C O N F I D E N T I A L SANTIAGO 002403

SIPDIS

SIPDIS

TREASURY FOR JASPER HOEK AND FINCEN FOR JENNIFER SHOWELL

E.O. 12958: DECL: 11/17/2016
TAGS: EFIN PGOV PTER SNAR CI
SUBJECT: CHILE GAMBLES ON CASINO EXPANSION

REF: SANTIAGO 2005

Classified By: DCM Emi Lynn Yamauchi for reasons 1.4 (B&D)


1. (C) Summary. Chile hopes to attract more tourism by
expanding its casino industry to a total of 22 casinos by

2008. The GOC has vetted bidding casinos for ties to
organized crime before granting contracts. However, there
appears to be little thought given to the potential increase
in crime and organized criminal enterprises associated with
casinos. The head of Chile's Financial Intelligence Unit
believed "it would be impossible to launder money through
Chile's casinos." End summary.

Growth in the Casino Industry
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2. (U) Talk of developing the tourist industry in Chile has
become more frequent among government officials and
businessmen as Chileans have recognized a need for
diversification in their economy (reftel A). The first
casino was established in Chile in 1931. Since 1990, seven
casinos have been operating. In 2005, the GOC, under Law
19.995, legalized the establishment of up to 24 casinos in
the country. This law created the Superintendence of Casinos
(SCJ) to control and monitor the further growth of the
industry. Francisco Leiva, the head of the SCJ, worked for
GAFISUD (International Financial Action Group of South
America, a South American Financial Action Task Force-type
body) before taking this position. He has been particularly
careful in inspecting casinos companies applying for
contracts in Chile. Forty companies bid on the slots for
casino expansion. The SCJ approved ten bids, and is still
deciding on five others. These 15 hope to begin operating in
2008, increasing the number of functioning casinos in Chile
to 22.

U.S. Company Complaint
--------------


3. (C) U.S. company Pinnacle is being considered for a casino
contract. Another U.S. casino company, Thunderbird Group,
whose bids on building casinos in Chile were turned down, has

filed a suit in the Chilean courts. Thunderbird claims the
bidding process was unfair, and that the SCJ held Thunderbird
to different standards than other companies. On October 27,
the courts put a hold on the licensing of casinos in one of
the regions in which Thunderbird had bid, pending resolution
of the case, "in order to preserve the rights of Thunderbird
Group," reported the Chilean newspaper El Mercurio. A
Santiago court is currently examining the bidding process,
and has not yet ruled on whether the process was prejudiced
against Thunderbird. (Note: USG law enforcement agencies at
Post believe the SCJ is doing an adequate job in processing
bidding companies. There is no indication that Thunderbird
was unfairly excluded. End Note).

The Gamble
--------------


4. (C) In a meeting with E/POLoff, Victor Ossa, Director of
the Unidad de Analisis Financiero, Chile's FIU, stated,
"Unlike in the United States, it is impossible to launder
money through casinos in Chile because we do not issue a
receipt for cashed-in chips. So, a person cannot produce a
receipt saying he won money at the casino." E/POLoff pointed
out that since no receipts were issued for winners at
casinos, someone could falsely claim to have won money at a
casino, thereby providing a way to launder money. After a
15-minute discussion of how one might use a Chilean casino to
launder money, Ossa conceded it was possible.


5. (U) Efforts thus far to guard against money laundering
through casinos have focused on the approval process for
casino companies applying to build in Chile. Leiva
highlighted the scrutiny applied to each casino company board
member to ensure there are no known ties to organized crime
or suspicious activity. Any change in the board members of
any casino organization with a casino in Chile subjects it to
a renewed clearance process. An anti-money laundering law
(Law 19.913, article 3) requires that casinos report any
suspicious operations in casinos to the FIU. Casinos keep
records and issue receipts for any money exchange over the
approximate equivalent of $12,000. Casinos do not, however,
issue receipts or record customer wins. Leiva expressed
concern that, while casinos are regulated and under the
supervision of the superintendency he leads, other gaming
industries -- such as horse racing -- are not regulated. The
lack of supervision clearly increases the vulnerability of
these other industries to money laundering.


6. (SBU) Leiva outlined plans for additional training of
casino employees and his own staff at the SCJ over the next
two years to prepare them to operate casinos. E/POLoff
pointed out that prostitution, extortion and loan sharking
often increase with the advent of casinos. When asked what
Chile had done to prepare for any increase in crime
associated with casino expansion, Leiva replied that the
opening of the casinos was still at least 15 months away, so
the topic had not been discussed.

Comment
--------------


7. (C) A sudden increase from seven casinos to 22 is a risky
gamble. Demand for such a large number of casinos is
questionable, which may explain why none of the major world
casino companies (e.g. Caesar's, Harrah's) bid on the
contracts. Leiva's review of foreign bidding companies has
enabled him to eliminate suspicious companies, when
counterpart law enforcement agencies warned SJC of
convictions or investigations. However, not all countries'
law enforcement agencies supplied equally thorough
information on those companies bidding.


8. (C) Comment contiued: It appears the GOC has not
considered the possibility that small casino companies below
the radar of law enforcement in their country of origin might
win contracts and build with the intention of supplementing
their casino profits through laundering money. This naive,
pervasive attitude -- Chile is too isolated from the world to
be subject to transnational crimes -- has influenced the
casino expansion process as well. It is disturbing, for
example, that the director of Chile's FIU had not considered
how money laundering might occur through casinos. Casinos
may provide a boost to Chile's tourist industry, but may also
bring problems Chile will not be proactive enough to handle.
KELLY