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Casino Gambling: Russia's Export to Latin America

December 26, 2009 - Time Magazine

By Jean Friedman-Rudovsky / La Paz

A little less than a century ago, Western leaders feared that Russia would export its revolution. These days, at least in Latin America, they're more concerned that it may be exporting its gambling problem. Moscow banned casinos in most of its national territory last July, confining the multibillion dollar industry to Siberia. Since then, gambling operations have been trying to win back lost profits in Europe and Latin America. And not everyone is happy about it.

"Bolivia is a gambling company's paradise," says an exasperated Marco Antonio Cardenas, the director of the National Lottery of Bolivia, which also regulates casinos. In the last year, he says, gambling operations here have nearly doubled -- there are now more than 80 casinos and about 10,000 gambling machines in his country of 9 million people. And Cardenas attributes the rise to foreign investors taking advantage of Bolivia's loose regulations. Once a gambling company is granted a license to operate, there are no limits on the number of sites it can open in Bolivia. (Other countries limit the number of casinos that can be opened in proportion to population size.)

Bolivia's laissez-faire gambling market is good news for companies such as Moscow-based Ritzio International, the largest casino operator in Eastern Europe. Ritzio does $1.2 billion in business annually at its 1,000 venues worldwide. The Russian giant is the majority shareholder in Lotex S.A., whose 15 purple and orange Bingo Bahiti clubs have become a fixture in Bolivia's major cities over the past two years. Inside the venues, large Bingo rooms are the main attraction, although there are also hundreds of blinking slot machines and other automated games that accept dollars or bolivianos. The casinos are rarely packed but do draw a steady crowd, officials say.

Ritzio says its international expansion is not tied to curbs on gambling inside Russia. "The [prohibition] law has intensified the process of our internationalization, but not radically," a Ritzio spokesman says, explaining that when Russia announced the ban in late 2006, the company already had assets in eight countries. (Today that number is 15, including Bolivia, Peru, Colombia and Mexico.)

But others involved in the industry believe the capital flight is directly related to new Russian regulations. "It's preposterous to think these [gaming zones in remote locations proposed by the Russian legislation] could be up and running soon," Samuel Binder, deputy executive director at the Russian Association for Gaming Business Development, told Reuters in July. "Even those who have investments for gaming have realized they'd rather take their money elsewhere in the ex-Soviet Union or to Latin America," Binder said.

Bolivia's gambling boom is not unique: Mexico and Colombia opened new Russian-owned mega-casinos this year; Chile's gambling sector is rapidly expanding despite the economic downturn; and Lima, Peru, is now known on the South American traveler's circuit as a sweet spot for gambling. Argentina's casino business, the largest on the continent, brings in between $4 billion and $5 billion a year.

But Bolivia is the continent's poorest country, prompting many to wonder how investing here could be profitable for Russia's high rollers. Cardenas says that while Bolivia's poor may not frequent the slots, there are plenty who have money to spare and enjoy placing the occasional bet. Bingo Bahiti President Jose Maria Peñaranda says his venue provides wholesome fun. "Everyone loves Bingo," Peñaranda told TIME. "We offer a calm, safe and fun form of entertainment."

Indeed Bolivia only allows "soft" gambling -- no dealers and no wheels, only machines programmed to give a win at least 80% of the time. (This is slightly misleading because a Bingo hall produces a winner every game and a slot spin that boosts your score by $0.05 is considered a win.) On a recent Wednesday evening, the grandmother of one Mary Aguilar wasn't winning, but didn't seem to mind. "I come most weeks," she said. "It's just a good way to pass the time."

But not everyone is convinced that Bolivia's newest pastime is as innocent as it seems. "It's a dangerous topic," says Santa Cruz District Attorney Hector Cornejo, who's part of a special unit on corruption and gambling related crime. He and others "in the know" -- journalists, investigators, public officials -- speak in hushed tones about a growing Russian mafia. Cornejo alludes to casinos being the gateway to an underworld of money laundering, drug trafficking and recent spikes in crime in Bolivia's wealthy city of Santa Cruz, though he offers no specifics. Even Cardenas, who is wary of condemning the sector he runs, has this admission: "Gambling, drugs, prostitution and arms -- they go together."

What concerns authorities are not necessarily the on-the-books operations such as Ritzio's Bingo Bahiti, but smaller, rapidly proliferating outlets like those under an umbrella company named Corhat. Corhat's legal adviser, Otto Ritter, claims that not one of his company's 67 Bolivian venues have Russian ties and that their fast expansion is nothing more than a good business model. "Those are just ugly rumors meant to hurt our business," he told TIME. "We have no Russian investors and everything we do is square with the law."

But Cardenas and Cornejo insist that Russian interests are involved in Corhat. While the company, through its lawyer Ritter, rejects the accusation, the gatekeeper at one of the company's operations was less sure. "The Bolivian manager is just a front," a security guard at a Corhat casino in Santa Cruz told TIME on the condition of anonymity. "There are three Russian guys who are the ones running the show." The company's own headquarters do little to bolster Ritter's claims of legitimacy: Their 8-in.-by-11-in. paper Corhat sign is scotch-taped to the window of crumbling office building. Inside, there's no trace of regular staff: just bare walls and empty desks.

The reason that Russia put the squeeze on its own gaming industry in 2006 was the link drawn by its Interior Ministry between gaming operations in Moscow and a criminal organization in Georgia. Bolivia is not likely to limit gambling operations, however; its newly approved constitution allows for the maintenance of the industry. Indeed, gambling looks set to be a growth industry in the region: Even Latin America's economic powerhouse, Brazil, is currently considering lifting its longstanding prohibition on casinos.