Gaming Legal & Regulatory

Understanding the legality of penny auctions- Guest post by Sourya Banerjee

[In this post, Sourya Banerjee, student of Faculty of Law, IFHE Hyderabad discusses the legality of penny auctions and whether they could be considered as gambling under Indian law. He also points out the lack of any regulatory mechanism concerning penny auctions in India.]

Unlike a traditional auction where only the high bidder has to pay, every player in a Penny Auction pays each time they bid on an item. In a Penny Auction there is a set ending time but each time there is a bid addition time is added. The person who places the last bid before time expires is declared the winner. Bidders have no way of knowing when time will expire since more time is added with each new bid. In order to remain the player with the highest bid, they have to keep bidding and paying each time they are out bid. The purveyor of the penny auction charges the final selling price to the winning bidder and collects a fee for every bid placed.

For example, let us consider this scenario, there is a prize with a value of $1,000.Anyone can be a player and to compete for the prize players must simply take turns drawing cards. There is no limit to the number of cards that can be drawn but each time the player draws a card they must pay $0.60. Each time a card is drawn the ultimate winner must pay an additional $0.01 to finally redeem the prize. It should be understood that the Players do not know if and when another player will draw a card. The winner is the last person to draw a card after no additional cards have been drawn for 1 minute. This in essence is a Penny Auction. India currently has Delhibid, BidderBoy and Jeetle as few active Penny Auction sites.

Even though it is referred to as an auction, there are certain key differences between a physical or online auction and penny auctions. In a real auction the winner is the person willing to pay the most of that item. Only the highest bidder has to pay. The auction is over when no other bidder will increase the amount bid. In the penny game the final redemption price has little to do with the value of the item. There are other bidders who are willing to pay more for that item then the winning bidder paid. Each bidder has to pay every time they draw regardless of actually winning the item. Bidders in Penny Auction try to be the last player to place a bid, thus winning the prize.

Since the value of the prize is high relative to the price of a bid, naturally people will be interested in bidding. It is just like a lottery or a raffle. There is a low cost to play and a large reward for the winner. Like a raffle or lottery the total amount charged in the bids may exceeds the value of the prize. Ultimately it is in essence just chance that the player will place the last bid. This is because even if the bidder has set a limit of how much they are willing to spend, they have no way of knowing how much the other bidders are willing to spend or how many bidders are there. Supporters of Penny Auction argue that technically, this issue is the same for a normal auction too.

Critics of Penny Auction, such as Brian Kongszik of the Florida Council on Compulsive Gambling, claims that the sites meets the definition of gambling. The prize is the potential low cost of the product, the chance is that the consumer will be outbid and will be unable to continue the bidding process, and the consideration is the money lost on registration and bid packs. Critics also claim it can be addictive like gambling. It is pertinent to note at this point, that no country has till date held Penny auctions to be illegal per se.

In penny auctions, there are usually many people paying for the “chance” to be the high bidder. If they do not “win” they get nothing for their money. That money is applied towards the profits for the seller (the “house” in a gambling casino) and only one person may get something of value, while others lost money so that the seller and final purchaser receive any value. This is, in essence, the definition of gambling. Some penny auction sites have the option of getting your bids either refunded or the bid amount used to buy some other product. In that case again, a losing bidder technically doesn’t lose anything on the bid.

Generally for an activity to be considered gambling as a matter of law, three elements must be present: consideration, chance and prize. Hence the important question that arises is whether, Penny Auctions have substantial element of ‘chance’. Leaving aside the amount for each bid, penny auctions are exactly like a normal auction. It depends not on chance but on how much money is an individual willing to spend for a product.

But the question which remains is that, if Penny Auction is not gambling but yet addictive, can it be compared to online gaming? Gaming is not defined in the Public Gambling Act of 1867, but is for instance, defined in the West Bengal Gambling & Prize Competition Act, 1957 to include wagering or betting except wagering or betting on horse races. Bombay (now Maharashtra) Prevention of Gambling Act 1887 which defines “gaming” in similar terms as the Bengal Act. Hence to determine whether Penny Auctions are “gaming” or not, it is important that it be determined whether they are wagering contracts is the first place.

An essential of wagering Contracts, which are void as per Section 30 of the Indian Contracts Act, 1872, is that the uncertain event is not in the hands of the parties and cannot be controlled by anyone. But in the case of an auction, the ‘event of sale’ is not determined by any uncertainty but by the strategy of the bidders. Also, as per Black’s Law dictionary has defined wager as, “the staking of money or money’s worth on any uncertain event in which the parties do not have any personal interest or consideration.” In case of auctions, there is an element of personal interest in the so called uncertain event, i.e, the sale of the good. Hence it cannot be termed as wagering.

