Japan’s Upper House Enacts Casino Legalization Bill, Yakuza Eye Opportunity

On Friday, July 20, the upper house of the Japanese Diet passed legislation that allows up to three casino resorts to be built in the country. The IR Implementation bill had already passed the lower house of the law-making body on Tuesday, June 19, so the bill is now official law.

About the Resorts

The integrated resorts envisioned by the bill will house more than just casinos. Indeed, gaming floors are expected to comprise just a small fraction of the total square footage of these facilities. The rest would be occupied by conference centers, hotels, restaurants and other amenities.

The purpose of these gambling centers is to cater to international tourists rather than to the domestic Japanese market. In fact, locals who wish to bet will have to pay ¥6,000 (about $55) for a daily entrance pass, and they are restricted to no more than three visits per week and 10 per month. Neither of these rules applies to foreigners.

The casinos are expected to generate revenue eventually approaching or exceeding $20 billion annually, allowing Japan to rival Macau as a locus of Asian casino gambling. Owners will have to pay 30 percent of their gaming revenue to the national and local authorities.

Background

Most forms of gambling are against the law in Japan. Exceptions include state-run wagering on a few clearly defined sports events, municipal lotteries and pachinko. Actually, pachinko is a bit of a gray area because management uses a convoluted system involving the exchange of metal balls, stuffed animals, and cash so that at no point is a customer risking his or her own funds directly for the opportunity to win real money. Other types of gaming, like Mahjong parlors, can be found, but they’re against the law. The organized criminal groups known as Yakuza are active in this scene.

In 2016, the legislature passed a law that eased the blanket prohibition on land-based casinos. However, that bill was just a preliminary step requiring further authorization to be provided before any casinos could be licensed. This authorization comes in the form of the recently passed IR Implementation bill, which was a major initiative of Prime Minister Shinzo Abe’s government.

Opposition

The move to legitimize casino gaming has not proven popular among the Japanese as a whole. A March poll by Kyodo News revealed that just 27 percent of respondents were in favor of the establishment of casinos in the country while 65 percent were opposed. A lot of ordinary citizens are concerned about a possible increase in problem gaming. Perhaps in order to address these concerns, Abe’s party succeeding in passing a Basic Bill on Gambling Addiction Countermeasures on July 6. Nevertheless, significant opposition within the Diet remained.

Politicians who were against the IR Implementation bill engaged in a variety of legislative tactics to halt its progress. For instance, the leader of the Constitutional Democratic Party, Yukio Edano, gave a last-minute filibuster that lasted two hours and 43 minutes. Despite such stalling strategies, Abe’s ruling Liberal Democratic Party along with coalition partner Komeito had enough votes to get the bill through the contentious parliamentary gauntlet.

Next Steps

There are still plenty of details to iron out before we actually see casinos open their doors. The IR Implementation Bill contains language dealing with how much space the casinos can occupy and certain rules governing their operation, but 331 aspects of the regulatory framework are left up to the discretion of the executive branch. Therefore, these matters will have to be clarified before any gaming establishments could operate.

Then there are the licensing procedures to get through, and there’s no telling exactly how long this might take. The consensus among outside observers is that we may have to wait till 2020 for the first organizations to obtain licenses, and casinos will open for business perhaps in 2025.

Foreign Investors Excited

Because Japan lacks a traditional casino industry, outside firms are looking to jump into the mix. The foreign companies that have expressed interest in building resorts in Japan include MGM Resorts, Macau-based Melco, Wynn Resorts, and Caesars Entertainment.

It has not yet been determined where these casinos will be located because cities will have to vie for approval just as operators will. Osaka, Yokohama, Nagasaki, and the northern island Hokkaido are early contenders. Because there are only three licenses to go around, competition for them among both cities and gambling businesses is expected to be fierce.

Yakuza Pleased?

The Yakuza have been a feature of Japanese society since the 17th century, with the criminal enterprise containing more than 100,000 members,  many of whom sport full bodysuits of tattoos reflecting their art and culture.

The yakuza criminal syndicates might be expected to oppose the IR Implementation Bill because legalized gambling would cut into the profits of their underground gaming halls. On the other hand, they have considerable experience in running gambling businesses and are heavily invested in the worlds of construction and real estate, so the appearance of huge casino resorts gives them a number of opportunities to get involved.

The yakuza are experts at hiding the true ownership structures of their business units behind a shadowy maze of middle men, paid-off insiders and shell corporations. This makes it all but impossible for the legal authorities to prevent them from investing in casinos or any other kind of enterprise for that matter.

Besides just taking ownership stakes in the companies that will be building and managing the casinos, the yakuza expects to be able to make money in less savory ways too. They might extend black-market loans, at exorbitant rates of interest, to hopeful gamblers. They could also conduct ID fraud to help Japanese residents get around the cumbersome restrictions on the frequency with which they can visit casinos. As one member of the Yamaguchi-gumi yakuza gang, the biggest of the yakuza families, put it in an interview with The Asahi Shimbun:

“Once rules are decided on how to place restrictions on organized crime, we can begin thinking about ways to get around those legal barriers.”