Could Corruption Scandal Derail Japan IRs?

At last count, six Japanese lawmakers faced allegations of bribery related to the country’s planned integrated resort (IR) industry. Seizing the opportunity, longtime opponents of legal gaming will submit legislation that would abolish the 2016 IR Promotion Act. Mikio Shimoji (l.), a member of the Diet representing a party led by Osaka Mayor Ichiro Matsui, was expelled from the party after bribery allegations were made public.

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Could Corruption Scandal Derail Japan IRs?

Japanese lawmakers who oppose integrated resorts (IRs) are using the country’s widening casino corruption scandal to try to overturn the IR Promotion Act that legalized casino gaming.

Their campaign may be a long shot, but if it works, it could quash a projected multibillion-dollar industry, touted by Prime Minister Shinzo Abe as a way to boost tourism and pour billions more into the economy. The first three IR operators and locations are due to be chosen this year; the first resorts would likely open in 2026.

The scandal first came to light on December 25, with the arrest of Liberal Democratic Party ( LDP) member Tsukasa Akimoto. Akimoto allegedly accepted cash and gifts from Chinese iLottery firm 500.com, which had hoped to win an IR license in the country.

As of last week, five more lawmakers were suspected of similar offenses; one, LDP member Mikio Shimoji, confessed and then was expelled from the Japan Innovation Party, led by Osaka Mayor Ichiro Matsui, a leader in the pro-casino camp. Osaka is considered a likely location for one of the country’s first IRs, and Matsui has said Shimoji should step down from his LDP post as well.

According to GGRAsia, Shimoji admitted accepting a campaign contribution of JPY1 million (US$9,230) from 500.com in 2017, without declaring it to the government. He said he thought the donation from a 500.com “advisor” was “a personal donation … I did not feel I was receiving money from a foreign company. It is something that I extremely regret.”

Four other members of the House of Representatives members have been questioned by Japanese authorities for allegedly taking similar amounts. All four, including former Defense Minister Takeshi Iwaya, have denied the charges.

 

Fanning the Flames

A number of polls have indicated that the majority of Japanese do not approve of IRs, chiefly due to concerns about problem gambling. The scandal is likely to deepen the opposition, but Brendan Bussmann, analyst with Global Market Advisors, believes the sound and fury will eventually dissipate.

“As a mentor of mine always said to me, ‘Every time there’s an expansion of gaming, someone goes to jail,’” Bussmann told GGB News. He said illicit exchanges of money around casino development have happened “in almost every jurisdiction around the world.”

Asked if the new revelations will cause a hiccup in the IR process, Bussmann said, “We currently don’t see this significantly changing the timeline, other than the normal challenges of bringing a new jurisdiction online. … A few bad actors should not deter that effort.”

Ben Lee, CEO of Asian gaming consultancy iGamix, told GGB the bribery allegations were “unsurprising.”

“The surprise is that more (politicians) weren’t outed, as the foreign gaming companies have spent tens of millions, if not hundreds of millions of dollars, in their lobbying efforts to date.”

Lee said he’s more concerned that the government of Prime Minister Abe, who pushed through IR legislation in December 2016, has done little to assuage public fears about gaming.

“There have been countless surveys conducted on the issue, with just about all of them reporting strong anti-gaming sentiments, yet there has been virtually no national effort or initiative by the Japanese government to address that,” Lee said. “If anything, that could be the major undoing of any of the mooted projects when it comes to a.) the execution phase, and b.), the viability and ongoing sustainability without local grassroots support.”


Bump In the Road, or Roadblock?

Douglas Walker, gaming expert, Japan-watcher and professor of economics at the College of Charleston in South Carolina, said fallout from the corruption scandal is likely to linger on. “Certainly it could make the Japanese people more concerned about the potential for corruption and crime in general around gaming. It could result in tighter regulations, or even delay the ultimate legalization of casinos.”

Bussmann agreed that allegations “do not show the positives that IRs will bring to Japan.” But he remains upbeat about the industry’s long-term prospects. “While current polling has shown opposition to gaming, once people realize the benefits that can be associated with IRs and the vast amenities included, it begins to change attitudes.”

He added that big-name operators itching to get into the market—a list that includes Las Vegas Sands, Wynn, MGM, Genting, Galaxy and Melco, and a host of others—won’t be deterred by the negative headlines.

“The biggest challenges these operators face is making sure the regulatory environment allows them to be successful without burdensome taxes and regulations,” he says. “But the recent allegations have put potential bidders on notice—they need to be aboveboard in their actions with Japan.”

In the wake of the arrest, 500.com has launched an internal probe of the purported bribes. Chairman Xudong Chen has resigned, and CEO Zhengming Pan has temporarily stepped down. Chen will be replaced by Shungwu Wu, and Chief Technology Officer Zhaofu Tian will serve as interim CEO as the probe continues.

Meanwhile, Japan’s Casino Regulatory Commission was established last week, as scheduled. “In order to realize the positive effects as soon as possible, we are advancing our IR preparations,” said Chief Cabinet Secretary Yoshihide Suga. According to the Japan Times, that statement signaled that the government’s plan is, “as usual, to simply bulldoze over the ineffective opposition critics.”

iGamix’s Lee said the latest glitch is likely a bump in the road, but not the end of it. “The lengthy duration of getting everything in place is typical of the Japanese bureaucracy. Detailed research, long preparation, consensus decisions followed by speedy implementation. Trying to push through a foreign concept in the shortest possible time was always a fantasy, not reality.”

To that, Bussmann said ditto. “I firmly believe the Casino Regulatory Commission will use strictly regulated environments such as Nevada and Singapore as guidance as it develops the regulatory structure and selection process. These jurisdictions serve as a strong base on how to keep out bad actors and allow quality operators to be licensed in a competitive market.”

Articles by Author: Marjorie Preston

Marjorie Preston is managing editor of Global Gaming Business. She is a writer, editor, author and expat Pennsylvanian who now considers herself a New Jerseyan. Based on Brigantine Island north of Atlantic City, Preston has been writing about the gaming industry since 2007, when she joined the staff of Global Gaming Business as managing editor of Casino Connection.