Modernisation of Jersey's Gambling Legislation

STATES OF JERSEY

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MODERNISATION OF JERSEY'S GAMBLING LEGISLATION

Lodged au Greffe on 20th April 2004 by the Economic Development Committee

STATES GREFFE

PROPOSITION

THE STATES are asked to decide whether they are of opinion

(a ) to agree that legislation be brought forward for approval by the States to allow casino gambling; (b ) to agree that legislation be brought forward for approval by the States to allow on-line gambling; (c ) to agree that legislation be brought forward for approval by the States to allow commercial bingo;

(d ) to agree, in principle, that a Gambling Commission should be established in the Island and that the

purpose of the Commission should be licensing, regulation, harm reduction/social responsibility and ensuring that gambling issues do not harm the Island's international reputation, with the terms of reference of the Commission to be approved by the States;

(e ) to agree that the Economic Development Committee, in conjunction with the Policy and Resources

and Finance and Economics Committees, be tasked with negotiating the introduction of a new public Lottery to be operated jointly for the benefit of the public and charitable institutions in the Island;

(f ) to charge the Economic Development and Finance and Economics Committees with identifying

the source of the additional funding required to give effect to these proposals.

ECONOMIC DEVELOPMENT COMMITTEE

Note: The Finance and Economics Committee's comments are to follow.

REPORT

1 In t r oduction

1. M e mbers will bewellaware that the debate surrounding proposals to reform legalgamblinginJerseyhas been on-goingfor a numberof years. While the States has previously rejected proposals (particularly regarding introduction ofcasinogambling), the Island'scircumstanceshavechanged sufficiently that the Committee believesitisappropriate to revisit this matter. Ifpassed, these proposals will have a numberof very real benefits. They will enhance the facilities and infrastructure ofthe Island and will act as an important boost to the tourism market and to the amenities available to the resident population. Modernisation oftheIsland's gambling legislation will also provide for greater freedomof choice and better reflect a sophisticated population that expects to makemoral choices – such asifandwhento gamble – for themselves.
2. T h e States can also expect to directly benefit throughtheprovision of new revenue streams via licensing and duty payable on any new gamingbusiness. This in turn will positively affecttheprojected deficit in the States' annual accounts.The potential for new jobs and additional capital investmentalso provides additional incentive to reform a Law that manyin the Island regard asanachronistic and outoftouch. Members should, therefore, be reassured that the Committee does notbringtheseproposals to the States lightly and earnestly believes the expected benefits accruingtothe Island are significant enoughto justify their adoption.
3. T h e Assembly will recall that theformerGamblingControlCommitteepresentedR.C.50/2002 entitled ModernisingJersey'sGamblingLegislation' and asked that it better inform the EconomicDevelopment Committee should it choose to bring forward in principle' propositions to the States in the future'. The Committee is grateful for the work of the formerGambling Control Committeeand has indeedused R.C.50/2002 as an important source. At that time, with the merger of diverse responsibilities into Economic Development, the Committee was mindedto reflect upon R.C.50/2002 and to conduct its own research, notto verify or contradict what the Gambling Control Committeehadproduced,but to try and assess theeconomic benefit andsocialconsequences that wouldimpacton the Islandas a whole.
4. T o that end, the Committeeendorsedthe view of the formerGambling Control Committee that noted experts in the field ofcommercialgamblingbecommissioned to produce a report and agreed with the decision to select ProfessorPeter Collins andMr. AnthonyJennens to undertakethe work. BothProfessor Collins[1]andMr. Jennens are world-renowned experts in their field.

T h e y are respectively the Chief Executive Officer and Deputy Chairman of GamCare[2], the gambling

neutral charity, as well as being experts in the field of Gambling and Public Policy; Ethics and Gambling; Problem Gambling and Online Gambling. Both Professor Collins and Mr Jennens have been heavily involved in the work of the Scrutiny Committee examining the current U.K. Gambling Bill.

5. T h eir Reporton the ReformofGamblingLawinJersey' has provided the Stateswith,as they put it, a cogent account of the relevant numbers'. This understanding of the likely economic benefit has never been truly understood before, norhas it been subject to industry verification. Itrepresents, in truth, the missing piece of the equationnecessary to place the entire question in perspective. Individual States Members will have to judgeforthemselves the relative weight that they give to each part of the evidence produced by this report, but they maydososafein the knowledge that unlike otherdebates, they are in possession ofindependentlyverifiedestimates of what passing this proposition wouldmean in economic terms.
6. In deciding what proposals would best serve the interests of the Island, the Committee has beenguidedby the following principles –

• t h a t any perceived benefits from changes to the law must be weighed against any adverse impact on the Island's good reputation;

• t h a t proposals for liberalisation be balanced by policies and a regulatory framework to prevent criminality and protect those susceptible to gambling addiction; and

• t h a t costs of negative social impact such as an increase in gambling addiction must be borne by the gambling industry and not the tax payer.

7. T h e Committee therefore stronglyendorses the view setoutbyProfessor Collins and Mr. Jennensinthe conclusion to their report:[3]

I t i s imperative that politicians do everything to discount both the blandishments and the alarms

which will issue from particular interested parties. Instead they must focus single-mindedly on the over-arching communal interest.

