Cablegate: Us Treasury Concerned About Peruvian Gaming Sector


DE RUEHPE #1619/01 3032152
P 302152Z OCT 09

C O N F I D E N T I A L LIMA 001619


E.O. 12958: DECL: 10/25/2019

Classified By: Classified by Acting NAS Director R...

id: 232381
date: 10/30/2009 21:52
refid: 09LIMA1619
origin: Embassy Lima
classification: CONFIDENTIAL

DE RUEHPE #1619/01 3032152
P 302152Z OCT 09

----------------- header ends ----------------

C O N F I D E N T I A L LIMA 001619


E.O. 12958: DECL: 10/25/2019

Classified By: Classified by Acting NAS Director Robert Ward for
reasons 1.(b) and (d)

1. (C) Summary: A team from the Office of Technical
Assistance (OTA) from the Department of Treasury was invited
by the Peruvian Gaming Commission to Lima in order to conduct
a preliminary assessment of the Peruvian gaming sector.
During their very short trip, the team met with the Gaming
Commission and other entities at the Ministry of Tourism
(MINCETUR) as well as with the Financial Intelligence Unit
(FIU), and visited the XXXXXXXXXXXX. The team found
lax to non-existent regulatory controls, a toothless Gaming
Commission staffed by unqualified personnel, and a cursory
registration process. The gaming sector is thus wide open to
money launderers, drug traffickers, and counterfeiters both
Peruvian and foreign. The sector badly needs reform. End

2. (U) At the request of the Peruvian Gaming Commission, the
U.S. Department of the Treasury sent the following team to
team met with a cross section of Peruvian entities involved
in regulating the gaming sector as well as in enforcement,
tax collection and private business owners. Though the team
was only on the ground for four days, they feel they were
able to get a sense of the challenges and vulnerabilities
facing the sector as a whole and are preparing a report to be
sent to the Vice Minister of Tourism at the end of November.

Peru = Unregulated

3. (SBU) According to OTA, if one were to compare the
regulatory body or the level of control of the gaming sector
in Peru to other countries in the region with Chile being the
best and Guatemala the worst, Peru ranks closer to Guatemala.
The U.S. Treasury considers the gaming sector in Peru to be
"unregulated" and therefore U.S. companies, individuals, or
gaming houses that have an operating license in the U.S. are
prohibited by law from doing business, serving as management
contractors or opening U.S. franchises in Peru. If they did,
they would lose their operating license and therefore be
forced to shut down all operations in the U.S. The OTA
representatives stated that, "No U.S. licensed entity has any
business being here in Peru" and if they are here then it is
a strong indication that they are up to no good given the
financial risk of losing the U.S. license.

The Peruvian Gaming Commission

4. (SBU) The Peruvian Gaming Commission (PGC) is made up of
75 employees, most of whom are lawyers, and most of whom,
according to OTA, do not even understand how a casino works.
As far as the Peruvian Gaming Commission (PGC) is aware there
are over 750 gambling locations, meaning casinos and slot
machine houses. Most are located in Lima. There are nine
casinos in the entire country, all in Lima, and the rest are
slot machine houses. (There are 60,000 slot machines in the
country that they are aware of) There are also two
internet-based gambling entities. According to the PGC's
records, there are over 60,000 employees in the gaming
sector. NOTE on Internet gambling: because there is no
specific regulation prohibiting it, internet gambling is
considered legal. However, there is no designated overseer
so, according to the PGC, no one has authority to control or
regulate this part of the sector. The PGC only has authority
over casinos and slot machines; they do not regulate the
lottery, bingo and other such games nor do they have the
authority to regulate internet gambling.

Slot Machines

5. (SBU) Worldwide approximately six reputable companies
make and sell decent machines. Three of these brands exist
in Peru, though international sellers of machines are not
allowed to sell directly to Peru due to its unregulated
sector, status. Therefore, most machines arrive in Peru via
third party sellers. Unfortunately, the PGC does not have a
testing lab nor the testing capabilities to check machines so
as to prevent "rigging." The machines observed by the team
were of high quality and in some cases the best quality.
However, outside the casinos, there is a larger problem of
illegal, machines. These are usually Chinese or Japanese
and have no mechanism for control or the ability to calibrate
for fairness. The PGC has destroyed 4,000 of these machines
and continues to remove illegal machines from the market.
The Paper Tiger

6. (SBU) In 2006, the Government of Peru granted the PGC the
authority to issue licenses and regulate the gaming industry.
However, under the same legislation, they were stripped of
their ability to collect the taxes generated by the industry
that responsibility was given to IRS/Customs (SUNAT).
Because the actual amount of tax revenue produced is a
fraction of a point in SUNAT's overall assessment, they do
not collect the tax and have shown no interest in beginning
to collect tax as a form of regulation and control. OTA's
assessment is that the PGC has no real teeth; it is a true
"paper tiger." Though it can levy some fines, it has no
mechanism or ability to collect/enforce laws. NOTE: the PGC
is also the lead agency on Anti-money laundering for this

The Issue with Licensing

7. (SBU) Only 453 gaming locations have actually been
licensed under the PGC's system. However, the PGC explained
to the team that it wasn't a true licensing
system, more of a simple registration. They don't do
background checks, they don't require proof of origin for the
money, just name, date, DOB, address, etc. The PGC also
explained that they don't have the ability to do background
checks beyond the borders of Peru. When asked directly by
the team, "so then Osama Bin Ladin could start a casino here"
they replied yes.

