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Senior Partner, LCF Law Group. Artem Stoyanov is a litigator with 15+ years of practice. He leads a well-regarded commercial litigation practice with an emphasis on disputes in the banking and financial services sector. He has a remarkable track record in representing financial institutions, corporations and individuals in complex domestic and cross-border commercial disputes. He has gained unique and exclusive expertise in banking sector disputes, representing major banks in high-profile credit default disputes against their large corporate borrowers. His clientele includes over 50% of Top25 international and domestic banks operating in Ukraine (according to
Top 50 Leading Banks of Ukraine), among them Oschadbank JSC, Alfa-Bank JSC, OTP Bank PJSC, Kredobank PJSC, Universal Bank PJSC, etc. Artem leads complex bankruptcy and restructuring projects thanks to his exceptional vision of the issue and unique judgment abilities
The Gambling Business in Ukraine
Gambling institutions appeared in Ukraine in the first years of Ukrainian independence. However, for nearly eight years the gambling business in Ukraine was functioning beyond the legal framework.
In Ukraine, before 2009, gambling was legally underregulated: a non-line law and several other regulations only stayed in force then.
Each parliamentary hearing served as an attempt to regulate the activities of the gambling institutions due to an unwillingness to lose a source of high proceeds coming into the state budget, although there was a clear understanding of the necessity to control this business.
Among the main provisions of the bills that were passed within that period, it is instrumental to single out such factors as a need to create separate gambling sites, approval of the licensing terms for companies, and age limits for gamblers.
However, thanks to a coincidence of negative circumstances, the gambling business was banned completely in 2009.
Therefore, in May 2009, the Verkhovna Rada of Ukraine adopted the Law of Ukraine On Prohibiting Gambling in Ukraine, providing for the prohibition of gambling and participation in gambling in Ukraine. This caused negative feedback from the entrepreneurs and employees that lost their jobs across Ukraine nation-wide. Meanwhile, beyond the legal prohibition only state lotteries remained, which do not fall into the category of gambling but will, still bear all the features of gambling.
As a result of such a dramatic decision, all the gambling business then appeared in the “shadow” and started its functioning beyond any state control but access to gambling and its harmful effect for the general public did not fade yet.
Ukraine is well-known for its illegal casinos. By disguising their activities as state lotteries, gambling entrepreneurs will normally create illegal gambling institutions and exploit such lottery terminals as gambling slot machines. According to public information, such casinos can generate revenue of approximately UAH 1.5 billion, which will settle in the pockets of businessmen rather than go to the state budget. Besides, capital outflow is also being observed, since gamblers will normally spend their money in other countries where gambling is legitimate.
As global experience suggests, gambling provides for high revenue inflows to the state budgets of states which have legalized gambling in place. In this regard, airports, travel agencies, hotels, restaurants, fairground attractions, boarding ships, which are in big demand, specifically among international guests attracted by gambling, generate the bulk of proceeds in the field of services.
The current economic crunch in Ukraine will make parliamentarians reflect on a need to raise additional funds to the state budget. In connection with this, an urgent need arose for systemic regulation of these issues via a special law that would legalize the gambling and return the “shadow” revenue inflows that should be due to the state budget for the development of the public infrastructure, and will limit access to it for the larger strata of the population.
Therefore, as of the moment when gambling was prohibited by legislators, the Ukrainian Parliament registered approximately 20 bills designed to legalize gambling. According to the preliminary calculations of sectoral ministries, the legalization of gambling institutions can replenish budget inflows from UAH 2 to 5 billion annually, and this will also open up an opportunity to create about 10,000 jobs.
However, the majority of these bills have either been withdrawn or are actually “dead”, since they did not receive either any peer review or approval from parliamentary committees. Some of the registered bills are partially labeled “lobby bills”, since they will limit the number of participants on this market. Specifically, it was proposed to open casinos in hotels, airports and on shipboards only, be registered in Ukraine. Gambling slot machines are normally allowed but only at casinos.
On 13 May 2016, the Verkhovna Rada of Ukraine registered the Draft Law of Ukraine On Taking the Gambling Market out of the Shadow Sector and Replenishment of the State Budget for Fulfilling Social Commitments (No. 4663). The Draft proposed to create an effective system for government regulation of gambling to combat the current illegal gambling system and create the prerequisites for generating additional revenues to the State Budget of Ukraine.
During drafting of the law, international experience in regulating gambling activities and the technical assistance of international experts were of benefit, while numerous meetings with representatives of international gambling business were held, as well as with Ukrainian gambling enterprises and organizations.
Draft Law No. 4663 provides for a comprehensive regulation of the gambling market in Ukraine, specifically, as follows: entry of an exclusive list of authorized activities in gambling, namely, lotteries, casinos, bookmaking; initiating a system of licensing; setting out stringent financial requirements for gambling entrepreneurs; establishing requirements for identification of gamblers to prevent any adverse effect due to participation in gambling, specifically for minors, along with harsh financial sanctions for non-compliance with such requirements; envisaging restrictions towards gambling sites and bans on gambling advertisements, etc.
Therefore, it is evident that such a source of proceeds to the public purse as gambling cannot be allowed to be lost. Moreover, with a view to Ukraine’s pro-European course of reducing the shadow sector, it appears extremely important to overcome corruption in regulation of this sector.
In my view, what is required in this field is, primarily, to create a new system of government regulation for gambling businesses that will allow concentration of all the regulatory functions of state level in the same agency, in unison with establishing an effective taxation system for gambling.
Secondly, it is necessary to create a transparent licensing procedure for gambling businesses and ensure effective control over gambling companies. A license will serve as an entry barrierof the market for dishonest gamblers and facilitate more accurate recording of the number of companies active on the market.
Third, it is necessary to create so-called “gambling sites” that will help to minimize access to gambling facilities to the vulnerable strata of the population, and prevent the placement of gaming slot machines in cafes, restaurants, as well as in any other non-line premises. Besides, it is necessary to restrict access to gambling operators for certain categories of persons, including juveniles, incapacitated drunks and/or drug addicts.
Global experience of gambling regulation suggests that gambling can be considered a legal sector of the economy that ensures huge revenue inflows to the public purse. Legalization of the gambling business in Ukraine can also serve as an effective source of replenishing the State Treasury, creating additional jobs and developing other related sectors of the economy.