VZCZCXYZ0000
RR RUEHWEB

DE RUEHSJ #0531/01 1762215
ZNR UUUUU ZZH
R 252215Z JUN 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 0967
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHWN/AMEMBASSY BRIDGETOWN 0804
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SAN JOSE 000531 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/CEN, WHA/EPSC:AWONG, AND EEB/ESC/TFS 
TREASURY FOR LMCDONALD, CCORREA, CGAMBLE AND SSENICH 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV PREL CS
SUBJECT:  COSTA RICA MAKES A BET ON GAMBLING LEGISLATION 
 
REF:  San Jose 0277 (NOTAL) 
 
¶1.  (SBU) SUMMARY.  June 8-12, Rick Hector and Charles Klingman of 
Treasury's Office of Technical Assistance (OTA) advised Costa Rican 
Finance (Hacienda) Minister Guillermo Zuniga and Vice Minister Jenny 
Phillips on the pros and cons of legislating and regulating the 
gaming industry.  Their week of meetings and close consultations 
followed requests made by Zuniga to Treasury Deputy Assistant 
Secretary Larry McDonald in two previous meetings, and an offer made 
in March by a visiting OTA financial enforcement assessment team. 
Hacienda has concluded that it wants to create a tight legislative 
and regulatory regime to control (and tax) gaming, including 
internet activity and brick-and- mortar casinos.  The tax revenue 
potential and the opportunity to restrict money laundering are 
especially attractive to the GOCR.  However, passing the required 
legislation in the last 10 months of the Arias administration will 
require substantial political will, and may prove impossible.  We 
will support Hacienda in its quest and advocate for OTA financial 
enforcement funding.   The GOCR will need technical (and a little 
political) assistance to help create and complete legislation before 
the next administration takes office in May 2010.  END SUMMARY. 
 
-------------------------------------- 
HIGH LEVEL ATTENTION FROM THE HACIENDA 
-------------------------------------- 
 
¶2. (U) The OTA ad hoc trip to Costa Rica responded to a request by 
Minister Zuniga for specific, near-term assistance on gaming 
regulatory and taxation issues.  Also, the trip was the fulfillment 
of an offer to the GOCR made by an OTA assessment team in March 
(reftel).  As an indication of the Minister's priority for gaming 
regulation, Zuniga spent three hours with the OTA team on the first 
day of their visit, then reported directly to President Arias on the 
key points from the session. 
 
------------------------ 
THE CONUNDRUM OF U.S. LAW 
------------------------ 
 
¶3.  (U) Existing USG law permits AmCits to gamble over the internet 
but does not permit the offer of gambling services to AmCits. 
Between 80-90 countries currently offer online gambling services, 
including Costa Rica.  Restrictions for blocking AmCit access to 
gaming services are not enforced by country, but by individual 
companies -- though rarely -- in order to avoid possible U.S. 
prosecution.  The OTA team explained the general tendency of the USG 
is to tolerate one of two enforcement regimes:  tight legislative 
and regulatory restrictions on gaming and looser restrictions in 
other areas of economic crimes, or (2) loose legislative and 
regulatory restrictions on gaming and tight restrictions in other 
areas of economic crimes.  Costa Rica is loose on both accounts; 
hence, Costa Rica needs to address one or the other side of the 
financial crimes scale. 
 
--------------------------- 
EXISTING DRAFT BILL:  NO GO 
--------------------------- 
 
¶4.  (U) Advisors Hector and Klingman evaluated an existing bill -- 
drafted principally by the Hacienda and national legislator Andrea 
Morales (IND), whose work in the internet gambling sector before 
running for office has given her a special interest in the issue. 
The OTA team concluded that the draft bill failed to address key 
gaming issues such as requiring the deposit of company funds in 
on-shore banking accounts.  As Advisor Hector shared, "Without the 
records (accounts) in Costa Rica, you (the GOCR) have no basis on 
which to tax."  In short, the bill was unusable.  Whatever form a 
new law will take, it will update the current law which went into 
effect in 1921, long before the dawn of e-commerce. 
 