QuiBids, which is one of the most successful Penny Auction website in the world, contends that Penny Auctions cannot be considered as gambling as they depend on the skill of the customers. The auction is 100% customer-driven, which means that the outcomes are determined completely by the users. A variety of factors influence each auction’s outcome, including the popularity of the item up for auction, the number of bidders in the auction, the experience level of the bidders in the auction, and even the time of day. None of these are matters of chance and winning a Penny Auction needs clear strategizing.

Also it should be noted that betting is the act of risking money or money’s worth on an uncertain future event. Bidding on the other hand is offering to pay a particular amount of money for a good put on sale. Hence a Penny Auction can neither be considered betting or gaming to come under the preview of Public Gaming Act.

Section 64 of the Sale of Goods Act, 1930, refers to an auction sale in general and lays down its rules.-

In the case of sale by auction-

  • where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate contract of sale.
  • the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner, and, until such announcement is made, any bidder may retract his bid.
  • a right to bid may be reserved expressly by or on behalf of the seller and, where such rights is expressly so reserved, but not otherwise, the seller or any one person on his behalf may, subject to the provisions hereinafter contained, bid at the auction,
  • where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person, and any such person, and any sale contravening this rule may be treated as fraudulent by the buyer.
  • the sale may be notified to be subject to a reserved or upset price.
  • if the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer.

Incidently, Penny Auction technically does not violate any of these provisions.

Status of Penny Auction in India:

Though no legislation or Government action expressly prohibits penny auctions in India or restricts them to any industry/sector, the following Acts must be noted:

1. Payment and Settlement Systems Act, 2007

Section 4 (1) of the Act states that, “No person, other than the Reserve Bank, shall commence or operate a payment system except under and in accordance with an authorisation issued by the Reserve Bank under the provisions of this Act.”

The Act goes on to say any payment system or clearing house with less than 51% of the equity held by an Indian bank requires authorization to operate in India. The Act gives RBI all authority over all aspects of payment processing in India, as well as the rights to enter and inspect with or without notice and access to all financial and customer data upon request. The most important factor here is RBI has the right to make policies almost on demand (in consonance with this Act) for all things involving payment processing. So in short, RBI has the full right to instruct banks to decline or refuse and payments or deposits involving any particular payment processor, e-wallet or clearing house. While they seem more concerned with going after businesses and freelancers who might be evading tax, should they in the future decide to go after gambling processors, the legal framework and authority for them to do so already exists.

2. Information Technology (Intermediaries guidelines) Rules, 2011.

These Rules are issued under authority granted in Information Technology Act, 2000. In short this Act instructs Internet Service Providers and Website Hosts, to block access to certain types of websites and content. Rule includes anything “relating or encouraging money laundering or gambling”.

Considering the fact that Penny Auction sites are mostly stated to resemble a hybrid child of lottery and an auction, it should be noted that under Indian Laws, State run lottery is not considered illegal gambling as such, where as general lotteries are. Auction of any kind (online or physical) are completely legal. But due to the vagueness of the laws, in the current scenario Penny Auctions in India can be deemed to be legal and unrestricted regardless of the sector or industry which chooses to utilize it, unless it violates other laws of the land, like Consumer or Competition laws. And it will remain unchanged and vague till the Supreme Court’s decision in the case of Mahalakshmi Cultural Association matter comes out, on whether staking money on games of skill is legal or not.

The author is a final year BBA-LLB (Hons.) student of Faculty of Law, IFHE, Hyderabad. A passionate blogger, he writes for The Indian Economist and is a Guest contributor for LiveLaw. Views expressed are personal.

Gaming Legal & Regulatory

Breaking news: Sikkim assembly passes the Online Gaming Amendment Bill 2015+ CM announces no locals policy for casinos [with latest updates]

As reported earlier  Sikkim Chief Minister Pawan Chamling introduced the Sikkim Online Gaming (Regulation) Amendment Bill 2015 in the legislative assembly on 28th July 2015. The legislative assembly passed the Bill yesterday. It is understood that the Bill will be sent to the Governor soon for his approval and will be notified soon. Sources close to the government indicate that licensees will be able to start  online gaming operations once the changes are notified and implemented. The entire process of notification and implementation will take a month or two, according to sources familiar with the matter.

Though the exact contents of the Bill cannot be ascertained at this point of time, it is understood that a clause specifying that online gaming activities have to be conducted through intranet is explicitly mentioned in the Bill to avoid disparity between the license conditions and parent statute.  It is further understood that there are certain changes pertaining to bank guarantee to be submitted by licensees and gaming tax to be paid.

