Russia targets illegal activities as gambling revenue falls

Russia is getting serious about cracking down on illegal gambling, which is having a significant impact on the development of the country’s gambling zones and the amount of tax raised for government coffers.

The clampdown, both land-based and online, comes almost a decade after Russia restricted all gambling to four designated zones, which were designed to become Las Vegas-style hubs. However, data shows that they are generating far fewer profits than before and illegal activity is one of the key factors.

According to the Federal Tax Service, in 2008, some 5,700 gambling tables and 257,000 slot machines existed in Russia. The first brought RUB5.7 billion and the second RUB27.7 billion roubles to the state budget.

Back then, there were just four totes, which paid some RUB4.3 million in tax and 29 bookmakers, which paid RUB34.2 million.

In 2017, the government received just a fraction of the prior revenue - just RUB976 million - with commentators pointing out that it’s not an indicator that fewer people gamble, but that they do it illegally.

Last year, 255 gambling tables across the country brought to the budget some RUB344.2 million; 2.705 slot machines took in RUB247.8 million, betting shops brought in RUB341.5 million; 33 online bet processing centers for bookmakers generated RUB33 million. Other tax revenue was generated from betting processing centers and shops for totes.

The Russian authorities have been warning about illegal activities for some time. In 2010, an official in Russia’s Krasnodar Region, Pavel Ivakin, said that the abundance of illegal gambling facilities, which masquerade as cyber cafes. would hinder Azov City’s development. He said after the 2009 ban Russia “was swamped by the opening of new illegal gambling facilities.”

Since 2009, Russian law-enforcers have uncovered over 71,000 illegal gambling venues countrywide, though in more than half of those -- 47,000 cases -- organizers got away with fines as small as $150.

But this year the tide appears to have turned, with a Vladivostok resident being ordered to pay the state about $6 million dollars of profit from organizing illegal gambling activities.

While the adoption of some gambling-related bills usually takes years, this time it took the Russian parliament less than two weeks to pass a new bill toughening penalties for organizers of illegal gambling activities in July. It’s not really known why there was such a rush in pushing it through, as it was passed after the World Cup was already over.

The bill sets fines for organizing illegal gambling activities, both online and offline at RUB300,000 to RUB1.5 million ($4,800 - $23,000) depending on the number of people involved and the amount of revenue generated.

Carrying out unlicensed gambling activities in a betting shop, or tote, is punishable by up to six years imprisonment for both its owners and even landlords.

When it comes to the geography of illegal gambling activities, judging by police reports, Moscow, St Petersburg, Bashkiria, and Perm Region are among areas where most illegal casinos are detected.

Law-enforcers also continue to provide cover to such activities. Back in 2011, there was a very prominent case, involving a group of police officers and prosecutors who gave cover to an illegal gambling network in the Moscow region, whose annual profits amounted to $10 million.

In Autumn 2017, Moscow police busted another illegal network, which included a police officer. The group was active for two years, mainly in Moscow and Mordovia, and managed to rake in RUB66 million. Its equipment was placed in entertainment centers and shopping malls, disguised as self-service payment terminals.

Former senior investigator Yevgeni Mislovsky said in a 2011 interview to state broadcaster Rossiya 24 that any profitable shadowy business is always covered by law-enforcers. It may vary from police, as they are the first to discover the rings, through to a higher level of the Prosecutor’s Office, or even the FSB. This was confirmed by an AGB source in the FSB, who said that it depends on the scale of the business.

A relatively new scam is to take bets on fake events, for instance, fake trade of securities at a very high speed (every 2-10 seconds).

Russia also appears to have intensified its efforts to tackle illegal online betting websites registered outside of Russia. For this, the Russian Federal Tax Service will compile and update a blacklist of illegal casinos and bookies.

On 27 May, in the run-up to the World Cup in Russia, a law came into effect prohibiting Russian credit organizations and payment systems from making payments to organizers of illegal gambling activities.

But it doesn’t stop some companies, like gambling software provider Slotegrator, from offering solutions to circumvent the ban.

According to the analytical website Bookmakers Rating, up to 70 percent (and by some estimates, up to 80 percent ) of Russian players place bets with offshore-based online bookmakers, which are deemed illegal in Russia. The total annual revenue of bookmakers in Russia – in both legal and illegal segments -amounts to RUB47 billion.  

Russian media watchdog Roskomnadzor blocked over 22,000 illegal websites in the first half of the year, compared to 756 in the entire 2015, when the blockings first took place.

But some, such as online casino Azino777, appear to be undeterred by the clampdown. It became one of the top online video advertisers in the Russian Internet in the first half of 2018, promoting itself in illegal copies of films on pirate movie websites popular in Russia.

It managed to gain a 7.1 percent share of all ads in the Runet during this period and even outdid such corporations as PepsiCo and Mars and Google itself. It keeps creating mirror websites defying Roskomnadzor's attempts to block them.