Shades of gray: How PH ended up with a POGO crisis
It was June 30, 2016, when Rodrigo Duterte, the infamous mayor of Davao City, took his oath as 16th president of the Republic of the Philippines, and convened his Cabinet at the Aguinaldo State Dining Room in Malacañang.
“Online gambling must stop,” Duterte told the Cabinet.
It seemed like a tall order from the commander, but he would go back and forth on that issue in the following months. On December 22, 2016, the President made up his mind: “I am ordering the closure of all online gaming [firms]. Lahat. Walang silbi ito. (All. They’re useless.)”
On the outside, that seemed like tough rhetoric against online gambling, but it was just semantics. Because as early as September that year, his Philippine Amusement and Gaming Corporation (Pagcor) had already created the now reviled POGOs or Philippine offshore gaming operators. When Duterte ordered the closure of all online gaming in December, the Pagcor chairperson at the time, Andrea Domingo, was gearing up to grow offshore gaming through POGOs.
“This venture will cover what we lose from e-gaming and e-bingos,” Domingo said in 2016.
Semantics and a gray area
Republic Act 9487 authorized Pagcor to regulate games of chance, games of cards, and games of numbers. Nowhere in this law is “offshore gaming” mentioned. This is why many petitions were filed challenging the constitutionality of POGOs, unresolved to this day. (A March 2024 Supreme Court decision junked one petition because of a technicality — violating the hierarchy of courts.)
In the model of offshore gaming, the player who places the bet is abroad, and the betting is on the cloud, or the internet. It is why Chinese players can place bets even if they are in mainland China where gambling is illegal. The websites, livestreams, the table, its dealers, are what’s in the Philippines through business process outsourcing (BPO) units acting as service providers.
This is also why gaming proponents would always say there is no online gaming in the Philippines — because technically the game is elsewhere.
“It’s a gray market, it’s a gray area,” retired cop Wally Sombero told Rappler in an interview in 2017, before he was arrested and eventually convicted of plunder for bribing Immigration officials to release detained Chinese nationals working for gaming tycoon Jack Lam.
“If there is no gray market, there is no opportunity,” Sombero, who calls himself a gaming advocate and strategist, said in that interview.
This gray market opportunity existed before POGO, through the Cagayan Economic Zone Authority (CEZA) which is run by the Enriles. Economic zones like CEZA more or less operate outside strict national rules; they can even issue their own visas.
At their peak, there were more or less 300 service providers sanctioned by CEZA, its chief executive officer Katrina Ponce Enrile told the House of Representatives. Enrile added that in 2007, they got the go-signal to use some of the Philippine Economic Zone Authority (PEZA) buildings in Metro Manila.
CEZA’s first-ever master licensor was First Cagayan Leisure and Resort Corporation (FCLRC). The FCLRC appears in a 2024 report by the United Nations Office on Drugs and Crime (UNODC) as being linked to a criminal casino syndicate based in Kokang, a mountainous area in the border of Myanmar and China.
POGO’s rise
Enrile said that Pagcor’s POGO rules edged out their CEZA licensees. “Definitely CEZA at that point could not compete because we were strictly abiding by our mandate in our charter,” she told a House committee on July 31.
Pagcor’s immediate licensing of POGO operators in 2016 “introduced a host of issues, including baseless tax exemptions, bypassing of Bureau of Internal Revenue and Securities and Exchange Commission registrations, issuance of multiple sub-licenses and issuance of thousands of working visas without proper oversight,” said a group of gaming service providers, which Sombero is part of, that describes itself as a gaming advocacy group whose “voice has been stifled” by the recent POGO controversies.
The creation of POGOs in 2016 could not have come at a worst time. China had just started its massive crackdown on illegal gambling that year, arresting 19,000 suspects in cross-border operations particularly with Cambodia. Before he was arrested in 2022, one of the Chinese gambling fugitives, She Zhijiang had already set up a “robust business and investment portfolio across Southeast Asia, and particularly Cambodia, Myanmar, Thailand, and the Philippines,” said the UNODC.
Incidentally, from 2016, suspicious transaction reports (STRs) in the Philippines related to casino junkets went on a steady increase, according to the Anti-Money Laundering Council (AMLC). It declined in 2020, the height of the pandemic, but shot up for a steep incline since 2021.
The pandemic wasn’t the only thing that happened between 2019 and 2020, which saw a drop in suspicious transactions. In 2019, amid POGO controversies during Duterte’s term, Pagcor froze the issuance of POGO licenses. The issuances resumed early 2020, which is also when China and Cambodia resumed inspections and bans on online gaming. China and Cambodia’s crackdown “prompted exodus,” said the UNODC.