2 C u r rent Legislation

1. A Law that is notunderstoodandnotseenasrelevantbythe majority of society cannotbesaidtobegood Law. TheCommitteeisconvinced that the current Gambling Law is outdated,unwieldy, unnecessarily complicated and restrictive. Members of the public, used tothemoreprogressiveregimes operated in other jurisdictions, areamazed that they oftencannot hold raffles without government licensing, that commercialpromotionof charity raffles is forbiddenand that so-called free prizedraws' (commercial prize competitions) are illegal.
2. T h e presentLawdates from 1964 and starts with the supposition that all forms of gambling are unlawful, unless madelawful by Regulation. The Regulations allow for a limited choice of gambling that maybe undertaken and proscribes licensing conditions and termsunderwhichcommercial and non-commercial gambling activities maybe undertaken. While the Committee remainsfirmlycommitted to the view that gambling shouldbe regulated, it does not believe that government has a role in limiting player choice, or that it shouldimposean artificial moral distinction between different typesofgambling.Theinferencein the present legislation, that gambling issomehow morally questionable, does notreflectthe feeling of the majority of society and isquiteout of date.
3. G a mblingin Jersey, asin other jurisdictions, is a leisure activity enjoyed bymany.Like many other social activities, however, it can be and is abusedby a minority.No-oneshouldunderestimate the harm that can be caused by problem gambling. The Committee recognises this and will, if theproposals in this report are  accepted,  work  with  interested  parties  to ensure that  harm  is limited  and  that  counselling and treatment ismade available. TheCommitteehastaken the viewsandadvice from many parties, both in favour of modernisation and against. Indeed, the Committee would like to publicly thank the many individuals  and organisations that  took  the  trouble  to  respond to  the  public  consultation  exercise undertaken for 4 monthsin2003.
4. W  hile recognising the sincere belief, held bysome, that gambling is a socialevil, the Committeecannot endorse this pointofview.Gamblingis presently lawful in Jersey. The protection of the youngand vulnerable,  together  with  help  and treatment for the  addict  are  issues  that  we already  face today. Modernising the Law will not create a new problem. Itwill,however, offer an opportunity to provide a modernregulatedenvironmentwherethe legitimate expectations of society atlargecanbe fulfilled, while providing new resources to create a structured caring responseto the small minority of people whocannot adequately controltheirgameplay.
5. T h e current legislation is divided under the Law into 6  sets of Regulations (a  complete set of curren legislation isattached as Appendix 2 –

• G  am  bling (Jersey) Law 1964 (as amended)

• G  am  bling (Betting) (Jersey) Regulations, 1965 (as amended)

• G  am  bling (Licensing Provisions) (Jersey) Regulations 1965 (as  amended)

• G  am  bling (Pool Betting) (Jersey) Regulations 1965 (as amended)

• G  am  bling (Gaming And Lotteries) (Jersey) Regulations, 1965 (as  amended)

• G  am  bling (Public Lotteries) (Jersey) Regulations 1971 (as amended)

• G  am  bling (Channel Islands Lottery) (Jersey) Regulations 1975 (as  amended).

6. T h is equates tosome91 different piecesof current legislation under the principal law that need to be understood inorder to ensure that gambling undertaken in Jersey is taking place legally.Itisnottoo surprising, therefore, that the general public are often baffled as towhat is permitted and that officers are placed underheavydemands to try and explain andassist.

3 A n ew Gambling (Jersey) Law (200-)

1. T h e Committeeis firmly of the opinion that the Gambling(Jersey)Law1964,asamended, is no longer a relevant andusefulpieceof legislation and supports its repeal. Instead,it should be replaced by a more appropriate and adaptive piece of legislation. Rather than 6  setsofRegulations,thereshould ideally be only one, covering the whole ambit oflegalgambling. The newLawshouldbeup to date, simple to understand  and  sufficiently  flexible  to  meet changing  circumstances  without  the  need for frequent amendment.
2. T h e Committee believes that further debateandconsultationregarding the proposed new Law should take place, but broadly speaking, is committed to enacting legislation that –

• p r o te cts the player;

• p r e v ents crime, including money laundering;

• c o l le cts taxation;

• d i ff e rentiates between commercial and non-commercial gambling; and

• e n s u res a viable long-term future for the gambling industry in Jersey.

3. T h e difference between so called soft' gambling as a meansoffund-raisingby charitable andsporting organisations  and hard' gambling  organised by  commercial undertakings is  something that  the Committee believes should remain. It would not be fair for the Committee to propose a change in legislation that would either prevent localclubs from fund-raising,orcause them to lose valuable revenue merely because commercialundertakingscould compete more efficiently, forexamplebyofferingbigger prizes.  On the other hand, charities  are not entitled  to  privileged  protection  and the  public should ultimately have the right to choose. TheCommitteebelieve, therefore, that restricting provision of small- scale lotteries to sportingand charitable organisations satisfies this requirement.
4. T h isproposalis similar to the current legislation in principle, but would beadministered differently. Currently, clubsand societies mustregister every year and then apply for a permit for eachand every type of gambling activity they wish to undertake. TheCommittee propose that the new Regulations make provision for registration only once and that the restrictions and administration of different typesof lotteries be simplified. This will  give charities  and  recognised clubs greater choice in fund-raising, however, the Committeealsobelieves that more realistic charges shouldbeimposed for registration and the associated administration undertakenbythedepartment.
5. T h ere is onesignificant alteration to the current system that the Committeebelieves is urgentlyneeded and that isin relation to commercial prize competitions.The public isnow used to receiving and replying to prize competitionspromotedbycommercialundertakings that are domiciledoutsideof the Island. Localbusinesseshave also becomemoreadeptat these forms ofpromotion.Thesenormally take the form of aninducementtopurchase a particular product or service in return for the chance to win a prize. However,inJerseymost of these styles ofpromotions are illegal because commercialundertakings are strictly prohibited from running lotteries. This means that a commercial undertaking may legitimately offer customers a free gift', or an opportunity tocompetein a gameof pure skill, for example a tie-break question, but maynotoffer a gameof chance and skill, e.g. a draw' element and they maynotcharge for the privilegeofentering.

