May 2009 Archives

While all the hype about pending US regulation and acceptance of online poker has the industry excited, there is a negative side that nobody is talking about.

At a recent affiliate conference in Amsterdam the talk of pending US regulation was a hot topic of discussion. Every person I talked to was quivering with excitement about how great this was for the industry, and the fantastic opportunities that would arise.

I disagree completely.

The transparent bed-sharing of Harrah's and Party Poker, and the slightly more subtle relationship between MGM Mirage and Full Tilt clearly illustrate that the big boys are making sure that they are ready to not only play in this market, but own it. Add Harrah's disclosure that they have spent over $400,000 in cash during the first quarter of the year as a registered lobbyist to build support for Rep. Barney Frank's "Internet Gambling Regulation, Consumer Protection and Enforcement Act of 2009", and their position is clear.

It is no secret that Harrah's and the others are looking for a way out of their recession woes. Rumors of bankruptcies are rife on the Vegas scene, and the income that would be generated by entering the online poker market would provide much needed cash relief, and do so almost overnight.

But here's the thing; where will that leave everyone else? Do you really think that Harrah's and their brethren are throwing their considerable lobbying efforts behind bills that would legalize online poker out of the goodness of their hearts so that we can all play in their sandbox? Not a chance!

MGM's statement that they support the legalization, regulation and taxation of Internet gambling is very telling, as they are, like Harrah's, already legal, regulated, and taxed. It is a much shorter road to travel for these companies to find a legal status for providing online poker than it will be for a company that is not already holding a US gaming license.

The prevailing opinion is that online poker will become available in the state of California first, as their state legislature has reportedly already reached positive decisions in this regard. If that happens you can bet that Nevada will soon follow, and then New Jersey. Regardless of how they fall, or even if it is a federal legalization, it would make sense that currently licensed operations, (and their bed-fellows), will have the first crack at the market, and it seems equally reasonable to assume that those operations will then take steps to ensure that they have market protection.

Providing online gaming licenses to non-US gaming operators, regardless of their "white label" status in other jurisdictions, is something that could take years to implement, if ever. Even pressure from the generally ignored WTO is unlikely to make a difference. The US made their opinion of the WTO's rulings very clear when they stripped gambling from its WTO obligations several years ago. It is obvious that they are going to conveniently continue to ignore them.

So where will that leave the established, reputable gaming companies that are operating in legal, regulated environs? Without a passport to the US market for sure. And for those that continue to operate in the US without a US license you can be sure that on the bequest of the Harrah's of the world that they will be forced out by whatever means are necessary. The US government will finally be armed with laws to do so.

As for the players themselves, and the large number of prospective players that have not yet played online because of trust issues, it will also be an easier decision for them to play with a brand that they recognize from down the road.

There is still no specific law that prohibits online gambling in the United States, and for those operators that are currently accepting US player action, this is the scenario in which they will remain the most successful. Unfortunately, in my opinion, change is inevitable.

Gian Perroni is the President of CanAffco.com, a Vancouver based marketing and affiliate management group focused on the online gaming sector.

Switzerland beats New York London and Singapore in a new ranking by Scorpio Partnership for the financial center that best caters for the world's rich.

"To the mobile wealthy, Switzerland is very nearly all things to all people," said Scorpio Director Stephen Wall. It "has been and will continue to be the biggest beneficiary of moves away from London."

This despite recent concerns over the state of Swiss offshore banking and bank secrecy.

It is estimated that Swiss banks currently manage 27% of offshore wealth that is privately held. London still remains in a strong position,  but has been damaged by insecurity over proposed changes in government legislation, according to the London-based wealth management adviser

While London retains "an inherently strong position," it ranks second after damage resulting from "recent regulatory and fiscal changes," Scorpio said.

The U.K. government's changes have "engendered a sense of mistrust and uncertainty among the mobile wealthy and their advisers," said Scorpio Managing Partner Sebastian Dovey.

Professionals such as doctors, lawyers and entrepreneurs who make up majority of the world's rich are those defined as the "mobile wealthy" by Scorpio

Here's the ranking of  the world's top "mobile wealthy residency" centers:

1. Switzerland
2. London
3. Singapore
4. New York
5. Hong Kong
6. Jersey
7. Cayman
8. Isle of Man
9. Monaco
10. Dubai
11. Guernsey

Source: Bloomberg

We are by now used to hearing rhetoric about "pledges" to end bank secrecy and an end to tax havens, as if forcing another country to change its legal code were a natural course of action.

But what do the so-called tax havens think about all this? Here's an interesting article from Uruguayan newspaper El Pais (Uruguay was one of the 4 countries originally placed on an OECD "blacklist"). The author, respected Uruguayan economist Ignacio De Posadas, makes the case for Uruguay keeping it's bank secrecy law. Now of course he cannot speak for a country of 3 million people, but its revealing nonetheless to hear their story, not often represented in the Western press. The article is written article in Spanish; here are some of his arguments in translation.

- The issue isn't about when people use bank secrecy to commit serious crimes, nobody disputes that.

- Uruguay doesn't have any obligation to enforce the collection of French or British taxes (nor would those countries give them anything in return).

- What right do "powerful" countries have to pressure smaller countries into changing their internal laws - an action which will benefit the more powerful and result in a loss for the smaller country?

- The OECD text says that tax havens should bring themselves in line with "international standards" for tax-information sharing, as if it were a UN convention or some other multilateral agreement signed by Uruguay, when really it's an OECD convention, of which Uruguay is not a member and has nothing to do with.

- Why are they doing this? Because over several decades OECD countries have been expanding and complicating their systems of taxation - out of all proportion with the return these administrations give to taxpayers. In other words - it's their problem. What does Uruguay have to do with it?

- How does bank secrecy benefit Uruguay? In reality the question isn't being put in the right way. Bank secrecy is consecrated in the constitution. Of course there are limits and norms to bank secrecy, but these aren't pre-requisites. In other words..it doesn't matter if it benefits Uruguay or not, it's a right. Full stop.

The war on tax havens is about strong and powerful countries using force to impose themselves on smaller nation states. There are no guns but the principle is the same.

More on bank secrecy.

The Obama administration is unveiling a new set of measures aimed at ending the use of tax havens and offshore banking centers by US corporations for tax avoidance purposes. It is expected that not only multinationals but also a large number of wealthy families and individuals that use corporate structures will be affected.

The administration is looking to change a tax-saving technique known as "deferral", which allows large multinational corporations to defer paying tax on overseas earnings until the funds are repatriated. The proposed legislation would seek to limit tax deductions that companies could earn from this and is expected to raise $60.1bn over the next 10 years.

In addition they are seeking to overhaul "check-the-box" rules which allow US companies to choose where their subsidiaries are taxed - often low-tax offshore havens with strict bank secrecy that gladly welcome the capital. The administration hopes to raised $86.5bn through this measure.

Personal account holders are also being targeted. New rules would make it harder for Americans to open offshore bank accounts for tax purposes. They would increase reporting requirements and penalties, and make it harder for offshore account holders to win their cases in court. Authorities expect to claw back just $9bn from this measure over the same period.

While many welcome the administration's moves against tax haven use by "big business", especially considering ruthless IRS rhetoric against personal tax avoidance, others are wondering if there will ever be a limit to government tax collection. As "tax haven loopholes" are closed down one by one, individuals and corporations are forced to take part in the economy of the government's choosing. And with the burden of proof shifted away from the accuser to the accused, we may find ourselves once again sliding backwards into a medieval system of taxation.