Much is being made in the U.S. gambling space about people who are sending letters to Attorney General Merrick Garland urging him to do something about offshore sites. I thought I would throw in my two cents about this effort because I started researching this general topic about a decade ago for the state of California. My experiences might help people understand the challenges before them.
I have also worked in offshore gaming, and it is my sense that the signatories to these letters do not understand the nuance and complexity of these offshore operations. Moreover, I am concerned that they do not understand the protocol for dealing with foreign nations on this type of issue.
My first observation is that the letter signers may be sending the letters to the wrong person. I would think these letters should be directed to U.S. Secretary of State Antony Blinken instead of the Justice Department. Let me explain.
Center of mass
In my experience, four main groups from the U.S. regularly visit countries with offshore gambling operations. They are FinCEN, the Treasury Department, Homeland Security, and the FBI. All four entities will generally travel on their own schedules to these foreign lands or respond to diplomatic requests from a jurisdiction’s American embassy or consul.
These entities will use the embassy compound as an office area and communications center and hold meetings there if they are visiting with American nationals and trusted ex-pats. Often at these meetings, the ambassador or the consul general will attend.
What is of critical importance to understand is that in a foreign country, in almost all circumstances the State Department is the boss and the embassy is the center of all operations. None of these other U.S. entities will do anything that could jeopardize international relations without the State Department being on board. That is just the way it works.
Imagine if a group of Canadian regulators and politicians started sending letters to the Attorney General of Canada demanding he begin working to close some businesses in the United States. I am sure the diplomatic corps of both countries would soon be involved, especially if these businesses were important to the U.S. or were politically connected in the U.S.
So, my first recommendation is that these letters need to be sent to Antony Blinken at the State Department. If not, at least show him the respect of a cc. I can assure you that the State Department will be interested to know that U.S. special interest groups desire to close businesses in foreign countries, so leaving its officials out of the loop would not be in the signer’s interest. Plus, Merrick Garland is pretty busy.
I would also think that the letter effort may not fully appreciate the complexity surrounding gaming providers in these countries. Where I worked as an ex-pat, the opposition leader of the government owned a shop offering betting and gambling. I am not suggesting he did anything inappropriate, but let’s imagine for illustrative purposes that he did. If the U.S. started hassling this dude and suggested that he change his business model, the country might have an issue with the U.S. because of his political importance, and the State Department would soon be engaged.
The gambling operator’s country would immediately contact the embassy or consul, not the U.S. DOJ or the FBI. This is why the letter signers should have alerted the State Department about their desire to potentially shut down foreign businesses — for the State Department will get involved if this becomes anything more than a letter-writing scheme.
Complexities and perspective
Another reality about offshore gambling operations is that they often exist under the privilege of the local government. Who knows what these deals look like? Imagine if the leader of a foreign government had a piece of the action — a piece provided to him in return for giving an operator the rights to have a gambling site within the country. This is not the most outlandish of thoughts.
Obviously, the State Department would not welcome the suggestion of a U.S. lobbyist, a few politicians, and some regulators to go shut it down, for this could infuriate the jurisdiction’s government and its leaders. Some of these countries may be important to America’s geopolitical ambitions, and the State Department may overlook certain gambling business curiosities. It will not sacrifice a good relationship with a country over a betting shop, plain and simple.
It is also important to understand that according to the statistics tracked by the Centers for Disease Control, offshore gaming is not listed as being presently responsible for any deaths or injuries in the United States. These are not terribly dangerous things. Offshore gambling, in other words, is not a clear and present danger.
Betting is a trade good. In development economics, foreign currency inflows, especially if they are U.S. dollars, are a good thing. They help an economy develop. And many offshore countries struggle with trade imbalances. What betting shops do is export bets and import dollars. This may not seem like a big deal to some folks, but in many countries, it is huge. Some countries really struggle with developing an export sector. Respect that.