6. T h is prohibition  is perplexing  both to  the  majority of  the public  and  to  businesses more used  to progressive regimes. From the Statesownperspective the law is ultimately fruitless, as it could not sensibly prevent the influx into the Island ofoverseasgoods,manyofwhich are plasteredwith (illegal) marketing promotions.This part of the Law must be changed toreflect both the change inpopular acceptance of these typesof trade promotion and also to save a wasteofresourcesdesignedto protect' the public from an activity whichisnow generally considered tobe benign. The time and effort spent explaining and enforcing this provision takes an undue amountof officer time and does not,in the Committee'sview, best serve the Public Interest.
7. T h e Committee would bekeen, therefore, toseecompetitions defined more precisely and operatedwithin tighter, butenforceable regulatory limits. The objective shouldbetoremove the potential for operators to circumvent the principle that lotteries shouldnotbe run forcommercial gain whilst, at the sametime, ensuring that companies' ability to undertakegenuineand harmless salespromotionsis not adversely affected.
8. T h at there is a compellingcaseto update andmodernise the Island'sgambling legislation as described above is, hopefully,not a contentious suggestion in itself.At a time whenresources are scare,however, the chanceof a new GamblingLawbeing drafted onthese merits alone is extremelyslim.The States quite rightly takes a view that legislation requires a system of prioritisation and the Committee would not expect the updating of the GamblingLaw to rank particularly highly, unless it couldbeproven that it offered significant benefitsfor the Island. That is the reason whytheCommittee has lodged this wide- ranging and significant programmeof reform for gambling in the Island.
9. T h e following sections of this Report demonstrate the considerableeconomic benefits tobe derived from casino gambling and the potential offered byon-linegambling and commercialbingo. Collectively, they offer the Island some exciting opportunities, both in economic and social terms and taken together, provided the rationale to justify the rising profile of this issueon the States working agenda.

4 R e g ulations to allow Casino Gaming

1. T h e issue of casino gambling is anemotiveonein Jersey and theCommittee has been guided by the advice of the formerGambling Control Committee in its ReportP.0/2002 that –

• i f a c ost/benefit analysis shows that there are significant benefits which outweigh potential risks and costs;

• i f th e international attention that a casino might attract was not considered to be detrimental to the Island's good name and high reputation in the financial world; and

• p r o v ided that there was proven to be an effective regulatory regime in operation;

th e n the Committee should bring forward an in-principle' proposition to allow a full debate by the States

on the Casino Issue'.

2. T h e Committee is convinced that the establishment of a single casino, properly regulated and with rigorous standards of compliance, player protection and know yourcustomer' principles would bring a significant economic benefit to the Island. TheCommitteeisalsoconvinced that previous debateshave not beenguidedby clear and reliable information either with regard to the positiveeconomicbenefits,nor the perceivednegativesocialimpactorperceivedconsequences to the Island's international reputation. It is theCommittee's intention, therefore, to place the fullest possible amount of information before the States so that the decisiontaken will beinformed,knowledgeable and robust.

Arguments against casino gambling

3. A s is well known, there is a segment of our society that believesgamblingis morally wrong. This is a

principled position that the Committee respects wholeheartedly. What the Committee does not accept, however, is

that there is a principle difference between one type of gambling and another. There are five main reasons commonly used to argue against the establishment of a casino –

• c a s in o gambling is morally wrong;

• c a s in o gambling promotes social irresponsibility and addiction;

• c a s in o gambling is a front for money laundering;

• c a s in o gambling would harm the Island's international reputation;

• c a s in o gambling would not produce an adequate economic benefit to justify the proposal.

