ABSTRACT
The existence of the Philippine Offshore Gaming Operations (POGO) is marred with controversy – on one hand, it is regarded as an economic opportunity mainly of its revenues and taxes; but on the other, speculative reports on Chinese espionage, among others, spread fear that the new industry poses a threat to Philippine security. This study intends to explore the impacts of POGO on National Security. More specifically, it evaluated POGO as either an economic driver or a security threat from secondary data available and through the parastatal point of view. It utilized qualitative case study design involving twelve concerned Philippine offices that mostly are stipulated in the Executive Order (EO) 13, series of 2017, known to have strengthened the government's fight on illegal gambling and clarified the jurisdiction and authority of agencies in the regulation, issuance of gambling licenses, and online gaming facilities, and for other purposes. The findings indicate that POGO industry is recognized to spring opportunities (mainly economic), but more importantly, issues that affect National Security. Issues identified range from political, economic, social, technological, and military aspects. The POGO industry’s potential is not limited to economy and security, but the whole National Security. An Online Gaming Act and a Whole-of-Government approach are recommended for the country to continuously enjoy the benefits while addressing its risks.
Otherwise, the POGO will remain an always be a threat not only to the military/public order and safety aspect of the National Security but as a whole if the very agencies that supposed to regulate them cannot and would not address their experienced challenges.
Keywords: POGO, Offshore Gaming Operations, Online Gambling, Online Gaming
INTRODUCTION
The Philippine Offshore Gaming Operations (POGO) is said to have started in 2003 and was illegally employing approximately 80,000 overseas workers (PAGCOR, 2020). Then in 2004, the Cagayan Economic Zone and Authority (CEZA) issued licensees to interactive/online gaming operators. It is an example of an economic venture that took the country by storm.
Some argue that the gaming industry in the Philippines will soon overtake the business outsource processing (BPO) in the echelon of industries that have been synonymous with dynamic revenue for the country (Ichimura, 2019). In her report, Katrina Domingo (2019) said that the POGO mushroomed in the Philippines when China prohibited all electronic casinos from operating in the mainland.
Executive Order (EO) No. 13, signed by President Rodrigo Duterte in February 2017, has clarified the jurisdiction of government agencies such as Philippine Amusement and Gaming Corporation (PAGCOR) and three (3) other economic zones in regulating and licensing of gambling and online gaming and strengthened the government efforts in curbing illegal gambling (EO No. 13, 2017). The revenues the POGO bring to the national coffers were boasted by no less than the President during his 2019 report to the nation (Corrales, 2019). In his speech, he commended the PAGCOR for earning billions of pesos collected from the state- regulated gambling enterprise.
Taking a cue from the President himself who openly endorsed POGO to
thrive under PAGCOR, some sectors are praising POGO for its contribution to dollar flows and the country’s Gross Domestic Product (GDP), to local employment, and in generating economic activities (Sy, 2019).
Despite the observation that Filipino jobs are being taken away, these Chinese have been hiring Filipinos for their drivers/
security details and restaurant crew, among others. With these opportunities, it will be an understatement not to regard the potential of POGO in contributing to the achievement of the Philippine society’s long-term vision and aspirations to enjoy a strongly-rooted, comfortable, and secured life by 2040, also known as the Ambisyon Natin 2040 (NEDA, 2016).
However, the revenue coming from POGO may very well be balanced out by the risks it brings. The idea that while POGO is on the rise but the local employment it is supposed to generate is acutely disproportionate significantly contributes to the ongoing debate about whether this venture should stay in the country (Santos, 2019). In December 2019, it has employed around 118,000 workers, where 82% are foreign nationals (FN). Moreover, the Chinese national are about 64% (Medenilla, 2020) and allegedly skewed the share of Filipino workers in the said industry to a
“small number” (Flores et al., 2020). Some quarters are arguing that the country is not benefiting from the POGO since it is not appropriately taxed (Ramos, 2020).
Moreover, the prevalent sentiment is that the throng of Chinese has necessarily brought to question the issue of security.
Some senators even warned that the planned setting up of POGO in various areas adjacent to military installations could be a sort of creeping invasion (Ramos, 2020).
Additionally, Defense Secretary Delfin Lorenzana commented that the Philippine
military is looking at the security risks the POGO poses aside from the fact that some gambling centers are very near military installations, it is the potential use of the facilities for espionage (Mangosing, 2019.
The absence of clear control measures that would ensure POGO centers and hubs are utilized only according to its purpose sends a red light. Converting the facilities for other purposes detrimental to the State's security is possible, considering China’s National Intelligence Law. Girard (2019), writing about the real danger of Chinese Intelligence Law, points to Article 7, which requires any organization or nationals to support and assist with State’s intelligence efforts and keep such secret work known to the public. Therefore, any Chinese citizen in another country is obliged to send any information to China.
