VZCZCXRO2295
RR RUEHDBU RUEHLN RUEHPOD RUEHSK RUEHVK RUEHYG
DE RUEHMO #1605/01 1691456
ZNR UUUUU ZZH
R 181456Z JUN 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 3870
INFO RUCNCIS/CIS COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 MOSCOW 001605 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL PHUM PINR ECON KDEM RS
SUBJECT: MEDVEDEV, MOSCOW DEMONSTRATE RESOLVE BY STAMPING 
OUT GAMBLING 
 
¶1. (SBU)  Summary:  In Moscow and across Russia, radical 
changes are afoot as gambling businesses scramble to comply 
with a new federal law restricting gambling facilities to 
four special gaming zones.  Some gambling moguls are planning 
to move their businesses to other former Soviet republics and 
Europe, while others have plans to close, convert, or make 
the slightest cosmetic changes to become amusement arcades. 
Other owners have pushed back demanding an extension of the 
deadline, threatened to ignore the new rule altogether, or 
have argued that such job cuts are unfair during the economic 
crisis.  Medvedev, with the help of Moscow's city 
administration, has aggressively cracked down on gambling 
facilities as a means of demonstrating to a skeptical public 
that he is serious about addressing corrupt elements in 
society.  End Summary. 
 
New Gambling Law 
---------------- 
 
¶2. (SBU)  Under Federal Law 244 "On state regulation and 
activities of the organization and conduct of gambling," as 
of July 1, 2009, gambling will be confined to four designated 
zones spread across Russia.  The law, which then-President 
Vladimir Putin introduced to the State Duma, passed in 2006 
and entered into force on May 15, 2009.  According to this 
law, internet games for money, online lotteries, SMS 
contests, slot machines and roulette will become illegal 
outside of the four zones (the Primorsky territory in the Far 
East, the Altai territory in southern Siberia, the Baltic 
exclave of Kaliningrad, and the administrative border between 
the Rostov region and the Krasnodar territory in southern 
Russia), but other forms of gambling, including poker and 
bookmakers, will be allowed at specially licensed "sports 
clubs."  Special "judges," rather than dealers, will work at 
these new clubs which will allegedly ban alcohol and smoking. 
 The poker loophole originated in 2007 when the Federal 
Sports Agency classified some games as sports, thereby 
allowing poker establishments to circumvent the law. 
Officially, closing the gambling businesses is supposed to 
curb gambling addiction and to root out corruption, but some 
media reports indicate that this decision may have been a 
larger political move aimed at weakening criminal groups, 
especially from the Caucasus, who were controlling much of 
the industry. 
 
¶3. (SBU)  Industry advocates have claimed that the gambling 
zones are poorly developed.  So far, only Krasnodar Territory 
has started construction of gambling facilities.  Ekho Moskvy 
radio station reported on June 17 that in the Far East and 
Kaliningrad, local authorities still have not determined 
where the zones in the regions should be located. 
 
¶4. (SBU)  On May 5, President Medvedev reiterated to Federal 
Tax Service Chief Mikhail Mokretsov that casinos must comply 
with the deadline.  Across Russia, the gambling industry 
employs about 40,000 people, but roughly 45 percent of the 
gambling facilities are located in Moscow.  Gambling industry 
advocates argue that closing casinos will leave thousands 
jobless.  According to a Lenta.ru article on June 16, the 
Department of Labor and Employment reported a planned layoff 
of 10,400 gambling-related employees in Moscow, and announced 
a special job fair for them.  By law, company leaders must 
notify their employees at least two months prior to laying 
them off, which means they should have modified them before 
May 1. 
 
Resisting the Gambling Law and Controversy 
------------------------------------------ 
 
¶5. (SBU)  The gambling industry has been contesting the new 
gambling legislation in various ways.  According to 
ITAR-TASS, a number of gambling facility owners have active 
lawsuits to contest the gambling law, and litigation is 
currently underway in Russia's Constitutional Court.  A group 
of gambling premises along the railroads, including eleven in 
Moscow, have simply refused to comply.  According to the 
media, the Russian Railways representatives have stated that 
the organizers "will not guarantee that they will close their 
establishments by July 1." 
 
¶6. (SBU)  The gambling lobby in Russia has significant 
weight.  Even many bureaucrats support legalized gambling 
since it pays taxes.  According to Valeriy Ivanov, head of 
the Russian Association of Developing Gaming Businesses and a 
strong opponent of the new law, gambling is a USD 60 billion 
industry in Russia, USD 17 billion of which is centered in 
Moscow.  Ivanov told us on May 13 that at least 200,000 to 
250,000 gambling-related jobs will be affected across Russia. 
 
MOSCOW 00001605  002 OF 002 
 
 
 He compared the situation in Moscow to Al Capone's racket in 
Chicago, arguing that the new measures to ban gambling would 
backfire, only leading to illegal gambling, corruption, 
bribes, and loss of revenue.  Ivanov cited concern that the 
entire gambling industry would go underground and become a 
greater breeding ground for corruption; it was preferable to 
keep the gambling industry legal. 
 
Government Intervention to Comply with the Gambling Law 
--------------------------------------------- ---------- 
 
¶7. (SBU)  Closing down gambling has significance for Medvedev 
since he can use it to demonstrate his resolve in promoting 
rule of law and the fight against corruption.  Most casinos 
have already started preparations to comply with the gambling 
law.  According to Ria Novosti, prior to the new law being 
passed, there were 2,800 facilities in Moscow.  In the first 
four months of 2009, however, the gaming industry in Moscow 
shrank by 42 percent, according to The Moscow Times.  Deputy 
Moscow City Mayor Sergei Baidakov stated at a press briefing 
on June 8 that Moscow now has roughly 504 automatic gaming 
houses, 29 casinos, and 14 betting parlors.  While some 
gambling facilities are in the process of being "re-purposed" 
as entertainment centers, others will transform into 
completely different businesses, such as dry-cleaners, 
furniture shops, restaurants, drugstores, cafes, clothing 
stores, or concert halls.  Still others will continue trying 
out their luck by relocating to one of the four designated 
gambling zones or to a foreign country. 
 
¶8. (SBU)  Deputy Mayor Baidakov emphasized at his June 8 
press conference that casinos must close prior to the July 1 
deadline.  He stated that the Moscow city administration is 
prepared to summon each gambling entrepreneur separately to 
explain any lack of compliance at which point the city would 
take corresponding action.  The Moscow City government is 
gearing up to work around the clock to patrol territories in 
which people violate the law.  On July 1, the Moscow City 
government will establish a hotline to enable callers to 
inform on individuals who are trying to skirt the law. 
Baidakov noted that these closures would not have a negative 
impact on the economy since the Moscow city budget would only 
lose about half a percent of its budget. 
 
Comment 
------- 
 
¶9. (SBU)  We quietly, unannounced, visited three casinos in 
Moscow to see and hear reactions to the closure plan.  While 
we expected to encounter tough Mafia figures, prostitutes, 
rigged machines, and desperate gamblers spending their last 
rubles in an attempt to finally strike it rich, the reality 
was much more tame.  The gambling clientele appeared to be 
average Russians, and employees were open and forthright 
about their plans to close their facilities.  Medvedev's 
latest anti-corruption measures may backfire and breed more 
corruption as the gambling industry goes underground with 
ostensibly legal establishments fronting as legitimate 
businesses.  The political rewards he might reap from banning 
gambling are dubious.  In the end, this Medvedev move against 
corruption may itself be a political gamble. 
 
 
BEYRLE