Responses to the moral argument

4. T h e Committeehas given great thought to the moral argument against gambling andhas considered a wide cross-section of opinion onthe matter. It has come to the conclusion, however, that the moral dilemma over gambling is one that mustbebornebythe individual and not bygovernment.Formany Islanders, the questionofmoralityinrelationto placing a bet on a horserace,orbuying a lottery ticket does not even arise. For others, their belief that gambling is wrongstops them from entering modest raffles. This is asit should be and individuals should retain theright to make their own choices about the rights andwrongsof gambling for themselves.
5. T h e Committee does have a responsibility, however, as do government generally, to best serve the interests and legitimate aspirations of society while protecting minorities, the weak orvulnerable. This means, in effect, that iftheoverwhelming majority ofthe population have a desire to undertake a specific sort of activity, so long as this does nothave a significant adverse impact, there is no compelling reason for Government to preventthem.Of course, gambling can have a significant adverse impact, whichis whyitmustbe regulated, but the impactisnotcompellingenoughto require its prohibition.
6. T h is, however, is not strictly the view currently embodiedin the current Law.TheLawwas drafted at a time when gamblingwas still viewedassomething objectionable orshameful and thus actively seeksto prohibit as much gambling activity as possible. As the formerGamblingControlCommittee noted in R.C.50/2002,  however,  expectations  and  standards in society  change over time  and the general prohibition explicit in the Jersey Law maynotnow reflect a society wheremanypeopleenjoyresponsible social gambling.Ashas been previously stated, this is reflected in the miscomprehensionregardingprize competitions, as well as sitting uncomfortably with the Committees' own duty topromote gambling through the Channel Islands Lottery.
7. T h e belief that governmentshould set the moral tone for society is a concept whichmany accept as a generality, butwhich equally can be considered inappropriate when specifically applied. The Committee cannot, however, see any moral difference between buying a lottery ticket, placing a betat a racetrack, playing a gamingmachinein a bookmaker's office or visiting a casino. The Committee does not believe, therefore, that the law should any longer incorporate or reflect any assumption that gambling is an activity which is objectionable and whichpeopleshould have noencouragement to pursue. It is considered an important industryin its own right, meeting the legitimate desires of manypeoplein the Island and has the potential for creating many extra jobs.
8. T h is does not mean, however, that a free-for-all' is acceptable. It is recognised that gambling presents particular risks to children and the vulnerable, which other forms of leisure do not. So, whilst the Committee proposes a morally neutral stancetobe taken in the law, neverthelessitrecommends that proper controls and protections for thosewhomaybeor already have been damagedshouldbeprovided. The provisions made in this Report for enhancement of player protection, provision of support and assistance and a strong regulatory system are, webelieve, a sufficiently caring and responsibleresponse that adequately reflects themoral obligations that the States owes to all ofsociety.

Responses to the addiction argument

9. It has been argued that casinos promote social irresponsibility and addiction. It is difficult to seewhy casinos promote addiction orsocial irresponsibility whenbookmakersor turf accountants' do not. Worse still, would be to suggest that they all do. The truth is that noneof these activities promote' addiction. Indeed commercialoperators would beself-defeatingif they purposefully createdanenvironmentof addiction and social deprivation,as they would be causing irreparable harm to theirownbusiness. Like any otherbusiness, casino operatorswant to see theircustomersenjoyusing their product and to keep returning regularly in order that cashflowsare kept regular and that paymentsand planning canbedone with a reasonable degree of certainty. The lastthing that a casino – or any otherbusiness – can afford to do is fleece' their customersor reduce them to a positionofdependency, because bydoing so they would destroy any chance oflong-term viability.
10. T hequestionisone thus of proportionality. Does gambling result in a smallnumberof individuals losing control andmakingdamagingdecisions that impactontheir families, their children and their jobs? Sadly, the answeris yes. Does gambling however, cause the vast majority of the playing public to act in such a manner? Clearly, no.
11. I f all gamblingwere illegal and the vulnerable or addicted had no legitimate opportunities togamble would they besafe from harm? In fact, they would not. Gamblingformoneyis closely akin to risk-taking and is for many an intrinsic partoflifeto the extent that like thetakingof alcohol, itisnotpreventedby legislation alone. Many will have family or friends who can remember the illegal gambling dens that operated prior to the passingof the 1964Law.Peoplewere gambling without a regulatory safety net, and without the protection offered by the law because in truth, many people like to gamble, and can doso responsibly within theirownmeans.Providing opportunities forpeopletogamble safely and responsibly is thus far better than the forlorn hope offered by restricting such opportunities.
12. T heother side of the argumentwould state that as there are already plentyof legitimate opportunities for people to gamble,the Island does not need any more. Thisargument centres on the proposition that governmentshouldseek to restrict legitimate business opportunities and public choiceonthegrounds that it knows better'. This sits atodds with the Committee'smandate to encourage enterprise, innovation and diversity – particularly in high value-added sectors and to seek particularly to exploit every opportunity to diversify the economythrough the development of new industries and companieswith high value-added potential. Of course, a casinocomplexshouldnot just bethoughtofas a placetogamble. It will be a new amenity and leisure attraction and will add value both to the Island's tourism product and offer opportunities for public recreation, particularly in the evening, in muchthesamewayas the cinema, restaurants andother venues. It ispublicdemandandmarketforceswhichshould have the determining effect on the viability of a legitimate business and notgovernment.
13. T he Committee remains unconvinced, therefore, that the provisionof a casino will, of itself, create addictions that would otherwise not occur. Indeed, the needsofthosewhodevelop a gambling problem might be better servedby casino gaming than other types of gamblingbusiness.It would be a requirement that all players in the casino were identified using a verified form of photo identification. This would prevent the entry of minors. The levelof player play would alsobemonitored and anyunusual levels of play couldbe acted upon. The casinowouldbemandated to provide literature explaining such conceptsas the house edge' and explaining what help was available to deal with gambling addiction.
14. T he casino, along with the commercial gambling industry in general,would also beexpected to contribute to a treatment fund so that any increase in dependencywasnotto the detrimentof the tax payer.The Committee wouldwishto see the creationof a three-fold strategy involving education and prevention, counselling, and research. By passing this proposal, theStateswould be creatingthebasis for an addiction programme and anchoring it firmly to the industry that unfortunately helps to create it. This would provide for financial certainty in the treatment of addiction – a certainty that does not presently exist.
15. M ostcountriesnow have a government-sponsored gambling addiction programmeofsome sort. Jersey presently doesnot.Thisisindeed one of the areaswhere the Island should look for international best practice andconsiderwhatisrelevant and appropriate for the Island toadopt.The United Kingdom, for example, hasmade provision forthe gambling industryto voluntarily contribute tothird-partyresearch