In another related development, Chamling announced on the floor of the legislative assembly that Sikkimese residents (locals) would be banned from entering casinos in the state, much like the rule existing in Nepal and some other jurisdictions. A formal notification and announcement on the amendment to the relevant rules/license conditions is awaited. It may be worth remembering that Goa had also made changes to its legislation to ban locals in 2012 but the law has not been notified or implemented till date.

Further updates relating to the two issues will be added on this post soon.

Update 1: CM Pawan Chamling reportedly made the following statement in response to opposition leader PS Golay’s charge that the current government was promoting gambling activities contrary to its 1994 election manifesto:

“Neither do I drink alcohol nor do I engage in gambling, this is a practical message which I want to give to the people of Sikkim. Casino in Sikkim is only for the tourists. There is a provision for locals not to gamble in casino.”

Update 2: Navraj Gurung, General Secretary of SKM, the principal opposition party offered the following comments on the Online Gaming Amendment Bill, “SKM has been against the amendment bill tabled during the budget session 2015. In the Amendment Bill 2015, changes have been made in Sec 3 sub section 2 wherein the word ‘Internet Websites’ has been replaced with ‘intranet’ and the word ‘online gaming websites’ replaced as ‘Intranet gaming terminal’. This means that the gaming terminals can be connected to the servers via cable connection there by allowing gaming terminals open up in all corners of the state thus affecting the local population. The Bill has the potential to affect locals with the ills of gambling.”

Update 3: Manoj Sethi, Director of Golden Gaming International Private Limited (formerly Maarm International Private Limited), one of the ‘go live’ license holders is confident of starting operations in the state and has even put up hoardings at prominent locations in Gangtok advertising his products. “We hope to start operations by September, once the amended Bill is signed by the Governor and notified by the relevant department. We already have the technical and physical infrastructure in place and are only waiting for a go-ahead from the Directorate of State Lotteries” adds Sethi.

Gaming Legal & Regulatory

Delhi district court says cricket betting is not illegal; path-breaking order may change the Indian gaming industry forever

The Delhi sessions court at Patiala House predictably discharged cricketer S Sreesanth and 35 others in what is popularly known as the IPL betting and fixing case. The court while passing the discharge order held that no case was made out under either the Maharashtra Control of Organised Crime Act, 1999 (MCOCA) or Section 420 (offence of cheating) of the Indian Penal Code.

However Additional Sessions Judge Neena Krishna Bansal while passing the discharge order in State v. Ashwani Aggarwal & Others also noted that there is no law against cricket betting in India and betting on cricket matches would constitute a game of mere skill as per Section 12 of the Public Gambling Act, 1867 (and corresponding state gaming legislations).  Judge Bansal quoted the landmark 1996 Supreme Court case, KR Lakshmanan v. State of Tamil Nadu (which held betting on horse races to be a game of skill) and other judgments pertaining to games of skill and held as follows:

‘Cricket as a game of skill requires hand -eye-coordination for throwing, catching and hitting. It requires speed, both during fielding chases and between the stumps. It requires stamina and brute strength to wallop boundaries. It requires microscopic levels of precision and mental alertness for batsmen to find gaps or for bowlers to produce variety of styles of deliveries’ (medium pace, fast, inswing, outswing, offspin, legspin, googly). The sport requires strategic masterminds that can select the most efficient fielding positions for piling pressure on the batsmen. Based on above description, cricket cannot be described anything, but as a game of skill. The game of cricket, therefore, cannot be held as a game of chance, but is a game of skill which is exempted under Section 12 of Public Gambling Act, from the definition of Gambling. Therefore, even if it is accepted that there was rampant betting going on in the IPL6, but it is an activity excluded u/s 12 of Public Gambling Act, and is not an offence for which any of the accused can be held liable…’

The order of the Sessions Court is perhaps the first such order in the country which has held cricket betting to be a game of skill and could have wide ramifications for the gaming industry. Judge Bansal’s order has given credence to Justice (retired) Mukul Mudgal’s theory in his treatise Law & Sports in India: Developments, Issues and Challenges, where he has argued that sports betting could be considered a game of skill as per the Lakshmanan decision, since betting on the performance of a human requires the same (if not more) amount of skill than betting on the performance of an animal.

Although this decision of the Delhi court is the first judicial step in the direction of legalising sports betting in India, it has to be noted that this particular order will not have much significance as it was merely an order for discharging the accused and has no binding or precedential value. Additionally, none of the accused were charged under the Public Gambling Act and thus this was not the main issue in hand before the Court.

