Philippine POGOs stick with Chinese betting, tempting Beijing’s wrath

The Philippines and China remain at odds over Philippine offshore gaming operators (POGOs).

Then-president Rodrigo Duterte rejected a direct appeal to shut down POGOs from China’s president Xi Jinping in 2019. Continuing offshore betting now threatens the return of Chinese tourists that accounted for 21% of Philippine pre-pandemic arrivals.

President Ferdinand “Bongbong” Marcos, who took office at the end of June, remains undecided about POGOs even as serial Senate hearings highlight the sector’s harmful impacts, including human trafficking, money laundering and prostitution.

Hearings in January showed POGOs fall far short of government revenue projections, producing around US$6.25m monthly last year, compared with projections of more than US$50m. The sector has shrunk to less than half its peak size, posting an estimated $1.8 billion in GGR last year. 

POGOs still have the bulk to exacerbate trends Macau Institute for Tourism Studies professor Leonardo “Don” Dioko identifies in his 2021 paper, Key Issues in the Philippine Gaming Industry: “[l]ocally organised and highly visible violent crime affecting the gaming industry,” and “[v]ulnerability of the Philippines’ gaming industry from external dark actors”.

Amid a proposed ban on POGOs, supported by a growing public chorus and Beijing’s persistent pressure, Marcos should consider two fundamental facts about Philippine offshore gaming – even with the best intentions and technology, preventing betting from China is hard for operators, but accepting betting from China is much harder.

China block

Preventing offshore betting remains a keystone of president Xi Jinping’s campaign against gambling and illegal capital flight. To comply, industry observers suggest the Philippines could require POGOs to block access from China to their websites. 

“We won’t take business from a Chinese national ever. We won’t do it,” Philippine licensed Footballbet.com CEO David Leppo says. “You cannot access any of our websites from the United States [where offshore gaming is also illegal] or from China.”

“Our policy is that we do not do any business in China,” a spokesperson for Kindred Group, licensed in Malta and operating multiple online gaming platforms, says.

“The [Malta Gaming Authority] expects its licensees to comply with their applicable license conditions, including exercising due diligence when it comes to the selection of the respective jurisdictions within which they choose to operate,” a MGA spokesperson tells iGB.

A game of Whac-A-Mole

It’s relatively simple to restrict access to websites. However, technology experts acknowledge blocks can’t stop everyone. Gaming operators compare preventing unauthorised play to the classic arcade game Whac-A-Mole – as soon as you plug one hole, another pops up.

Blocking presupposes that POGOs and their regulators, who get a piece of the action through gaming levies, want to stop play from China. For many POGOs, betting from China isn’t an unintended consequence or side effect: it’s the whole point. 

Circumventing the Great Firewall of China and other barriers to find Chinese customers and collect payment from them requires extraordinary effort, including sophisticated online measures and tens of thousands of marketing agents. Sources requesting anonymity pulled back the curtain on some of those methods.

Agro finance 

Chinese authorities have removed gaming operator fronts from payment channels such as AliPay, WeChatPay and QQPay. Instead, offshore operators have turned to so-called farmer accounts, a simple term for a complex strategy.

Agents in rural areas of mainland China recruit ordinary people to open accounts with mobile access at multiple banks. The agents pay those recruits for their efforts then sell the accounts to offshore gaming companies. Buyers receive copies of the registered account holder’s ID card, the SIM card associated with the account and the bank-issued security device needed to access the account.

Gaming companies use these accounts to accept payments from customers inside China, shuffling money between accounts in small sums to thwart tracing by authorities. Eventually operators funnel funds to Hong Kong for conversion to Hong Kong dollars that, unlike Chinese renminbi, can be freely exchanged internationally. To trigger and track these transfers, POGO staff man keyboards facing walls lined with computer screens, the relevant bank devices dangling from each screen.

In these same boiler rooms, dozens of marketing agents sit at keyboards in a haze of cigarette smoke, sending messages to customers or potential customers to entice them to play. Because China has its own online social networks such as WeChat, Weibo, Douyin and Renren substituting for Facebook, Twitter, WhatsApp and TikTok, agents must understand the Chinese online environment. So the best marketing agents come from mainland China.