------------------------------ 
NEW DRAFT BILL:  OTHER MODELS? 
------------------------------ 
 
¶5.  (U) Industry experts estimate annual worldwide internet gaming 
revenues at USD 14 billion.  A significant proportion of the 
business operates in Antigua and Costa Rica, though there are no 
hard facts on country share.  Antigua adopted and enforces a strict 
legislative and regulatory code.  The OTA team cited Antigua's code 
as a worthy model and recommended the Antigua approach (assuming a 
tight legal and regulatory regime was the policy option chosen by 
the GOCR). 
 
------------------------- 
THE HACIENDA TIPS ITS HAND 
------------------------- 
¶6.  (U) The OTA Advisors outlined various policy approaches for the 
GOCR regarding the "tightness" or "looseness" of the regulatory 
environment and resulting implications.  Just as important, the 
advisors were exceedingly clear on how to approach a legal and 
regulatory regime:  there is no partial or mid-point remedy:  either 
approach gaming in a comprehensive manner, or don't bother.  After 
several days of meetings, the Hacienda stated its desire to proceed, 
post haste, with drafting new legislation with supporting 
regulations.  OTA also argued that gaming legislation should not be 
restricted to internet activity but should include brick-and-mortar 
casinos -- which are plentiful in Costa Rica.  At the conclusion of 
the out-brief with Hacienda, both the Minister and the Vice Minister 
eagerly expressed their desire to start drafting -- using Antigua as 
a model -- and to solicit additional guidance from OTA gaming 
experts. 
 
------- 
COMMENT 
------- 
 
¶7.  (SBU) A driving factor behind the Hacienda's interest in gaming 
relates directly to tax revenues.  As previously reported (reftel), 
the GOCR does not regulate or tax the gaming industry.  The 
potential for money laundering thus abounds, particularly in an 
environment of growing criminality and narco-trafficking.  The 
prospective government "take" of gaming revenue in the form of 
taxation, and establishing regulations to dampen or reduce the 
growing potential of illicit cash transfers appeals to the GOCR. 
Furthermore, with GDP contraction of 1.8 percent forecasted for 
2009, due to the global financial crisis, and a related tax revenue 
shortfall projection of USD 940 million, the GOCR is looking for new 
sources of revenue. 
 
¶8.  (SBU) The Arias Administration will need to muster its political 
allies to pass the desired legislation in the remaining months of 
its term, which ends April 30, 2010. Legislator Morales' draft bill, 
which may be discussed in committee beginning the week of June 22, 
will require extensive revision, if not wholesale replacement with 
something new.  The GOCR can control the legislative agenda for the 
month of August and from December-April.  However, the national 
election in February 2010 will certainly disrupt the GOCR's focus 
during the latter period.  Pushing such legislation forward will 
take political will, skill and discipline, commodities in especially 
short supply during the highly-politicized waning months of a Costa 
Rican administration. 
 
¶9. (SBU) The potential bright spot was the selection this month of 
former VP (and Justice Minister) Laura Chinchilla as the PLN party's 
presidential candidate.  If she wins the February election, there 
may be a post-election, pre-transition PLN push, with sufficient 
political support, to complete a more ambitious legislative agenda, 
including a workable gaming regulation bill, in order to help launch 
her administration. 
 
¶10.  (SBU) We envision ongoing USG counsel on gaming regulation as a 
key element of a formal OTA financial enforcement program for Costa 
Rica.  This can provide the right guidance on a complex topic -- 
internet and casino gambling -- and directly benefit efforts to 
investigate and prosecute money laundering and to organize financial 
and law enforcement agencies to combat financial crimes.  Improved 
financial enforcement by Costa Rica directly supports Mission 
Strategic Plan objectives. 
 
BRENNAN