and support of gambling problems. The Republic of South Africa has its Responsible Gaming Programme'. By

passing this Proposition, the States will allow Jersey to sit squarely within the international community as a jurisdiction that deals effectively with addiction and has a responsible gambling programme in place.

Responses to the Money Laundering Argument

16. A ny decision to allow casino gambling in Jersey would havetobe done on the basis that it remains crime- free. The Committee accepts the view put forward by operators, both in the United Kingdom and elsewhere, that casinos are an unlikely sourceoffinancialcrime.The issue in Jersey, however, is more complex, notleast because ofthedisproportionateinterest that itmight attract internationally and the possible adverseaffects that this could have.Assuch, the Committee hastaken its responsibility to weigh the perceived negative effectsof reform with great diligence.
17. T he main defences in preventing financial irregularities within a casino are much the sameasanyother large cash-flow businessandfocuseson financial auditing, KnowYourCustomer' (KYC) principles and licensing. In addition, the government usually insists on certification ofowners, managers and staff. The first defence in preventing money laundering is to only allow reputable operators a licence to trade. A company would be considered only after thorough backgroundchecks had been completedincluding detailed examination of its ultimate beneficiaries, its Directors and Managers, its accounts and its operations inother jurisdictions. The highest level ofcommitment to compliance operations would be required and probity enquirieswouldbemadeto the respective Regulatorsin their homejurisdictions. The nature of a monopoly licence is such that the level of scrutiny a prospectivecompany might expectto be put through wouldbe very high indeed and penalties for non-compliance would have tobe severe.
18. C hoosing anoperator with interests in other jurisdictions is beneficial insofar as they would already have a proventrack record to examine.Not only this, but a link to another licence increases thepressureon a companytoact with the highest integrity asanyrevocation in one jurisdiction would impact upon its business interests inanother.The risk of institutional money laundering by a casino operator is thus very low. Turning to the risk of casino staffbeing involved in financial irregularities, the Island's reputation would be protected by the need for allgamingstaff to be in possession of a Gaming Certificate. Such a Certificate wouldonlybe issued to individuals who had proventhemselves to be fit and proper'persons, i.e. that they had nocriminal record ofanykind. A Gaming Certificate could be revoked atanytime.The link between the casino operator's licence and thoseof its staff is thus very close,forwithout a Gaming Licence the casino cannot operate andwithout a Certificate the person cannotwork in a casino. These issues mean that casinooperatorsandemployees are always very consciousof keeping within the law.
19. T hegreatestriskof money laundering is accepted to lie not with the casino or its staff, however,but with its clientele. Tominimise this risk, a numberofmeasureswould be taken. All individuals wishingto visit the casinowouldhaveto produce and agreeto the recording of their personal details, includinganimage. This would have to beverified through the use ofphotographic identification, i.e. a passportor driving licence. All individuals enteringand leaving the casino would have to sign in and out and thus both the operator and the regulator could be confident that it knew the true identity of every person on the premises.
20. H avingestablishedand controlled all personsentering the casino,it is alsonecessaryto monitor their activities once within it. This is actually in the interests of all involved,be it the regulator, the operatoror the playing public. For that reason, the casino would be fully equipped with CCTV and audio for surveillance purposes, especially in the vicinity of the reception,gaming tables andcashdesk. Further monitoring would bedone at the gamingtableswhenevercashorcheques are exchangedforchips, together with thelevelofplay, i.e. what money was risked and what the end result was.These records would be kept[4]and archived.
21. T heplayerexchangingcash,chequesor chips at the CashDesk would alsoexpect to have every single exchange recorded,nomatterhow small. This would take placebothwhen cashing in(gettingchips)and cashing outwinnings. It is importanttorecall that the amountisnot only electronically recorded; it is recorded onCCTVandaudioaswellasagainst a player's data file and electronic image.There would

thus be control in the form of paper records (signing in), electronic records (personal details / photo

identification), visual and audio records. Any questions regarding the validity of any stakes or winnings could thus be independently verified. This level of protection is far and above what is currently in place within the Island's gambling industry today and would ensure protection not only against simple error, but also the threat of money laundering, tax evasion and importantly, underage gambling.