Further, the issue of whether games of skill can be played for stakes is already pending in the Supreme Court in Mahalakshmi Cultural Association, “rummy for stakes” matter and the issue of real money betting will only gain traction post a conclusive decision in that matter.  Again, the Delhi police has stated that they intend to appeal this order in the High Court. It remains to be seen whether they will challenge this aspect of the verdict and whether any applicant/intervener or discharged accused presses this point.

The decision of the learned judge (at least the betting and fixing aspect) can also be criticised on four major counts:

1.  Difference between playing a game of skill and wagering money on it

Judge Bansal seems to have confused and mixed three things: playing a game of skill, betting money by players involved in the game on their own abilities and betting or wagering by external third parties. The first aspect, i.e. playing a game of skill would definitely not be legal and it would be absurd to even think of a contrary proposition. The second activity, i.e. players betting money on their own skills could also be considered a game of skill.

However, it is very difficult to assume that betting by spectators or third parties on a cricket match in which their physical or mental prowess is not involved would be a game of skill within the ambit of the gaming legislations. Even in games like rummy or poker, it is only argued that players betting money on their own skills is exempted from the ambit of gambling legislations and not speculation on the outcome of the game by uninterested third parties.

2. Failure to consider different betting formats

There are various options offered by bookmakers for betting on cricket matches. ‘Bhav’ or odds are given on the occurrence of various events: for instance odds are given on which batsman will score the highest runs in the match, who will win the toss or bat first, how much will a particular team score in a session (a session may comprise of a certain number of overs in a match depending on the format of the game), predicting the overall winner etc. Even for the sake of argument if it is assumed that some of these bets constitute a game of skill, it is impossible to conceive that all betting activities are a game of skill. For instance, bets on who will bat first or how much will a player score in a single over can never be considered to be a game of skill. Therefore a blanket assertion that any betting on cricket requires skill is simply not tenable.

3. Failure to distinguish the peculiar facts of the Lakshmanan case

Yes, the Supreme Court in KR Lakshmanan ruled that betting on horse races was a game of skill. However, the other facts and circumstances surrounding the matter also ought to be considered.  The case was considering the general activity of betting in race course premises. There are specific statutes in several states that allow betting on horse races with licensed bookmakers and within the race course premises. It was this background and the fact that betting would probably be done by horse owners or those connected with playing the sport which may have prompted the Supreme Court to give the Lakshmanan judgment.

4. Failure to consider provisions of Delhi Police Act while charging the cricketers with cheating

Section 108 (1) of the Delhi Police Act, 1978 provides for punishment for cheating in games as follows:

Cheating at games and gambling in street
(1) Whoever by any fraud or unlawful device or malpractice in playing at or with cards, dice or other game or in taking part in the stakes or wagers, or in betting on the sides or hands of the players. or in wagering on the event of any garnet sports, pastime or exercise, wins from any other person, for himself or any other or others, any sum of money or valuable thing, shall be deemed to have committed the offence of cheating within the meaning of Sec. 415 of the Indian Penal Code (45 of 1860), and be liable to punishment accordingly.
Surprisingly however, nowhere  in the order has it been indicated that  the cricketers or other accused have been charged with this section. All accused have only been charged under Section 420 of the IPC. It is however abundantly clear that had the accused been charged under Section 420 of IPC coupled with Section 108(1) of the Delhi Police Act, framing of charges and trial could have proceeded further.  The failure to add the charge of Section 108 of the Delhi Police Act seems to be a glaring error on the part of the police, prosecution and trial court.

Gaming Legal & Regulatory

SC appointed panel suspends two IPL teams, bans 2 team officials for life; media highlights benefits of legal gambling

The Supreme Court appointed 3 member committed headed by retired Chief Justice of India RM Lodha submitted its report on the quantum of punishment in the IPL betting and fixing scam on 14th July. The 3 member panel after hearing submissions of the counsels of those involved felt it appropriate to suspend the two franchisees Chennai Super Kings and Rajasthan Royals from participating in IPL for a period of 2 years. Further, it imposed a life ban on Raj Kundra, the team official of Rajasthan Royals and Gurunath Meiyappan of Chennai Super Kings  from participating in cricket related activities.