Holes in the System

8. (SBU) There is no requirement for reporting large currency
transactions and no credit is allowed. The concern with the
lack of legal credit in the gaming industry is that it forces
the credit underground and creates a thriving loan shark
market. There also seems to be confusion, or rather a free
interpretation as to what constitutes a "suspicious activity"
which a gaming location would be required to report.
According to the Casino owners, it is not unusual for them to
have individuals gambling 30,000 USD to 40,000 USD a day, and
the owners argue because there are so few people in Peru with
that kind of money, they know them all. And because they
know them, it isn't suspicious since they do it all the time.
The OTA team also reported that it is not uncommon for
owners of Chinese restaurants to gamble up to 5000 USD per
day. Finally, there is no prohibition on cash for cash
exchange, cash for checks, and cash for wire transfer, all of
which are allowed and unregulated in Peru but prohibited in
countries that are considered "regulated." This lack of
strong controls makes the system very vulnerable to
counterfeit currency. NOTE: On October 28, NAS officials met
with a US Secret Service official who stated that more US
currency is counterfeited in Peru than anywhere else in the
hemisphere. Additionally, foreign currency exchange appears
to be unregulated. In the U.S., casinos provide foreign
currency exchange services; however, the transactions are
heavily monitored and controlled.

Fascination with the fancy toys

9. (SBU) OTA's overall impression of the PGC was that they
had this misguided fascination with fancy technology. The
Peruvian legislature is considering mandating that all slot
machines must be linked to a computer center in Lima. If
passed, this law would require each location to spend about
100,000 USD to install, forcing the smaller gambling
operations out of business. Moreover, it has been learned in
other countries that this solution doesn't result in greater

The Baffling Peruvian Tax System

10. (SBU) According to OTA, the Peruvian tax system seems
designed to fail and there are millions of dollars in tax
revenue uncollected by the government. According to the law,
there is a 12 percent tax on gross income - minus 2 percent
for a "slot Maintenance fee" that the institution keeps.
SUNAT showed the team their records indicating who has not
paid their taxes but they have made no move to go and
collect. The OTA team was baffled by the lack of interest in
collecting the taxes. Furthermore, only SUNAT is allowed to
look at the books in any gaming site, a fact that the casinos
and slot houses use to prevent the PGC or the FIU from
looking at their books. This remains a black hole in terms
of regulation and control. Typically, governments will grant
their Gaming Commissions the authority to collect taxes.
When NASOff directly asked if the responsibility could be
shifted away from SUNAT to the PGC, the XXXXXXXXXXXX not only explained that this would be difficult because it would require a change of law, but he didn,t think it was a good idea given that the PGC really doesn't have the capacity to take on that type of
responsibility. Though he admitted SUNAT's lack of interest
in collecting the taxes from the casinos and gaming halls was
a serious issue and an obstacle to better control of the

Can't Get an Operating License Where you Are? Come to Peru!

11. (SBU) There are several casino operators in Peru who have
been denied licenses in other countries. For example, Chile
denied XXXXXXXXXXXX, which operates the XXXXXXXXXXXX in Lima, an operating license on the grounds that the company could not prove origin of funds, so they simply came to Peru and have been able to operate legitimately and freely. Additionally, a casino operates in
Peru with their source of funds listed from a bank account in
the British Virgin Islands and has no obligation to prove
origin of funds beyond that particular bank account.


12. (C) OTA is most concerned about the inability of the PGC,
or any sector for that matter, to identify the background on
a Casino; the origin of the money; and true ownership. The
Peruvian gaming sector is extremely vulnerable and attractive
to/for money laundering. The team used Russia as an example.
Russia has essentially dismantled their gaming industry in
an effort to wipe the slate clean and start over again with
stronger control. As such, those forced out of operation in
Russia will be looking elsewhere to operate their businesses
and, according to the OTA team, Peru will be high on the list
of preferences. OTA strongly believes that before any
technical assistance on an operational and regulatory level
may be conducted, the Peruvian legislature must change the
gaming laws. Training at this point will be fruitless given
the relaxed nature of enforcement laws in Peru. OTA has
expertise in working with governments on drafting legislation
and is currently working with Costa Rica and Antigua on this
task. On a high note, NASOff and ECONOff met with the Vice
Minister of Tourism - Pablo Lopez De Romana Caceres - on
October 20 as a follow up to the OTA visit. When the subject
of issues with the gaming laws was raised the Vice Minister
said that he felt now was an opportune time to look at the
laws and suggest changes. He also expressed his support for
tight control and stronger regulation.

13. (C) NAS and DEA will work with the OTA team to assist the
PGC's efforts in tightening control. As a result of this
meeting, DEA will be translating into Spanish a draft law on
Gaming that is used across the region. NAS will work with
OTA on future visits not just for the gaming sector but to
look closely at all aspects of the anti-money laundering
system in Peru.


=======================CABLE ENDS============================

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