22. T heriskto a casino operation posedby illegal activities – of whatever nature – is such that they all seek to comply with legal obligations and ensure that staff training,necessary to counter these, isundertaken. Casinos inGreat Britain require that allreception,gaming and cash desk staff are trained in respect of money laundering issues and have to pass an examination with refresher training given annually. Similarly, every casino companyhas a MoneyLaunderingReporting Officer (MLRO)whowillassess possibly suspicious transactions reportedby the gaming staff and forward them to the National Criminal Intelligence Service (NCIS). A similar system wouldhaveto be in placeinJerseytoequal – at the very least – that inplacewithin the financial services sector and would involve, most probably, a duty to report transactions both to the designated Jersey Regulator and, where appropriate, the JerseyFinancialServices Commission.Compliance[5] with the EU Directive onMoneyLaundering and the Financial Action Task Force's 40 Recommendations to preventmoney laundering and terrorist financing' would bemandatory as would the implementation ofnewor revised provisions in keeping with international best practice.
23. In reality, therefore, it isnot at all easytolaunder money through a casino operating the strict compliance procedures already described. Consider anexample – a drugdealerin Jersey wants to laundermoney. Notwithstanding the fact that organised criminals are generally known to the States of Jersey Police, this imaginary person goes to the casino. They are photographedand their personal details are recorded.Any cashorcheques that they exchange for chips are recorded. If they attemptto exchange their chipsback for cash after little ornogame play they receive exactly the samebills back that they depositedandtheevent is reportedas a suspicious transactionto the MLROandforwarded to the States of Jersey Policeand NCIS. Regardlessof the outcomeof play thetransactionsarerecorded.The States Police may then request details from theRegulator as part of their intelligence gatheringcapability.
24. It is important to note that there have beennoprosecutions in Great Britain in respect of persons being involved in money laundering in a casino, orof a casino operatorbeing involved in money laundering. There is certainly no reason to believe that a Jersey casino, operating to the same very high standards would fair any differently. The view of NCIS itself is quite revealing. They state on their website (www.ncis.co.uk) that –

i n 2 0 0 2 , p u rchasing property in the U.K. was the most popular method (of laundering)

identified, involving roughly one in three serious and organised crime groups Investment in front companies or high cash businesses came next, followed by simply spending the criminal proceeds to fund a lifestyle, and by transferring cash overseas using bureaux de change and money transmission agencies. Roughly one in 10 groups was known to use bank accounts in the U.K., and similar proportions used accounts overseas or transmitted cash through couriers. Fewer groups invested in property overseas, or in financial products, and a small percentage used gambling or alternative remittance systems.

25. T here would seemtobe a case, albeit very small, linking gambling with money laundering. However, the link stems primarily from the ability of criminals to operate betting scams in bookmakers, not in casinos and the Committee intends toreview the regulation of betting shopsin Jersey toensure that suspicious activity isreported.NCIS rightly states that –

a l l b a n k s a nd financial service providers are at risk of being used to facilitate money

laundering. Large banks and financial service providers which provide a wide range of financial products and services and which also have operations in both high and low risk jurisdictions may be particularly at risk. Although the money launderer faces the challenge of due diligence checks carried by these larger institutions, they are attractive to money launderers because their size and reputation mean that receiving institutions in other countries are likely to ask fewer questions about transfers of money.

26. T heriskposedbymoney laundering through a casino operating under the guidelines already outlinedis thus far less (according to NCIS) than that faced bytheIsland'sown domestic finance industry. To recap, all players entering a casino are recordedandtheirpersonal details retained. They are tracked onvideo and audio. All monetary and gaming transactions are monitored and recorded.Any suspicious activity is reported. Humannaturebeingwhat it is, itis difficult toconceive that a criminal would wish to leaveso much evidenceoftheir activity when there are far easier methods – as outlined by NCIS – to launder money.Accordingly, the Committeerejects the notion that casinos,properly operated and regulated, are an easy source ofmoney laundering.

Responses to the reputational risk argument

27. It hasbeenputtotheCommittee that there is a possibility that a decision to set up a casinowoulddamage the Island's international reputation.Converseviews were alsoreceivedthroughthepublic consultation exercise. Unfortunately, no concrete evidence was offered to validate either point of view. The Committee takesanyissueof reputational riskextremely seriously, but will not beswayed by either opinion in the absenceof validation. In deciding what effect a Statesdecisionto establish a casino might have, the Committee wasminded to considerwhethertherehave been any past precedents orexamples which might servetoguideitin its deliberations.Theexamples of theIsleofManand Guernsey make for a usefulandvalid comparison for reasons that all will recognise.
28. T heIsleofMan has had a casino for over 30 yearsand has subjected its gamblingindustry to an anti- money laundering regimesince 1986. The robustness of their regimemirrors that existing in Great Britain and every licence holdermust have a MoneyLaunderingReportingOfficer, keep adequate records and have effective staff training in this area. The definition of businesses that must comply with the regulations goes much wider than financial services, however,and includes Estate Agents, Bookmakers, Casinos and Local Authorities amongst others.
29. T here is noevidence to suggest that the operation of a casino has had anynegativeimpactupon the Isleof Man's international reputation,orontheconduct or productivityof its financial services industry. The officials of the IsleofMan Gambling ControlCommissioners[6]informedtheCommittee that:

th e o r i g in a l casino enabling legislation in the Isle of Man predated the establishment of the

contemporary' finance industry by more than twenty years. The Isle of Man casino industry continues to operate under a tightly regulated and controlled environment with no obvious detrimental effects to the Island.

30. T he role andremit of theIsleofManFinancialSupervisionCommission[7] reflects this position, stating that –

• T h e Isle of Man has nothing to gain from permitting activities or institutions which provide shelter for or facilitate the activities of criminals; and

• I n s ti tutions established on the Isle of Man and their customers will benefit from standards of licensing and supervision which reflect best practice and are acceptable to supervisory authorities

in other jurisdictions.