The POGO story begins in the Cagayan Special Economic Zone. The zone received authority to issue gaming licenses along with other incentives to develop Cagayan Province on the northeast tip of Luzon, 400 kilometers north of Manila, under legislation sponsored by then-Senator Juan Ponce Enrile, a Cagayan native. The longtime Marcos associate, celebrating his 99th birthday on February 14, now serves as chief presidential legal counsel.

Manila’s largest occupants

During the offshore gaming boom in the second half of the 2010s, hundreds of thousands of mainland Chinese worked in Sihanoukville in Cambodia and Manila’s offshore gaming hubs. Many of them arrived on tourist visas without authorisation to work and then overstayed. Property analysts estimated POGOs overtook conventional call centres as downtown Manila’s largest occupants. 

The burgeoning population of Chinese POGO workers sprouted businesses catering to them, often run by other Chinese immigrants and isolated from Philippine mainstream society. At its worst, the influx gave rise to human trafficking.

Offshore gaming master licence holder North Cagayan Gaming and Amusement Corporation president Jiji Rodriquez recalls in an email to iGB that Philippine citizens at first blithely accepted mainland Chinese expat employees.

“This tolerance, however, was breached when their large numbers resulted in cultural and social problems. Criminal activities (prostitution, kidnapping, bribery, etc.) also heightened the perception that these businesses were undesirable in spite of the economic and financial benefits they gave the country.”

When Covid took hold globally by early 2020, mainland Chinese could no longer travel to the Philippines. Many Chinese POGO employees, facing backlash from Filipinos and hearing rumors of retaliation from Chinese authorities if they stayed, chose to leave the Philippines. That shrank the Chinese labour pool for POGOs. In extreme instances, it led to kidnapping and detention of workers, swelling public and political opposition to POGOs. 

Who says it’s illegal?

For Philippine regulators and operators, though, the POGO question is less about lawbreaking than about whose law is being broken. “The term ‘illegal’ is relative. In most countries, placing online wagers by individuals may be discouraged but not necessarily sufficient cause for legal punishment – even if declared illegal,” Rodriguez, the only Philippine regulator commenting on the record for this article, says.

“I believe that the burden of regulation and enforcement therefore falls on the countries that want to prohibit, control or regulate the betting activities of their citizens. Such governments can implement legal punishment on patrons placing wagers online, actively pursue all channels (internet providers, banking, promoters, etc.) through which online gaming enters their respective countries and work closely with other governments to combat such activities.”

That’s a position the Philippine government has held through its most recent four presidents, including Marcos until he decides otherwise.

“What is definitely illegal is the promotion and acceptance of such wagers by unauthorised entities,” Rodriguez adds.

A POGO is a POGO

Across the board, Philippine officials try to to draw a bright line between legal and illegal POGOs. Industry insiders indicate the main difference between licensed and unlicensed POGOs is the licence. Their business practices are indistinguishable and, to China, a POGO is a POGO.

Increases in fees and taxes since Pagcor began licensing offshore gaming (and coined the term POGO) in 2016 have prompted more POGOs to evade taxes and even operate without licences. That’s ironic, given the roots of offshore gaming in the Philippines.  

The POGO story begins in the Cagayan Special Economic Zone. The zone received authority to issue gaming licences along with other incentives to develop Cagayan Province on the northeast tip of Luzon, 400 kilometres north of Manila, under legislation sponsored by then-senator Juan Ponce Enrile, a Cagayan native. The longtime Marcos associate, who turns 99 on 14 February, now serves as chief presidential legal counsel.

Getting straight

Early this century, after observing the success of offshore gaming in European jurisdictions and British Crown Dependencies, Cagayan followed suit, creating Asia’s first offshore licensing regime, which banned betting by Philippine players. Cagayan licences enabled betting networks already operating underground across Asia to become legal.

As a licensing jurisdiction, the Philippines is “attractive because of its closeness to China and other Southeast Asian countries and because its licensing regime provides a legal environment, though not perfect, that permits physical offshore betting business operations,” Rodriquez says.