Cricketers as well as sports activists hailed the step as an important measure to clean up corrupt activities of the BCCI. Natuurally, the media continued to cover the rot in sporting bodies vigorously in the light of the new committee report. Editorials in three mainstream newspapers however decided to highlight the importance of legalising gambling as a solution to curb the menace of fixing:

1. Eminent sports writer Nirmal Shekar in a piece titled  ‘Gambling is a basic instinct’ (The Hindu, 16th July) quoted literary legends like George Bernard Shaw and Fyodor Dostoevsky as well as eminent former cricketers to make a case for legal gambling. Extracts from the editorial:

‘According to very, very reliable sources, cricket betting alone is worth close to Rs. 5000 crore annually in India. Even a 10 per cent tax at half that money can provide electricity to thousands of villages. But unfortunately those in power choose to inhabit moral high grounds and ignore the reality…

Then again, betting is evil largely because it is deemed illegal. The gambling instinct is universal. We sit on a lofty pedestal and watch horses race because of our culturally acquired sense of human exceptionalism.

Great writers have sought to demolish such perception. “The gambling instinct is born in all normal persons,” wrote the great Fyodor Dostoyevsky in The Gambler… It is time then for the Government to step in and fill its coffers. It has nothing to lose. If it can divert 50 per cent of the betting traffic to itself, it will still mean a win-win situation…’

2. Highly respected former police commissioner of Mumbai Julio Ribeiro in an article titled ‘IPL verdict: It’s time to legalise cricket betting’ (Daily News & Analysis, 16th July) wrote:

‘Humongous betting on the outcome of cricket matches goes on merrily all through the year. The police know this. It is what is tritely termed “an open secret.” Illegal betting on cricket has ruined many. A lady sought my assistance to wean her two sons, one in college and the other in school as they had taken to betting on cricket though they had no income of their own!  The boys owed money to the bookies and the bookie’s men were constantly at her door to demand payment…

The bookies are themselves members of syndicates each beholden to one or other of the underworld’s main players. These are the people who approach Cricketers to fix matches teaching them to be untrue to their calling. They spawn corruption and criminality on a major scale. Instead of paying taxes to the government bribes are routinely paid to the police and tax officials. Government would have filled its coffers substantially if betting on cricket matches was legalized like it is in the UK, for example.
Another fallout of illegal betting is that criminality increases in geometric proportions besides corrupting the rank and file of the police force. Justice Lodha has indicted Meiyappan, the son-in-law of BCCI’s former Chairman N Srinivasan and Raj Kundra co-owner of Rajasthan Royals of breaking the IPL rules by indulging in big time betting. But small time punters like the two sons of the lady I mentioned earlier in this article far outnumber the elite and they are the biggest pawns in the games played by the betting syndicates. It would be wiser for the government to bring cricket betting under its scrutiny by legalizing it, encouraging the bookies to form syndicates like Ladbrokes, William Hill and Betfair in the UK which have effectively eliminated the illegal bookies.’

3. Columnist Himangshu Watts also highlighted the issue and made similar points in an editorial ‘The problem is match-fixing, not betting; make betting in sports legal’ (Economic Times, 16th July):

‘So the entire betting infrastructure exists underground. It is controlled by underground operators and dons who are ready to indulge in a bit of the rough stuff to extract their money. If you want to make gambling fun and harmless, be practical and learn some lessons from the way teen-patti is ‘regulated’. Don’t let nefarious networks operate underground. Make betting legal, and regulate it. If a bookie tries to fix matches, descend on him like a ton of bricks. Fry him… 

Of course, legalising betting has its problems and challenges. But in a country where betting on horse racing and speculation in financial markets are allowed, it’s much better to be consistent, and practical. 

The Justice RM Lodha panel report on IPL actually provides us an opportunity now to delineate betting from match-fixing and decriminalise an activity that can peacefully coexist with the game. The problem is match-fixing, not betting.’ 

One hopes that the issue of legalising gambling gains momentum in the light of the IPL scandal and Lodha committee reports. It remains to be seen if the Central or state governments take cognisance of various suggestions by experts and initiate a holistic dialogue on the issue.

Gaming Legal & Regulatory

Understanding gaming companies' obligations under the Prevention of Money Laundering Act

Gambling and betting is a business that is traditionally associated with money laundering, tax evasion and use of illicit funds. From Macau to Las Vegas regulators of all jurisdictions where gambling is legal have shown concerns of black money being used in casinos and have imposed Know Your Customer (KYC) and other guidelines. In India, the Goa government amended the casino license conditions and issued guidelines to casinos which included collection of KYC documents, reporting of transactions above Rs. 10 lakhs to the Financial Intelligence Unit (FIU) and maintaining special checks on Politically Exposed Persons (PEPs).

The Supreme Court by its order dated 17th September 2014 in the Mahalakshmi Cultural Association (“rummy for stakes”) case wanted the Central government to give information about implications for online rummy companies under the Prevention of Money Laundering Act, 2002 (PMLA).