31. O f course there are thosewho would state that the IsleofManGovernment and its regulators would be the lastto actually admit that there was a problem toaddress,buttheIsleofMan has alsoreceived significant clean bills ofhealth' from external organisations, notleastofwhich is the Financial Action Task Force[8] –

T h e I sl e o f Man has a robust arsenal of legislation, regulations and administrative practices to counter money laundering. Perhaps more importantly, the authorities clearly

demonstrate the political will to ensure that their off-shore financial institutions and the

associated professionals maximise their defences against money laundering, and co-operate effectively in

international investigations into criminal funds. The standards set in the Isle of Man are close to complete adherence with the FATF's 40 Recommendations.

32. T hekeypointswhichallow a robustandcrime-freegamblingindustry to co-exist with a finance industry are outlined above.The authorities must clearly demonstrate the political will to ensure that their off- shore financial institutions and the associated professionals maximise their defences against money laundering, and co-operate effectively in international investigations into criminalfunds'. This is exactly what occurs inrelationtoJersey'sown financial services sectorandwe would propose that the States impose similar obligations uponthegamblingindustry.
33. T he situation in Guernsey is more akin to Jersey, insofar as the developmentof a more sophisticated gambling industry has comeafterandnotbeforeestablishment of off-shorefinance. It provides, therefore, an excellentcontrast to the experience of the IsleofManwherecasino gambling isnow an established and non-contentious part of the overall economy. Working on the assumption that the level of reputational risk to Guernsey wouldbe the sameasJersey,itisusefultoconsidertheirexperience.The Committee is not aware of any significant adverse reaction in the media, be it local, national or international andthere is noapparentimpact upon the present viability of the Guernsey financial services sector. Indeed, it was difficult to find any information concerning the impactof Guernsey having a casino, detrimental orotherwise.
34. P rofessor Collins and Mr. Jennens made enquiries as part of their investigations asking a cross-section of companiesin both Islands if the decision to open a casino would bereasonfor financial businessesto reconsider their positionor to avoiddoingbusinessin either Bailiwick. Businesses were alsoasked if their confidence in the insular authorities orsystemoffinancial regulation had been orwouldbe in any way reduced because of an announcement to open a casino. No evidence suggesting any lack of confidence orreputationaldamage has been received. They concluded that in their very experienced opinion:[9]

L ic e n s i n g casinogamblingwould not damage Jersey's reputation for probity as a

financial services centre, any more than it has damaged the reputation for probity of other jurisdictions which have casinosWe have also interviewed a considerable number of bankers and finance houses who have operations on Jersey all of whom have assured us that in no way would their opinion of Jersey as a safe and prudent place to do business be in any way diminished if they heard of plans to install a casino. Indeed some went so far as to say, they would fully expect itThe truth is, in our view, that whether or not Jersey establishes additional commercial gambling opportunities on the island is largely irrelevant to the future health of its financial services industry.

B a s e d on a full assessment of the facts at hand and in the absence of any evidence to the contrary, the

Committee is of the opinion that there would be little, if any, reputational risk involved for Jersey by legalising casino gambling.

Responses to the no economic benefit' argument

35. L ack of knowledge about the  economic  benefit  of allowing  casino gambling  was undoubtedly  the strongest reason for caution in the past and this was accepted bytheformerGamblingControlCommittee in P.50/2002. The Committee duly commissionedconsultants to provide this data based on their own expert knowledgeandexperience.In describing economicbenefit, the consultantsoutlined three main areas where a population can benefit from the introduction oflicensed casino gambling.These are the provision of additional local amenities; the enhancement of tourism revenues and the generation of relatively unresented taxes.
36. It should also be clearly understood that theCommitteeisrecommending a monopoly licence and that it is not seeking, nor would it wish to see further casino development. A single casino licence would maximise its value both intermsoftheamount that itwouldgeneratein turnover andtaxation,and with

regard to the amount of capital that an operator would be prepared to invest. While this runs contrary to the Committee's general philosophy that favours competition, gambling we believe, is a special case.