The POGO industry has also been credited to have caused an increase in crime rates and petty violations of ordinances and existing laws and policies (Rey, 2020).
Economic concerns are also put into question.
The July 2019 statement of the BIR to start collecting withholding taxes from POGO confirmed the common concern of citizens that POGO has not been paying correct taxes (Ichimura, 2019) chagrin of legitimate small businesses.
With all the common criticisms of POGO from various sectors and considering the Cambodian experience, does the mainly economic promises of POGO brings benefit to the country or is it rather a threat to Philippine security that, in the long run, may hamper our progress in achieving the holistic growth of a strongly-rooted, comfortable, and secured life by 2040? Thus, the primary purpose of the study is to determine how the Philippines can take advantage of the opportunities while addressing the growing
POGO industry's challenges. Specifically, it answers the following questions: (1) what are the opportunities brought about by the rise of POGO?, (2) what are the challenges encountered by the concerned government agencies in the implementation
of POGO?, (3) how do these challenges impact National Security?, and (4) what policy recommendations could be drawn to take advantage of the benefits and address National Security issues that arise out of the POGO industry?
Offshore Gaming Operations (OGO)
Technology advancement and the internet have made access to gambling easier and into many forms using different platforms. Gambling has taken a leap through two terms, which are used interchangeably and synonymously, Online Gambling or Online Gaming (Deverensky and Griffiths, 2019). Not much is being published or researched about “Offshore Gaming” in books and even on the internet, but the Empire Global Partner, a Professional Consultancy Service defined it as a private individual or corporation from a foreign jurisdiction given the Gaming Licenses and companies to operate from a country where gambling is regulated.
The laws legislated purposely for offshore gaming industry finds the legitimacy of its existence through it. The most economically stable countries like the U.S, Canada, France, and UK have adopted laws which regulates the operations of Online gambling specially those which are conducted by offshore companies. Relatedly, it also settles some gaming jurisdiction and taxation issues (OGS, 2020)
Offshore Gaming Sector includes other sectors like online casinos, sports betting, and multiplayer online gaming, and these require the internet to attract potential customers.
Setting up a heavily regulated business- like Offshore Gaming License is procedural REVIEW OF RELATED LITERATURE
but costly and requires integrity. Ellie (2018), mentioned that prior to having one, familiarity with local and international laws, as well as the specific requirements of the Gambling Regulatory Board, are essential.
Requirements, processing fees, and tax differ from one country to another. Once an initial permit is obtained, the licensee has to have their casino providers like Microgaming and NetEnt that could provide a variety of games that meet the standards of the Regulatory Board. This set up is similar to the cases of some Association of Southeast Asian Nations (ASEAN) countries, including the Philippines.
Offshore Gaming in some Southeast Asian Countries
Cambodia. David Hutt (2019) reported the Cambodian government willingly
“turned over” the tourism sector to Chinese visitors arriving for Gambling, boxing out the traditional tourist market of Western backpackers, and downplayed concern about the tension between the Chinese community and the local population. The influx of Chinese in Cambodia was seen as part of Beijing’s global ambition. The enormous Chinese investment in Cambodia could turn Sihanoukville, a sleepy city of Cambodia, into a business district. Fast forward to 2019, Murg (2019) reported an occurrence that was dubbed as “Great Chinese Exodus of 2019.”
It was said that an estimated 10,000 Chinese citizens left Sihanoukville immediately after
Phnom Penh announced the banning of Online Gambling. It is noted by Hutt (2019) that the reason for the U-turn was to “help reduce the number of crimes because some Chinese nationals get involved in crimes such as kidnapping and extorting money.”
He emphasized that Cambodian Prime Minister Hun Sen announced neither issuing new licenses nor renewing the current grants of online gaming operators, saying that
“Cambodia needed to develop the country based on her natural and cultural heritage tourism but not based on income from online gambling.”
On the political side, Nikkei Asian Review (2019) looks at the possibility of politicians receiving largesse and bribes from operators of online gaming in order to be allowed to continue operating in the country (Venzon, 2019). Moreover, Silverstein (2019) suspects that this could be a show, a “lay low and regroup period,”
implying that Cambodian politicians are very much susceptible to bribery. Whatever the case may be, whether the politicians in Cambodia shall succumb to bribery or not, and whether or not the top leadership shall back down from its decision to ban the online gaming industry, it has been made apparent to everybody already that Phnom Penh has weighed the pros and cons of the online gaming and has reached a verdict already. However, cliché, as it may sound, to reach a verdict, is one thing; implementing such verdict is another thing.
