Philippine Offshore Gaming Operators (POGOs)

Brett C. - February 16, 2023
Manila Philippines

We delve into the complex issue of Philippine offshore gaming operators (POGOs), which has been a source of conflict between the Philippines and China. It explores the harmful impacts of the industry, including money laundering, human trafficking, and prostitution, as well as the revenue generated and the compliance challenges faced by the government. The article also raises the question of whether the new Philippine President will decide to shut down the POGO industry.

The issue of Philippine overseas gaming operators (POGOs) has been a source of tension between the Philippines and China. Back in 2019, the erstwhile President, Rodrigo Duterte, refused to comply with a request from Chinese President Xi Jinping to shut down POGOs. However, the industry is once again under scrutiny and faces criticism from both the public and China.

The negative impact of POGOs has been a recurring topic in recent Senate hearings in the Philippines. The industry is accused of facilitating illegal activities like money laundering, human trafficking, and prostitution. Moreover, POGOs have significantly underperformed the government's revenue projections, generating only $6.25 million per month last year, far less than the anticipated $50 million. The industry has contracted and now produces less than 50% of its maximum size, with an estimated gross gaming revenue of $1.8B last year.

As Ferdinand "Bongbong" Marcos, the current President of the Philippines, contemplates the future of Philippine overseas gaming, he should keep in mind two essential facts. Firstly, preventing offshore betting from China is a challenge for operators. However, the real hurdle is the acceptance of bets from China.

The Chinese President, Xi Jinping, has been actively campaigning to clamp down on illegal capital flight and gambling, with offshore betting as a key target. The Philippine government could potentially necessitate that POGOs block access to their sites from China in compliance with China's laws.

However, these measures can be quickly circumvented, and the challenge of accepting bets from China is even more significant. Betting from China is a crucial source of revenue for POGOs. Reaching out to Chinese customers and collecting payments requires extensive online efforts and a large number of marketing professionals, which has proved to be a massive challenge for the industry.

The Use of Farmer Accounts

Operators of Philippine overseas gaming companies (POGOs) are circumventing recent Chinese restrictions on payment channels by using "farmer accounts." Rural agents recruit people to create accounts with access to many banking institutions. The recruits are paid for their efforts, and the accounts are sold to overseas gaming firms.

POGOs in the Philippines accept payments from Chinese customers through "farmer accounts," which recruit ordinary people to open mobile accounts at many banking institutions through agents in rural areas of mainland China. These accounts are then sold to offshore gaming companies, and buyers receive the account holder's ID, SIM card, and bank security device. To avoid detection by authorities, POGOs shuffle money from accounts in minuscule amounts before transferring the money to Hong Kong for international exchange.

POGO offices have a combination of marketing personnel and financial staff, where agents send messages to potential clients to coerce them to game, while the financial staff oversee the money transfers. Marketing personnel must have a deep understanding of Chinese social networks, including Weibo, WeChat, Douyin, & Renren, which are more popular than TikTok and Western social media social networks like Facebook, Twitter, et al. The most skilled agents often emanate from the Chinese mainland. The transfers are tracked and triggered using wall-lined computer screens by POGO staff in the Philippines.

Potential Consequences of the POGO Industry

The staggering influx of Chinese POGO workers in the Philippines has resulted in an absolute cultural and social meltdown. The industry has become a hotbed for illegal activities, with a significant increase in prostitution, kidnapping, and bribery. Such criminal activities have sparked public outrage and backlash against the industry, yet the Philippine government is still seduced by the sector's revenue. 

The Chinese POGO worker population has also led to the formation of businesses exclusively supplying them, completely isolated from mainstream Philippine society. The worst part? The overwhelming influx of POGO workers also created a fertile ground for human trafficking. Despite its immense negative impact, the POGO sector is still generating around US$6.25 million monthly, a temptation too hard to resist for the government. However, the sector has significantly declined, falling short of its peak size and only posting an estimated $1.8 billion in GGR last year.

However, POGOs continue to exacerbate negative trends identified in a 2021 paper by Leonardo "Don" Dioko, a professor at the Macau Institute for Tourism Studies. These trends include "locally organised and highly visible violent crime affecting the gaming industry" and the "vulnerability of the Philippines' gaming industry from external dark actors."

Given the negative consequences associated with the POGO industry, the issue of shutting it down has become a subject of political debate in the Philippines. The country's new President, Ferdinand "Bongbong" Marcos, who took office at the end of June, has yet to decide on the matter. Meanwhile, Senate hearings on the matter have raised public awareness of the sector's harmful impacts, including human trafficking, money laundering, and prostitution.

Compliance Challenges for the Philippines

To comply with President Xi Jinping's campaign against unlawful capital flight, China has blocked gaming operator fronts from payment channels such as AliPay, WeChatPay, and QQPay. Instead, offshore operators have turned to so-called farmer accounts, where agents in rural areas of mainland China recruit ordinary people to open accounts with mobile access at many different banks.

Gaming companies use these accounts to accept payments from customers inside China, shuffling money between accounts in small sums to thwart tracking by authorities. However, technology experts acknowledge that blocks cannot stop everyone, and preventing unauthorised play is comparable to playing the arcade game Whac-A-Mole.

The Importance of Accepting Betting from China

It is worth noting that preventing offshore betting is difficult, but enabling it is even harder. Philippine licensed CEO David Leppo emphasises that his company will not accept business from Chinese nationals, saying, "You cannot access any of our websites from the United States [where offshore gaming is also illegal] or from China." However, for many POGOs, betting from China is not an unintended consequence or side effect but the whole point of their existence.

The Need for Careful Consideration

It remains to be seen how President Marcos will approach the issue of POGOs, particularly given the sector's harmful impacts and China's opposition to offshore gaming. With the return of Chinese tourists now a real possibility, the Philippines must carefully weigh the costs and benefits of its POGO industry, particularly in light of the negative social and economic consequences it has wrought.

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