37. S hould the States agree to the establishmentof a single licensed casino, it would beputout to tender. Companies wouldbe invited to send representatives to Jersey to join in a bidder'sconference for which they would pay a non-returnable fee. This fee would beexpected to recoup the investment in time, manpowerand administration that theCommitteewouldhaveto initially expend. Potential bidders would learn moreaboutthe Island andbe briefed onwhat sorts ofdevelopments would be considered beneficial and whichthe casino project would beexpected to deliver.TheCommittee,in keeping with its mandate, would expecttender bids to include provision for entertainment and business facilities, but would not seekto proscribe or fetter the creativity ofthe private sector.
38. It is not difficult to imagine that a modern casino, including or in the vicinity ofcharming restaurants, evening entertainmentand the like would be an attractive proposition to both local residents and tourists. The Committee is notsuggesting that it would be a panacea for the tourism industry, or that it would necessarily generate significant extra tourist numbers in itself. What it wouldbe,however, is a valuable addition to the amenities currently onoffer and, importantly,an attractive eveningvenue.As such it would very likely create additional tourism spendand mayalso create added incentive for the short-stay business traveller to extend a trip byone night.
39. F or this to happen, however, the Statesmustbe realistic aboutwhat it wouldbe accepting. A casino generally operatesto capacity between the hoursof10 p.m. and 4 a.m.Acceptingthe principle of casino, but then later offering licensing and operating conditions that wouldmake it uneconomicwould mean the wasteof considerable resource, both on the part of the States and from the potentialbidders. This would not doJersey's reputation as a modern and efficient placetodobusinessany good at all.It would also, if bidders couldbefound(which would be unlikely), produce a sub-optimal return in termsof provision ofextra amenities and tourism benefit and would severely jeopardise the potential tax return to the States.
40. It shouldalsoberecognisedthat, if handledbadly,the introduction of a casino could have a detrimental effect uponotherbusinesses, particularly in the hospitality sector. Themainthreatoccurswhen casinos are  allowed  to offer  services such  as hotel beds and  food and  beverages at rates  which unfairly disadvantage the competitors because the casino subsidises these other services outof gambling revenues. The Committee, therefore, rejectsthenotion that thecasinoshould be allowed to offeraccommodationor that itshould form part of an existingorfuturehotel. Insofar as theprovisionofother facilities are concerned, the Committeewouldnot wish to proscribe biddersunduly,butseesmeritinfranchising luxury shopping,restaurantsand bars located on the casino campus to existing or new businesses under circumstances  which conform to the  requirement of fair competition, while preventing  cross- subsidisation.
41. W  hile the provision of new amenities, new business opportunities and further diversification of the economy are  all  substantial benefits  and in  tune  with  the mandate  of the Economic Development Committee, it is the potential tax revenue that offers the greatestincentiveto bring casino gambling to the Island. This on its own would have been reasonenough to bring a Report and Proposition to the States, but in the light of the current projected deficit and the perceived necessity to raise taxes, anysuggestion that would minimise the negativeimpactonthepublicisworthyof consideration.
42. S tatesMembershave already had access to the figures produced by the Collins/Jennens report, butto summarise,thequantumofbenefitstobe secured isin the regionof £3 million per annumingambling taxes and an investmentin tourism enhancing amenities of some £30  million. The 2 setsof figures which need to be understood arethose relating to the distribution of the moneywhich the casino wins from its customers (the  gross gambling revenues, or GGR) and the distribution of capex on  a casino build assuming a 20% tax onGGR).These were estimated byProfessorCollins[10]as follows –

1. Incomedistribution £

Gross gambling revenues = 15 million p.a. Tax at 20% = 3 million p.a. Operating costs at 40% = 6 million p.a. Costs of capital[11] for casino = 3 million p.a. Costs of capital for "add-ons" = 3 million p.a.

2. Capex

Total capex = 35 million Costs of casino facilities = 17.5 million Available for "add-ons" such as a

conference centre, transport

infrastructure, licence fee, etc. = 17.5 million

43. A casino companywouldexpecttoinvestbetween 2 and 3 times its GGRin capital expenditure.Of this, about £5 million will go to the cost ofequipment,including surveillance equipment. The other capital cost is the cost of land, building andfurnishings.Obviously the lower the cost of building themorean operator can afford to spendon the construction and subsidisation of "add-ons" which benefit the wider community and/oron bidding for the licence.
44. T hekey issue, therefore, is whether the States believe that it can turn down in the regionof £3 million per annum additional tax revenueat a time when the public will be askedtopaymoreto bridge theforecast deficit. Thevery nature of a gambling tax is that thosepeoplewho have a moral objectiontogambling would notbecompelled to pay itand because it is generally felt tobe equitable, it is a largely unresented form of taxation. Such is the levelof confidence in the robustness of these figures, that the consultantsfelt secure in stating withintheirreport[12] that –

C o m  b i n in g all these considerations we think it reasonable for the government of Jersey to

make plans on the assumption that the potential gross gambling revenues (money staked less money paid out in winnings) for casino gambling in Jersey would be in the region of £15m p.a. This number is within the ballpark of such commercial estimates as have been carried out and either published or privately communicated to us.

45. N otwithstanding this confidence, the Committeeundertook to validate theseclaimsandasked a number of different international casino operators to evaluate the potential return on investment they wouldexpect if they were allowedto operate a casino onthe Island. Someof the data returnedhas been givenon the understanding that it is commercial inconfidence' and for this reason does not form part of the public copy of this report. States Membersmaybe assured however, that they have full details, attached as appendices,in their personalcopy.Four casino operatorsreturned estimates to the Committee andthese vary indepth from full projections of profit and loss accounts to moregeneral statements basedon predicted outcomes. It should benoted that other operators have subsequentlyexpressed interest in the project, shoulditbe passed.
46. T hese operators have international experience,includingwithinsmalland island based jurisdictions and all operate groupsofcasinos. This experience makestheir estimates particularly relevant. Ashasbeen noted, the estimates providedby these companiesvariesintheirlevelof detail, but they fall within the ambit ofthe figures outlined intheCollinsreport –

• T a x  estimated at £2.16  million, rising to £3.91  million per  year after 4  years with  a  Capex investment of £23.64  million for a new build, or£15.11  million for a conversion.

• G  ro s s Gaming Yield of £5.1  million, rising to£9.05  million over 4 years. However, it is though that a conservative range would be 20% less and an optimistic range would be 20% more. (This would deliver a tax return of between £1.02  million and£1.81  million.)