Vietnam. Vietnam is a small Asian agricultural country that is now slowly adapting to technological advancements including online gaming. It was projected last 2016 that Vietnam’s revenue from online gambling would reach 200 million dollars by 2021 annually, to reach 200 million US dollars by 2021 (Le, 2019). Nevertheless,
while the number indeed rose, crimes also increased. Solana (2017) discussed that the Vietnamese police busting a $13 million worth online gambling ring. It is noted that gambling is illegal in Vietnam outside of a state-run lottery and a few foreigner-only casinos. In 2018, the Agence France-Presse posted news about Vietnamese police busting a $26 million-worth online gambling ring.
Then, in 2019, Khanh Vu of Reuters reported that 380 Chinese were arrested in Vietnam for running an illegal online gambling operation.
Heeding the Vietnamese government's call, Apple was reported to have taken down gambling apps (Nguyen, 2019). Vietnam had sought to remove 29 apps from the App Store between July and December last 2018. Said apps were predominantly related to illegal gambling. Like the case of Cambodia, the recent developments in Vietnam indicate the general sentiment of the leadership, if not the entire government, of the perils of the online gaming industry.
Philippines. Offshore gaming refers to the games of chance or sporting events via the internet using a network and software or program exclusively to offshore authorized players (OGRM, 2018). It is locally known as Philippine Offshore Gaming Operations (POGO). The existence of POGO in the Philippines is anchored from Executive Order No. 13, signed by President Duterte last 2017, which strives to fight Illegal Gambling and clarifies the jurisdiction and authority of respective agencies involved in the regulation and licensing of gambling and online facilities, and for other purposes.
This is the offshoot to the widespread clamor to curb illegal gambling in the country and to maximize and secure revenue from legal gambling.
The PAGCOR’s authority as the sole government corporation authorized to
conduct and establish gambling activities in the country is stipulated through the Presidential Decree (PD) 1869. It makes PAGCOR as the blanket regulatory agency overall domestically-based gambling; thus, technically, it does not have any control over offshore gaming operations beyond its jurisdiction. This further suggests that the Philippines does not have any existing Internet Gambling law that controls the players and gamblers outside the Philippine territory (Vitangcol, 2017). Currently, there are bill proposals in the House of Representatives.
The Philippine Government and POGO EO No. 13 has called government agencies’ attention to cooperate and work together in the implementation of the mentioned EO. This is government’s most of straightforward way of encouraging the whole of government (WOG) approach.
Some of the government agencies mandated to support EO 13 includes: Bureau of Immigration (BI), Department of Labor and Employment (DOLE), Philippine National Police (PNP), Department of National Defense (DND), and Bureau of Internal Revenue (BIR),
On-Going Legislative Efforts
The Congress actively passed bills that best protect the interest of the country and its citizens. The sensitivity of the POGO industry’s operations has been acknowledged that Congress moved to address identified concerns through the passage of the following bills:
• House Bill 5267, filed by Albay Representative Joey Salceda – seeks to clarify whether taxes should be imposed on POGO employees
• House Resolution No.
136, introduced by Rep. Bernadette Herrera-Dy – directing the appropriate House Committee of the House of Representatives to conduct an investigation, in aid of legislation on the inflow of foreign workers in the Philippines and for concerned agencies to expedite their joint memorandum that imposes additional working visa requirements on foreign workers
• House Resolution No. 292, introduced by Rep. Virgilio S. Lacson – directing the committee on Labor and Employment and the Committee on Games and Amusement, and other concerned committees to conduct an investigation, in aid of legislation, on the alleged violations of our country’s immigration and labor laws by POGO operators
Regulators
The EO No. 13 clearly stated the government’s efforts to fight against illegal gambling and defined the jurisdiction and authority of PAGCOR, CEZA, APECO, and AFAP in the regulation and issuance of licensees for gambling and online gaming facilities.
Economic Drivers
The study of Williams and Rehm (2011) suggests that the most consistent impact of gambling is an increase in government revenue, public services or social benefits, property values. On the other hand, Basham and White (2002) focused the economic benefits of gambling from the revenues and taxes the government has collected, its effect on employment and tourism and the social benefits it has supported to the community.
Revenue, Taxes, and Gross Domestic Product Contribution. In a report by PAGCOR (2020), the country has earned high revenues from POGO licenses and fees since it started in the last quarter of 2016. Moreover, an email received from Atty. Sixto Dy Jr. of the BIR showed that the agency collected a total of 8.408 billion pesos for the last two (2) years—PhP 2.38 billion in 2018 and PhP 6.42 billion in 2019. The revenues and taxes collected have shown a huge contribution to the national coffers, but the overall impact of POGO to the economy is reflected in its contribution to the Gross Domestic Product (GDP). A document obtained from the Philippine Statistics Authority (PSA) showed that POGO has contributed to the GDP as follows: 2017- 0.06%, 2018 – 1.1%, and for 2019, it is 1.0%.