“These two factors have allowed offshore betting operators to move staff and operations into the Philippines with some assurance that the businesses and owners/employees will not be arrested and charged criminally merely for running this type of business.

“In contrast, other locations where offshore betting operations have [reportedly] moved, do not have the legal framework to allow such,” Rodriguez says. “Operators in those locations rely on the governments or politicians there to either tolerate them or to turn a blind eye to them, sometimes in exchange for financial benefits.”

“A more reputable regulated market”

“The reason we have a Philippine licence is because it validates, it certifies that we operate under a regulated gaming body that’s recognised in all of Asia as being a more reputable regulated market, even though sports betting, online or land-based, might be legally gray in those jurisdictions that recognise the Philippine licence,” Footballbet.com’s Leppo says. “It makes banking a lot easier. It makes paying taxes a lot easier and validates the platform that people are betting on.”

Footballbet.com has its licence issued by North Cagayan Gaming and Amusement, one of three Philippine entities that now license offshore gaming. Along with First Cagayan Resort and Leisure Corporation, now part of Manila listed Leisure and Resorts World Corporation, North Cagayan is a master licensee for gaming for the government owned Cagayan Economic Zone Authority.

Fine bit of shirt

As mobile internet expanded across Asia, office buildings in Manila’s Makati district filled with live dealer broadcast studios and hordes of attractive young female live dealers to supplement limited capacity in Cagayan.

From 2009, Philippine offshore operators such as Fun 88, M88, W88, 188 Bet, 12Bet and Dafabet vied with European gaming companies and other heavyweight brands to put their names on English football shirt fronts.

Rodrigo Duterte ran for president in 2016 as a staunch opponent of gambling, threatening to shut down online gaming. However he changed his tune upon taking office, declaring that national gaming regulator Pagcor, under Duterte’s handpicked chairperson Andrea Domingo, should license offshore gambling.

Pagcor couldn’t legally cancel Cagayan licences; instead, the state corporation asserted its right to regulate gaming operations outside the special economic zone. In other words, licensees that wanted to continue operating from studios, tech centers and offices outside Cagayan, needed a Pagcor licence. Pagcor licences carried higher fees than the Cagayan variety, including a 5% levy on GGR rather than Cagayan’s 2%.

By 2019, industry insiders estimated offshore play in Asia, including sports betting, live dealer and proxy betting in VIP rooms, often using video feeds, exceeded land-based revenue, perhaps by as much as US$50 billion. That attracted China’s attention.

In August 2019, Xi asked the leaders of Cambodia and the Philippines to ban offshore gaming. Cambodia’s prime minister Hun Sen agreed, although the ban appears far from airtight. Duterte told Xi he’d consider it but within weeks rejected the idea.

Pagcor limited its number of POGO licences, but that’s immaterial since Pagcor adopted the so-called Curaçao model, allowing sublicences. The most recent figures show 34 Pagcor-licensed POGOs and 122 service providers with another couple of dozen Cagayan licensees. 

Risking a blacklisting

Now, with China ending its zero-Covid policy, freeing citizens to travel, POGOs can likely find new mainland Chinese workers. China’s reopening also means that mainland tourists can visit the Philippines. However, Beijing has promised to “blacklist” destinations that encourage gambling by Chinese citizens. Citing a conversation with China’s ambassador to the Philippines, Senate president Juan Miguel Zubiri told a hearing that the Philippines is on China’s blacklist (Zubiri did not respond to enquiries for this article).

In 2019, direct spending by 1.7 million Chinese tourists exceeded US$2.3bn, according to Philippine Department of Tourism figures. Chinese arrivals increased 39% that year, making it the Philippines’ fastest growing major vistor source, on track to reach 2.4 million and challenge South Korea for the top spot, if Covid hadn’t halted travel.

Those are awfully big numbers to risk by betting on POGOs that antagonise the public and China while fostering illegal activity far more than tourism. You have to wonder why any government, particularly an elected one, would make that bet.