Not to get too cloak and dagger here, but the U.S. government knows quite a bit about what is happening in offshore betting operations. They can tell you more than you can tell them. These data-rich environments generate the type of information our intelligence community loves to sift through. The data our intelligence community receives may be well worth any perceived inconvenience these operations cause to U.S. gambling lobbyists and regulators.
I was once told by a gentleman who knew about such things that if a person wants to gather insights into a country, there are key businesses to watch. One of them is the betting and gaming shops. AG Garland has nothing to do with this. In foreign countries, this is a project under the director of national intelligence, who reports to the president.
Another reality of offshore shops is that they employ folks and generate economic activity, often in economically depressed areas. The letters did not address who would assist the people whom the letter signers desire to make unemployed. If the U.S. closes these shops (however the letter signers imagine that happens), the host government will make a lot of noise about what the U.S. plans to do with the economic mess left behind. Once again, the State Department would have to clean this up.
Those sending these letters do not seem to understand how the U.S. handles foreign relations. I get the “all threats, foreign and domestic” thing about the DOJ, but few people in the federal government view foreign betting operations as an imminent threat to U.S. security. No, this is a job for the diplomats, not those folks with guns. The letter signers should let the diplomats know what they are thinking about and include them in all correspondence.
Anyway, those are my observations, brought to you by someone who once became terribly tangled up in the offshore mess. This stuff can get complicated quickly, and I also believe that the State Department has an attitude that staying out of this stuff is easier than getting out of it.
Pharma failures in this realm
Beyond all of that, let’s look at another industry that is substantially larger than the gambling industry, spending many more billions of dollars on lobbying and political contributions than gambling does, and which also has a big issue with foreign actors.
When I was a gaming commissioner in California, I also served as the iGaming and sports betting consultant to the governor’s office and the gaming committees in the legislature. The state Senate folks became very interested in foreign betting operators and whether they could be stopped from dealing games into California. I was asked to look into it.
I used a connection in the governor’s office to secure a visit by an executive of a large pharmaceutical company (being in California has some advantages). It seemed to me that this industry also struggled with unregulated competition from offshore, which is why this contact was made.
Anyone with an email address over the last 15 years has seen a number of solicitations for pharmaceutical products from Canada, India, and other foreign origins. And visit any border town along the extensive U.S.-Mexico border and, basically, every third shop seems to be a Farmácia — and these masses of shops are not serving the local Mexican markets.
I had a wonderful day with my new pharmaceutical industry friend. She told me of their incredible efforts to convince the U.S. government to slow the stream of pharmaceuticals into America from unregulated foreign companies, much of which was being facilitated by the internet. I also heard their efforts were seldom successful in this battle. The pharmaceutical industry was not happy about it.
The bottom line to me from that day was that the pharmaceutical industry is substantially larger than the gambling industry, spends substantially more on lobbying than does gambling, and has been working at shutting off foreign actors much longer, and — they are failing.
My conclusion from this research is that the gambling industry probably does not yet need to reserve a banquet room for the victory celebration of its offshore gambling eradication effort.
My guess is that the politicians are writing letters about the offshore sites guessing they will not be successful, but that these letters will make the industry happy — mainly because they will help the industry argue for lower tax rates to compensate for being victims of the scourge of these offshore shops. And a happy industry is more apt to provide nice campaign contributions. This phenomenon is so common among politicians that a concept in economics is dedicated to it. It’s called economic rent-seeking behavior.
I also understand why the lobbyists are doing this. It is because the industry pays them to do this sort of thing.
I am a bit confused, however, as to why the regulators have become engaged in this effort. I am sure that it is with the best of intentions. I just hope they understand that there is a very small probability of success. Perhaps my comments will help them better understand the daunting nature of this challenge.
Predicting a future without much change in the offshore betting and gaming situation is probably the most reasonable expectation, for I just can’t help but believe that the embassies in these jurisdictions see all risk and no upside in getting involved with your requests. And if the embassies see no upside, it isn’t going to happen.