The exodus led to the Philippines.
“Criminal groups were forced to innovate, digitize, and diversify their business model following the outbreak of COVID-19 to maintain revenue streams…more specifically, casino operators have moved bases of operation deeper into loosely regulated and highly vulnerable jurisdictions including Cambodia, Lao PDR, and the Philippines,” said the UNODC.
By 2022, suspicious transaction reports were at a high, AMLC monitoring showed.
The environment in the Philippines seemed prime to accept the exodus, because many foreign POGO workers, particularly Chinese, were “stuck” in the country during the pandemic.
“Tourists could convert their visas into working visas with little scrutiny, leading to unregulated activities within exclusive hubs that local government units (LGUs) could not monitor due to the national character of the licenses,” said the gaming group.
There were “180,000 to 200,000 Chinese nationals after 2019 — sila na ‘yung nagpaikot-ikot (they rotated around POGOs),” Winston Casio, spokesperson of the Presidential Anti-Organized Crime Commission (PAOCC), told Rappler in an interview done inside a former POGO hub in Pasay which they have seized and repurposed into an office and detention facility.
One of those stuck, although he was not Chinese, was Jeremy, a Malaysian who was “working in a legal POGO” in the Philippines in 2021.
In an interview with Rappler where he requested anonymity for fear of repercussions, he said that in February of 2024, or the Chinese New Year, he was invited by a friend to drive to Bamban, Tarlac, to eat. He was taken to the Hongsheng Gaming Technology Inc. (later renamed Zun Yuan Technology) POGO in the compound owned by Baofu Land Development Inc., a company that Alice Guo incorporated.
“He just left me there, and then he was just gone,” Jeremy said. He was forced to work in the hub which was operating a love scam. The problem with POGOs was that their licenses were obtained by groups that turned out to have handled scams, and not online gaming, like Hongsheng/Zun Yuan.
Jeremy said he used their “scam phone” to secretly download some messaging apps, where he was able to send out some details to his wife in Malaysia. These secret messages led to his rescue from Bamban.
From “almost number one in online gaming almost equal to Gibraltar,” according to Sombero, where “no money comes out of the Philippines, it’s only coming in, and regulators must capture the opportunity growth,” the Philippines soon became “among the largest scam farms” in Southeast Asia, according to Casio.
FATF gray list
In June 2021, the Financial Action Task Force (FATF) included the Philippines in its gray list, which is an indication of how bad the country’s “deficiencies” were in tracking and preventing illicit financial flows.
“What’s the effect if you’re on the gray list? If you are a Filipino importer, you would like to import consumer goods from abroad. You would have to spend more dollars as opposed to if we are not on that list,” said Casio.
The Philippines promised it would be out of the gray list by 2024, but it failed. In June 2024, when FATF released its list, the Philippines was still on the list. AMLC said that among the mechanisms it needs to enhance is combating money laundering by casino junkets.
That Alice Guo has been able to leave the country is a reflection of these deficiencies. Without a proper case buildup for a financial crime, the PAOCC was constrained to file a complaint only where they had evidence: trafficking. Besides, they had trafficked workers willing to speak.
That trafficking complaint is still being resolved by prosecutors of the Department of Justice (DOJ), which is why there are no court-issued warrant and hold departure orders for her, making it easier to leave. The Bureau of Internal Revenue (BIR) had just filed its case for tax evasion against her.
“Ang problema ng bansa natin, mahina tayo with regards to digital forensics. [When we raided] Sun Valley in May of 2023, ilang computers ang nakuha doon? Kasama ‘yun sa return ng search warrant doon sa korte. Sabi nung judge na may hawak, one year after the actual raid, hanggang ngayon, hindi pa sina-subject to digital forensic examination the computers doon,” said Casio.
(Our country’s problem is, we are weak when it comes to digital forensics. When we raided Sun Valley in May of 2023, how many computers were seized? These were included in the return of the search warrant that needs to be filed with the court. The handling judge said, one year after the actual raid, until now, the computers still have not been subjected to digital forensic examination.)
There are dozens of workers caught in the PAOCC raids who are held in custody in the Pasay facility, and some of them have started filing for writs of habeas corpus, or an extraordinary writ to compel release from detention. PAOCC balances treating some as suspects, some as witnesses, others as victims. “It’s a very tricky standard,” said Casio.
Guo’s sister Sheila, and a Porac POGO worker, Cassandra Li Ong, were arrested in Indonesia and are being held by Philippine authorities without a court charge. Alice Guo is still on the run, although she, too, does not have a court charge.
The problem that began in a gray area is also being handled in a gray area. – Rappler.com