It is thus important to know the type of entities liable under the PMLA, mandatory compliances for such companies and penalties for non-compliance.

Type of entities covered under PMLA

In general, any person directly or indirectly involved in any activity or process concerned with the proceeds of crime, i.e use, concealment, possession, acquisition or projection it as untainted property is said to have committed the offence of money laundering under the PMLA. The term “proceeds of crime” is defined as property obtained directly or indirectly as a result of a scheduled criminal activity. The Schedule of the PMLA gives a list of offences which would constitute as ‘criminal activity’ under the Act. Offences pertaining to gambling are not specifically mentioned in the Act.

However the PMLA also requires “reporting entities” to maintain certain types of records and furnish information to the Director of Financial Intelligence Unit (FIU) as and when required.  Reporting entities is defined under Section 2(wa) to include a banking company, financial institution, institution, intermediary or a person carrying on a designated business or profession. Further under Section 2(sa) as amended in 2013, a person carrying out a designated business or profession inter alia  includes “a person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino.”

Additionally,  financial institution has been defined to include inter alia those companies defined under Section 45I (c) of the Reserve Bank of India Act  and payment system operators (those companies settling payments between a payer and beneficiary including through credit cards, debit cards, money transfer etc.) Under the RBI Act, financial institutions includes non-banking companies which collect monies under any scheme or arrangement for the purpose of distributing prizes in cash or kind.

Thus under the PMLA potentially all gaming companies including online gaming or skill games websites, lottery operators, casinos, payment gateways etc. are reporting entities and are required to maintain various records and customer identity documents.

Records that have to be maintained by reporting entities under the PMLA and Rules

Section 12 of the PMLA imposes obligations on reporting entities to maintain records of all transactions and provide it to the Director FIU as and when demanded. Further, the reporting entity is also required to maintain a record of documents regarding identity of clients and business correspondence etc. The records have to be maintained for a minimum period of five years from the date of transaction.

Apart from the records to be maintained under Section 12, onerous set of obligations are also imposed on reporting entities under the Prevention of Money Laundering (Maintenance of Records)  Rules, 2005 which inter alia include maintenance of records of all cash transactions or series of inter-connected cash transactions of the value of more than ten lakh rupees, maintenance of records of all suspicious transactions (i.e. transactions that have no economic rationale or bona fide purpose, transactions that may involve proceeds of a Scheduled offence and transactions involving financing of terror-related activities)  and client due diligence.

Client due diligence involves collection of identity of the client at the commencement of an account-based relationship and verification of identity in transactions above fifty thousand rupees.

All records that are maintained by the reporting entity have to be supplied to the Director FIU every month by the 15th day of the succeeding month. Further a monthly report on the measures taken under the PMLA and Rules has to be sent to the FIU by the designated director of the reporting entity by the 10th day of the succeeding month.

Penalty for non-compliance

Section 13 of the PMLA authorises the FIU to call for records of reporting entities and ask for its audit by a Central government auditor and after inquiry issue a warning to a reporting entity, designated director or employee, issue directions for compliance or by an order impose a monetary penalty of not less than ten thousand rupees but up to one lakh rupees.

Gaming Legal & Regulatory

Bombay HC gives state government 2 weeks to respond to Casinos Act PIL

The Bombay High Court on Friday allowed two weeks time to the Maharashtra government to file its reply to a public interest litigation demanding that a four- decade-old law which makes it legal to run casinos in the state be brought into force. The advocate appearing on behalf of the state government admitted in court that a law legalising casinos existed in the state but the government had failed to apply its mind on the subject for the past four decades.

A division bench of the Bombay High Court comprising of Justice VM Kanade and Justice BP Colabawalla, asked the state government to take a stand on the issue within a fortnight and inform the court whether it intends to implement this law. On 17th March 2015, a division bench headed by Chief Justice Mohit Shah had asked the state government to take a stand on the issue, but the government has been unable to make up its mind till date.

According to the petitioner, Jay Sayta, the Maharashtra Casinos (Control and Tax) Act was passed by the Assembly and published in the government gazette in July 1976.  However, it has not been notified yet. Sayta found out through the Right to Information that the Act received the Governor’s assent on July 22, 1976. Last December, he wrote a letter to Chief Minister Devendra Fadnavis requesting him to notify it but there was no reply.

The Act provides for licensing of casinos, permitting certain types of casino games, taxation of the money paid or agreed to be paid by the participants by way of stakes or bets, etc.