Public Services. The 2018 PAGCOR annual report stated that it made ₱32.23 billion contributions for socio-civic programs. The report further mentioned that the Philippine gaming industry's Gross Gaming Revenues (GGR) reached ₱216.26 billion – a 22.52% leap or ₱39.76 billion higher than the ₱176.50 billion GGR in 2017. In April 2020, while the nation was grappling with the pandemic, the PAGCOR released a total of ₱14.5 billion for the Socio-Civic Funds Project (SCFP) of the President. The POGO also donated ₱150 million for the country's relief efforts and the personal protective equipment and food packs for front liners (PAGCOR, 2020). With such revenue, the PAGCOR seems to be poised to finance well its public services. The PAGCOR website claims that the agency is a significant benefactor to several
public services and socio-civic projects, including anti-poverty programs, sports development, health, education, peace, and others.
Property Values. Ibarra (2018) argues that POGO is contributing to the government's nation-building program.
The most observable of which is seen in the property sector. Gregorio (2019) reported that the offshore gaming had been the fastest growing industry in the local office market since President Rodrigo Duterte took office in 2016.
By third quarter last year, POGO has taken over BPO as the biggest market for demands of office spaces (Abadilla, 2019). The increase in demand for office spaces in Metro Manila soared in the past three years, from a mere nine percent (9%) share to thirty-six percent (36%) in the first half of 2019. A similar trend is seen in the residential condominium industry, with rates skyrocketing by eighty percent (80%) in Bay City in the last three years. David Leechiu, President and CEO of Leechiu Property Consultants, mentioned that the POGO industry currently occupied an office space of 1.7 million sqm and 2 million sqm of residential space. (Gonzales, 2020). Indeed, this is a boon for the economy.
Employment. The Department of Labor and Employment (DOLE) in December 2019 has reported that POGO currently employed 118,239 employees of which, 97,283 are FNs while 20,956 are Filipinos. About 77% of the FNs are Chinese nationals (Medenilla, 2019). Lawmakers voiced concerns that Chinese employment in the POGO is depriving Filipinos of jobs (Santos,
2019). Operators prefer native speakers, rather than those who just learned the language from school. However, the perception that they are taking what is supposed to be for the Filipinos cannot be reasoned out with technicalities. The pedestrian knowledge is that companies that are set-up in this country should hire the locals. In the second quarter of 2019, the DOLE in coordination with other government Agencies like came up with a Joint Guidelines No. 01. It is a policy that covers the issuance of work and employment permits to FNs. Section 5 of the document explained that AEP is issued to a FN only after determining that no person in the Philippines who is competent, able and willing during the duration of application, can perform the services that the FN desired.
Perceived Challenges and Impact to the National Security
Military. The Philippine Military is mandated to uphold the State’s sovereignty, protect and support the Constitution, and defend its territory from all enemies. It is bound to ensure that its citizens enjoy a peaceful environment and free from any forms of threat. The recent proliferation of POGO in the country raised questions and also resulted in challenges that caused animosity in the security sector due to the following: perception on the implementation on China’s National Intelligence Law of 2017, the threat of a possible Chinese Trojan Horse, and weaponizing technology.
Public Order and Safety. One of the significant foundations for a growing, trusting and resilient society that competes globally is Peace, Public Order and Safety (PDP, 2017). It ensures the internal security of the State, whereby its people and their property are protected. The activities of POGOs are
often associated with the increase in crime rates of the National Capital Region.
Crimes. Domingo (2020) reported that the influx of Chinese workers was allegedly linked to the increase in Metro Manila crimes. Sen Sherwin Gatchalian was quoted as saying, “Criminalities go where POGOs are” (Romero, 2020). Sy (2019) provided a list of the non-economic consequences of welcoming the POGO industry. Indeed, with one vice, comes many others. Thus, he says, we can all expect an uptick in prostitution and trafficking of women, both local and foreign; alcoholism; smoking bans rendered ineffective; criminality; organized crimes;
money laundering; harassment of borrowers;
kidnapping for ransom; beatings; knifings;
killings; ambushes; and many others.
Money Laundering. The Risk Assessment on the Philippine Internet-Based Casino Sector conducted by the Anti Money Laundering Council (AMLC) in March 2020 showed that Internet-Based casinos are classified as highly vulnerable to Money Laundering (ML) due to the very nature of the industry (AMLC Report, 2020). In March 2020, the Philippine Senate has investigated allegations that POGOs are linked to ML transactions. In the mentioned Senate Committee hearing, the AMLC reported that from 2017 to 2019, POGOs have suspicious transactions amounting to P14 billion pesos and 138 million, linked to drug trafficking.
The AMLC requested that the conduct of POGO licenses be reviewed to prevent the rise of money laundering cases (CNN Phil Staff, 2020).
Economic Threats. POGO is an economic contributor, yet much dependency harms the economy, especially if a sudden pullout happens. Although, this was downplayed by BSP Governor, Benjamin