After years of ignoring a growing gambling problem, parliament suddenly bans the industry in the wake of a fire in a Dnipropetrovsk gaming hall that killed nine and injured 11.
After years of ignoring a burgeoning gambling problem, Ukrainian lawmakers finally acted – some say overreacted – by passing a law that bans gaming while new restrictions are developed.
But President Victor Yushchenko suggested that he might either veto the legislation or send it back to the Verkhovna Rada for amendment. Yushchenko has until May 25 to decide. He dubbed the law as a “populist” attempt to win votes by citizens outraged by unchecked expansion of gambling.
“We do need better regulation, but this is not the way to do it,” said Grigory Trypulsky, vice president of the Ukrainian Association of Gambling Industry Personalities. “Instantly, , more than 200,000 people could lose their jobs.”
Ultimately, a deadly explosion at a gambling hall in Dnipropetrovsk on May 7 prompted 340 parliamentarians to throw their dice eight days later, imposing an immediate ban on gambling businesses. The blast and fire – initially suspected to be arson – killed nine and injured 11 people.
With less than a year left to his term, the embattled president has a difficult choice to make.
On one hand, polls show many Ukrainians want the more than 100,000 casinos and slot machine halls scattered across their neighborhoods either closed down, or moved out. On the other hand, shocked owners of casinos and slot machine halls are protesting. More than 2,000 gambling-business employees gathered outside the president’s office on May 19, warning that more than 200,000 employees could lose their jobs overnight.
The legislation was backed by Yushchenko’s challengers in the upcoming presidential contest: Prime Minister Yulia Tymoshenko and the Regions Party led by ex-premier Victor Yanukovych.
Tymoshenko said the legislation was key to cleaning up neighborhoods with businesses that are “demoralizing Ukraine’s youth and sucking the last savings from families” whose pockets are already squeezed by economic recession.
The business is estimated to be worth more than $1 billion annually, and to pay hundreds of millions of dollars each year in taxes. A liberal regulatory environment has allowed gambling businesses to spread rapidly in the last two decades, and even more so after Russia announced in 2006 it would move gaming out of cities into restricted zones. Many gaming companies in Russia refocused expansion on nearby Ukraine.
Some policymakers have proposed a geographic restriction that allows gambling at Ukraine’s tourist havens, such as Crimea and Odesa, and a few other sites outside of residential neighborhoods.
Many experts consider the sudden ban nothing more than an election campaign trick. With Tymoshenko’s ratings down as voters turn away from political leaders that have dominated Ukraine since the Orange Revolution, some say the move is an attempt to be seen as working hard to solve society’s problems. Others say Tymoshenko set a trap for Yushchenko because a veto would make it look like he is siding with an unpopular industry.
Valeriy Pysarenko, a lawmaker from Yulia Tymoshenko’s bloc who authored the law, estimated that 75 percent of the clients in gambling halls are university and high school students. “The gambling addiction has turned into an epidemic, like AIDS or tuberculosis. The state has looked for a medicine to combat this addiction for three years. Now measures are being taken, radical, but effective measures,” Pysarenko said.
The law imposes a temporary ban on all slot machines, casinos and betting offices. Violators will be punished severely. Equipment will be confiscated and fines are hefty. Should anyone try to operate a gambling business under the table, they will face five years imprisonment if caught and successfully prosecuted, under the legislation.
Other forms of entertainment, such as lotteries, are left untouched.
The law orders Ukraine’s government to development a plan for relocating gambling operations, or reintroducing it under tighter rules. Authors of the law envision that Las Vegas-styled entertainment zones will be set up in economically-depressed regions and tourist havens.
The Crimean peninsula is on everyone’s mind.
“Undoubtedly, such an opportunity could significantly boost the peninsula’s infrastructure and development as a tourist zone,” Pysarenko added.
But despite the need to address the implications of the May 7 tragedy in Dnipropetrovsk and the social necessity to regulate the gambling business, sociologists said it’s not the most pressing problem on the public’s agenda. And the abrupt solution proposed by parliament may, in fact, cause more distress in the short-term.
“The majority [of people] are not interested in gambling, although they have a negative attitude to it,” said Iryna Bekeshkina, head of Democratic Initiatives think tank. “And an overnight ban is not a good way to set up a working relationship with business.”
Natalia Yakymenko, a member of Ukrainian Association of Gambling Industry Personalities, said: “If this law goes into effect, unemployment in Ukraine will surge.” Official figures indicate that unemployment has nearly doubled during the recession, to nearly 1 million.
“Secondly, the budget will lose 1.5 billion in taxes and payments to social funds. And thirdly, the state has to return money paid for five-year licenses, about 10 million euros,” Yakymenko said. “The law does not explain how this will happen.”
Gambling companies say they have already felt the wrath of government, after the Cabinet earlier this month suspended the majority of licenses issued. There’s a lot of confusion, but with some businesses frozen, the problems of gambling establishments are piling up.
“The payment for rented properties is very high, and we can no longer work. My company is blasted. I have to fire 2,000 people,” said Ihor Kulyk, president of Extrema-Ukraine, a company that manages about 360 gambling halls. Kulyk said his company pays $18 million to state coffers annually via taxes and other payments.
The gambling lobby has already filed a number of lawsuits, in Ukraine and abroad, against the government. They are demanding, among other things, compensation for damages.
“In Russia, before making changes, the government gave two-and-a-half years for preparation,” Kulyk added.
Kseniya Lyapina, a lawmaker from the pro-presidential Our Ukraine faction, said the law will fuel more corruption and a huge underground gambling business.
“Police will cover up the illegal gambling halls, and young people will continue to attend them,” she said, adding that the state will lose all tax revenues from the business if it goes into the shadows.