Goa and Sikkim are the only two states which currently allow casinos, the PIL says, alleging that government of Maharashtra has “arbitrarily and unreasonably” kept in abeyance the Act by not notifying it. The petition adds that the government has committed a constitutional fraud by not implementing the will of the people as reflected through the law enacted by the legislative assembly.

(With PTI inputs)

Gaming Legal & Regulatory

Sikkim government continues dithering over online gaming, government to now amend Act & Rules

Exclusive There does not seem to be any clear timeline for allowing online gaming in the state of Sikkim, months after license holders declared their intention to start offering services. After adding the condition in the ‘go live license’ that online gaming would not traverse the territorial boundaries of Sikkim  and would only be offered through intranet, the government has asked Playwin, Future Gaming and Maarm International (the license holders) not to commence operations.

KP Sharma, Director Sikkim Lotteries confirmed the development in an exclusive telephonic conversation with Sharma added that the Sikkim government was planning to introduce amendments to the Sikkim Online Gaming (Regulation) Act, 2008 and rules framed thereunder to bring them in sync with the conditions in the permanent or ‘go live’ license. He added, “There are a couple of legislative changes required to the present framework, the most important change being the intranet condition. I do not know as to when the amendments to the Act and Rules will be passed and notified, it may probably be in July. We ( the lotteries department) are waiting for instructions from the Sikkim government and will act accordingly. I am not sure about when exactly the license holders will be able to start operations.”

It must be noted that the Sikkim Act and Rules use terms like ‘website’, ‘URL’ and ‘internet’ for online gaming activities bringing it in direct conflict with the go live license conditions. The Sikkim government had taken a decision to allow online gaming through intranet based on a clarification from the Union Home Ministry in April 2014 stating that online gaming should not traverse the territorial boundaries of Sikkim. Those associated with gaming in Sikkim blame the dithering and indecision of the state government for the lost opportunity and financial loss suffered by the license holders over the last few years.  Most license holders have waited for almost six years to start online gaming operations but are still unsure as to when they will final be able to begin operations.


All offshore casinos to shift out of River Mandovi by year end, Aguada Bay likely to be new location

Goa  tourism minister Dilip Parulekar recently assured citizens that offshore casinos will shift out of River Mandovi by the end of this year. Parulekar added that the process of identifying alternate spots to shift the casinos are already on and four locations, i.e. Rivers Chapora, Sal, Zuari and Aguada Bay have been zeroed in.

The minister however went on to state that Aguada Bay was the most feasible location as the other three rivers had severe constraints. As per media reports, all offshore casinos had given an undertaking to the Goa government in 2013 that they would shift out of River Mandovi within 2 years. The government had renewed the licenses of the offshore casinos for a period of five years based on this undertaking. The two year deadline for Casino Deltin Jaqk expires on 29th August 2015, followed by Casino  Pride Goa on September 12th September, Casino Pride II on 3rd December and Deltin Royale on 23rd December.

Goa Home Department officials have added that although negotiations with casino owners are on, in case an alternate location is not finalised within the two year deadline, the vessels will  continue to be anchored in River Mandovi but casinos will have to stop gaming activities. Casino owners seem to be reluctant to shift out of Mandovi river due to commercial reasons, as currently the casino vessels are easily accessible from the heart of Panaji. However given the anti-casino stand of the new government, the casino operators are  willing to compromise and ready to shift out of Mandovi if a satisfactory location within the territorial waters of Goa is identified, where feeder boats can easily pick and drop passengers.

This fresh announcement by the Goa government is expected to have an adverse impact on the gaming and tourism business in the state. The BJP-led government has initiated a serious of negative measures against the casino industry including successive hikes in license fees, increase in taxes and announcement of a ban on entry to locals. An amendment creating a Gaming Commission to monitor activities of casinos and ban Goan residents and those below 21 years of age had been passed by the legislative assembly in 2012, but a notification to implement the new law has been pending for the last three years.


Police, ED investigate betting and lottery rackets, involvement of top politicians and bureaucrats suspected

This month has been an action-packed one for the Indian gaming industry with different state police agencies and the Enforcement Directorate (ED) probing two different and unconnected scams: the illegal cricket betting racket and the underground lottery trade. Raids have been conducted in various locations across the country from Jammu & Kashmir to Karnataka.

It all started with the ED raiding a Vadodara -based bookie in March for using offshore websites like for money-laundering. The ED followed it up with a series of raids across Maharashtra, Gujarat, Rajasthan, Haryana, Delhi and Jammu & Kashmir this month. It now seems that the total quantum of the betting scam would be in excess of Rs. 4,000 crores. ED alleges that the money collected by the bookies is sent to Dawood Ibrahim, his brother Anees Ibrahim and underworld gangs through hawala channels, thus making this a national security issue.

