, such as marijuana, never stopped the functioning of the markets.
The recent loud cases about illegal casinos and gaming machine venues illustrate how hard it is to eliminate illegal gambling, especially in the decade when online gambling is on the rise. Hence, is not it better to respect the freedoms of the citizens and control the market than to absolutely prohibit it and ignore its existence in the shadows?
What’s Next on Ukraine’s Gambling History
In the near future, the Ukrainian gambling market is going to be back in business. This time, the government promises to take all the necessary steps to prevent excessive ludomania and the emergence of hundreds of shady casinos in each city.
The goal of the law is by far not to popularise gambling among the masses. Just the opposite, it aims to establish state control over gambling in Ukraine and bring it to the legal landscape. And how that’s going to happen is through a range of preventive methods prescribed in the law.
Online gambling, with its popularity lately at an all-time high during the coronavirus lockdown, is subject to a special regulation under the law. Unlike some other unsuccessful drafts that proposed to treat all online and offline operators equally, the adopted legislation offers a differentiated approach to both forms of gambling and adequately addresses its needs.
First of all, it’s worth noting that with the help of the legalisation of gambling, the government aims to attract considerable investments to Ukraine and receive additional budget revenues respectively. For this, the law prescribes a range of incentives to investors.
For example, the law introduced the notion of an investment license that is provided to an operator free of charge and is valid for 10 years in case an operator satisfies the requirements of the law. Specifically, it shall build a new five-star hotel with the room capacity of at least 150 rooms for Kyiv and at least 100 rooms for other populated areas or another infrastructure project agreed by the Cabinet of Ministers of Ukraine. In such a way, it provides favourable conditions for operators who may want to enter the market in Ukraine, as well as stimulates the building of new infrastructure increasing the nation’s attractiveness for tourists. Also, the law offers proportionate fees for the licenses. For instance, for casinos, an operator shall pay $2,000,000 annually in Kyiv, and $1,000,000 annually in other populated areas. Each roulette table costs $30,000 annually, each card table is $15,000 annually, and each gaming machine is $1,200 annually. As to betting, the license fee is $1,000,000 annually and $6,000 per each betting point. A gaming machine license amounts to $250,000 annually for 250 gaming machines and $1,200 annually per gaming machine. For online gambling licenses, the price is quite lower, in particular, $230,000 annually for online casinos and $170,000 for online poker.
Additional safeguards are prescribed for the protection of vulnerable and underaged categories of the population as well. Here are outlined many restrictions for gambling advertising and the creation of the special register of individuals who may not access the premises.
The location of gambling premises is strictly restricted. Casinos are to be located only on the territory of hotels and special gambling zones, and online betting is allowed only at betting outlets. Together with the thorough identification procedure of each player, such requirements ensure that only individuals who are legally capable of gambling may participate in such activities.
Additionally, online gambling, whose popularity is lately at an all-time high during the coronavirus lockdown, is subject to a special regulation under the law. Unlike some other unsuccessful drafts that proposed to treat all online and offline operators equally, the adopted legislation offers a differentiated approach to both forms of gambling and adequately addresses its needs.
A registered website with an UA. domain, a connection to an online system, and two years being connected to the State online monitoring system are the requirements that guarantee the security of financial transactions online as well as fair and transparent treatment of each player.
Due to all the above-mentioned provisions, the law pursues an ultimate goal to make gambling in Ukraine not just profitable for the economy and state budget specifically but also to ensure the security and reliability of the market. It’s clear that it’s better to have a regulated gambling market that guarantees each player protection from fraud and proper conditions than a market in the shadows that is subject to no rules and is often used with fraudulent motives.
On the 14 July, 2020, the Ukrainian Parliament chose the first path and legalised a range of gambling activities in Ukraine. Soon, there will also be the Authorized Body and the adoption of a number of relevant legislative acts, such as amendments to the Tax Code of Ukraine and bylaws providing some detailed specification of procedures provided in the law.
After so many parliamentary debates and struggles, Ukraine is finally poised to legalise gambling and bring its illegal part back into the light. As expected, the comprehensive approach represented by the law will manage to respect and satisfy the needs of all stakeholders, including those of operators, the government and players.
Notably, the attraction of foreign investments is one of the key priorities, and for that, the law provides highly favorable conditions for investors, including clear and transparent application procedures, equal rules for all operators, and a special bonus: an investment license for casinos, which is free and valid for 10 years if an operator builds a new hotel or another infrastructure object agreed by the Cabinet of Ministers of Ukraine that corresponds to the conditions set out by the law.