MEDVEDEV, MOSCOW DEMONSTRATE RESOLVE BY STAMPING

UNCLAS SECTION 01 OF 02 MOSCOW 001605 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PGOV PREL PHUM PINR ECON KDEM RS SUBJECT: MEDVEDEV, MOSCOW DEMONSTRATE RESOLVE BY STAMPING OUT GAMBLING ¶1. (SBU) Summary: In Moscow and across Russia, radical changes are afoot as gambling businesses scramble to comply with a new federal law restricting gambling facilities to four special gaming zones. Some gambling moguls are planning to move their businesses to other former Soviet republics and Europe, while others have plans to close, convert, or make the slightest cosmetic changes to become amusement arcades. Other owners have pushed back demanding an extension of the deadline, threatened to ignore the new rule altogether, or have argued that such job cuts are unfair during the economic crisis. Medvedev, with the help of Moscow's city administration, has aggressively cracked down on gambling facilities as a means of demonstrating to a skeptical public that he is serious about addressing corrupt elements in society. End Summary. New Gambling Law -------------- ¶2. (SBU) Under Federal Law 244 "On state regulation and activities of the organization and conduct of gambling," as of July 1, 2009, gambling will be confined to four designated zones spread across Russia. The law, which then-President Vladimir Putin introduced to the State Duma, passed in 2006 and entered into force on May 15, 2009. According to this law, internet games for money, online lotteries, SMS contests, slot machines and roulette will become illegal outside of the four zones (the Primorsky territory in the Far East, the Altai territory in southern Siberia, the Baltic exclave of Kaliningrad, and the administrative border between the Rostov region and the Krasnodar territory in southern Russia),but other forms of gambling, including poker and bookmakers, will be allowed at specially licensed "sports clubs." Special "judges," rather than dealers, will work at these new clubs which will allegedly ban alcohol and smoking. The poker loophole originated in 2007 when the Federal Sports Agency classified some games as sports, thereby allowing poker establishments to circumvent the law. Officially, closing the gambling businesses is supposed to curb gambling addiction and to root out corruption, but some media reports indicate that this decision may have been a larger political move aimed at weakening criminal groups, especially from the Caucasus, who were controlling much of the industry. ¶3. (SBU) Industry advocates have claimed that the gambling 
zones are poorly developed. So far, only Krasnodar Territory has started construction of gambling facilities. Ekho Moskvy radio station reported on June 17 that in the Far East and Kaliningrad, local authorities still have not determined where the zones in the regions should be located. ¶4. (SBU) On May 5, President Medvedev reiterated to Federal Tax Service Chief Mikhail Mokretsov that casinos must comply with the deadline. Across Russia, the gambling industry employs about 40,000 people, but roughly 45 percent of the gambling facilities are located in Moscow. Gambling industry advocates argue that closing casinos will leave thousands jobless. According to a Lenta.ru article on June 16, the Department of Labor and Employment reported a planned layoff of 10,400 gambling-related employees in Moscow, and announced a special job fair for them. By law, company leaders must notify their employees at least two months prior to laying them off, which means they should have modified them before May 1. Resisting the Gambling Law and Controversy -------------- ¶5. (SBU) The gambling industry has been contesting the new gambling legislation in various ways. According to ITAR-TASS, a number of gambling facility owners have active lawsuits to contest the gambling law, and litigation is currently underway in Russia's Constitutional Court. A group of gambling premises along the railroads, including eleven in Moscow, have simply refused to comply. According to the media, the Russian Railways representatives have stated that the organizers "will not guarantee that they will close their establishments by July 1." ¶6. (SBU) The gambling lobby in Russia has significant weight. Even many bureaucrats support legalized gambling since it pays taxes. According to Valeriy Ivanov, head of the Russian Association of Developing Gaming Businesses and a strong opponent of the new law, gambling is a USD 60 billion industry in Russia, USD 17 billion of which is centered in Moscow. Ivanov told us on May 13 that at least 200,000 to 250,000 gambling-related jobs will be affected across Russia. MOSCOW 00001605 002 OF 002 He compared the situation in Moscow to Al Capone's racket in Chicago, arguing that the new measures to ban gambling would backfire, only leading to illegal gambling, corruption, bribes, and loss of revenue. Ivanov cited concern that the entire gambling industry would go underground and become a greater breeding ground for corruption; it was preferable to keep the gambling industry legal. Government Intervention to Comply with the Gambling Law -------------- -------------- ¶7. (SBU) Closing down gambling has significance for Medvedev since he can use it to demonstrate his resolve in promoting rule of law and the fight against corruption. Most casinos have already started preparations to comply with the gambling law. According to Ria Novosti, prior to the new law being passed, there were 2,800 facilities in Moscow. In the first four months of 2009, however, the gaming industry in Moscow shrank by 42 percent, according to The Moscow Times. Deputy Moscow City Mayor Sergei Baidakov stated at a press briefing on June 8 that Moscow now has roughly 504 automatic gaming houses, 29 casinos, and 14 betting parlors. While some gambling facilities are in the process of being "re-purposed" as entertainment centers, others will transform into completely different businesses, such as dry-cleaners, furniture shops, restaurants, drugstores, cafes, clothing stores, or concert halls. Still others will continue trying out their luck by relocating to one of the four designated gambling zones or to a foreign country. ¶8. (SBU) Deputy Mayor Baidakov emphasized at his June 8 press conference that casinos must close prior to the July 1 deadline. He stated that the Moscow city administration is prepared to summon each gambling entrepreneur separately to explain any lack of compliance at which point the city would take corresponding action. The Moscow City government is gearing up to work around the clock to patrol territories in which people violate the law. On July 1, the Moscow City government will establish a hotline to enable callers to inform on individuals who are trying to skirt the law. Baidakov noted that these closures would not have a negative impact on the economy since the Moscow city budget would only lose about half a percent of its budget. Comment -------------- ¶9. (SBU) We quietly, unannounced, visited three casinos in Moscow to see and hear reactions to the closure plan. While we expected to encounter tough Mafia figures, prostitutes, rigged machines, and desperate gamblers spending their last rubles in an attempt to finally strike it rich, the reality was much more tame. The gambling clientele appeared to be average Russians, and employees were open and forthright about their plans to close their facilities. Medvedev's latest anti-corruption measures may backfire and breed more corruption as the gambling industry goes underground with ostensibly legal establishments fronting as legitimate businesses. The political rewards he might reap from banning gambling are dubious. In the end, this Medvedev move against corruption may itself be a political gamble. BEYRLE