ED has summoned various prominent bookies including Mumbai-based Anil Jaisighani who is said to enjoy political patronage and has police security cover. It may be noted that ED probes contraventions under the Prevention of Money Laundering and Foreign Exchange Management (FEMA) Acts. Under the Money Laundering Act, assisting or using funds obtained through proceeds of certain types of criminal offences is illegal and a punishable offence. Under FEMA rules, remittance of funds abroad for the purpose of gaming, betting or hobbies is an offence.

However, a recent report in a Hindi daily claims that telephone recordings in possession with the ED have shown involvement of senior politicians and bureaucrats in the betting rackets which is controlled by Anees Ibrahim, brother of most-wanted gangster Dawood Ibrahim. The report further claims that diamonds and other precious stones are like ‘circular trading’ and the betting racket is not restricted to India but links of the bookies extend to Singapore, Sri Lanka, Thailand, Malaysia, UAE, UK, USA, Pakistan and other countries.

Meanwhile the Karnataka police claims to have unearthed a Rs. 100 crore lottery scam in the state with the arrest of lottery kingpin Pari Rajan and suspension of senior IPS officer Alok Kumar for his involvement in the scam. It is alleged that Rajan, a former lottery agent continued operating single digit lottery illegally after lotteries were banned by the state in 2007. Opposition has now demanded a CBI probe into the matter since the investigations have spread to other Southern states and the involvement of Coimbatore based lottery distributor Santiago Martin (who is already booked for a multi-crore lottery scam and is being probed by the CBI) is being alleged.

It seems that the serious of scams and problems relating to gambling and black money is only due to the hypocrisy of the political class. None of these investigations would have been necessary if betting and lottery was legal and if the trade was carried out in a legitimate fashion. In Karnataka, the racket was started by a former lottery agent who was deprived of his livelihood due to on lotteries. His trade flourished because of people’s uncontrollable desire to gamble. Similarly, if betting was legal and legitimate operators were allowed, the probe into black money being chanelled abroad by bookies through hawala operators would not have been necessary.


Nepal's casinos restart operations within a week of the devastating earthquake, vow to work for relief and rehabilitation

Nepal’s casino industry has shown great resilience and restarted operations in Kathmandu within a week of the devastating 7.9 Richter scale 25th April earthquake that shook the Himalyan nation. Binod Shrestha, Managing Director at Casino Mahjong, Hotel Crown Plaza Soaltee confirmed that the Casino and Hotel had restarted operations. He added that the casino and hospitality industry in Nepal had immediately rushed to aid affected areas and provided immediate relief.

Shrestha  said,  “After the earthquake Casino Mahjong team were among the first ones to visit the affected areas with relief materials specially in various places in Gorkha, Sindhupalchowk and Saakhu. Further we have decided to adopt the village of Saakhu and will do everything possible to get it back on its feet.  I would like to tell the world that even in these difficult times we have only to offer and present to you our natural beauty, our warm hospitality. We will set an  example that no matter what the circumstances we will never hit the ground, we will rise, Nepal will rise to greater heights.”

He further added, “Casinos, hotels, restaurants and businesses have all been operational within a week of the earthquake and we are all back to normal, therefore all we need is your continued patronage and your visits to our beautiful country with renewed faith that this country is strong and its people even stronger, we will surely take care of you.”

Casino Mahjong Kathmandu
Casino Mahjong Kathmandu on 10th May 2015

It is understood that other casinos in Kathmandu such as Casino Shangri-La and Casino Royale have also restarted operations. Silver Heritage Group which runs the casino in Shangri-La resort Kathmandu also put up a statement on its website showing the casino’s firm commitment to face the adversaries and make a comeback while trying its best to help all victims. “Silver Heritage and Happy World have already sent out 8,000kg of relief supplies to Gorka, very close to the epicentre in Nepal, and we plan to continue to help the community with donations of food and medical supplies. In addition, Silver Heritage and Happy World will continue to donate a percentage of net income from its operations once re-opened to help community projects” the statement reads.

Nepal’s casinos have faced a turbulent last few years mainly due to political instability in the tiny Himalayan state. In 2014 had shut down after taxation issues and tussle with the government but restarted a few months later, once the government granted concessions. The casino industry in Nepal has to be commended for its humanitarian efforts. One hopes that the Nepalese casinos not only help in reviving the economy but also continue to contribute in rehabilitating all those affected by this unforeseen calamity.