Abdulaziz Janturaev

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The legalization of gambling in Uzbekistan has been a topic of intense debate in recent years. The government has made several attempts to regulate the industry, including the brief legalization of betting shops in 2019, which was later reversed. However, a significant turning point occurred in April 2024 with the signing of Presidential Decree, “On Measures to Improve the Regulation of Organizing and Conducting Risk-Based Games and Lotteries.”  This blog post aims to critically analyze the legalization of gambling in Uzbekistan, examining its potential benefits and drawbacks, as well as its implications for the country’s legal system.

The Evolving Legal Landscape

The legalization of gambling in Uzbekistan is governed by Presidential Decree, which was signed in April 2024. The decree allows for the establishment of online gambling and betting, subject to strict regulations and oversight by the National Agency for Prospective Projects (NAPP). The decree empowers the NAPP to issue licenses, monitor compliance, and enforce penalties for violations, ensuring a robust regulatory framework. The decree also imposes various restrictions on gambling activities, such as only individuals who are 18 years of age or older, including both Uzbekistan residents and non-residents, are allowed to participate in licensed lotteries, online gambling, and betting activities. The legalization of gambling activities is expected to generate substantial revenue for the state budget. From January 1, 2025, legal entities engaged in organizing lotteries, online games, or bookmaking activities will be subject to a 4% turnover tax on their total income, after deducting paid winnings and returned bets, individuals’ income from winnings in lotteries, games, and bookmaking bets will be exempt from personal income tax, a move likely to encourage participation and further boost the industry’s growth.

Conflicts with Existing Laws

The legalization of gambling raises several issues with existing laws in Uzbekistan. These laws need to be amended to accommodate the new legal framework for gambling and ensure consistency across the legal system. Some of these include:

  • For instance, Article 983 of the Civil Code states which currently states that gambling-related claims are not protected by courts, presents a significant challenge. In a regulated gambling environment, the absence of legal recourse for disputes could leave individuals vulnerable to fraud, exploitation, and other harms. This lack of protection not only undermines the integrity of the legal system but also raises questions about the state’s commitment to safeguarding its citizens in this new and potentially risky domain.
  • Similarly, Article 191 of the Administrative Code which imposes penalties for illegal gambling, needs revision to differentiate between licensed and unlicensed activities, ensuring that legal operators are not penalized while illegal operations remain punishable.
  • Article 278 of the Criminal Code, similar to the Administrative Code, its provisions on illegal gambling must be updated to reflect the new legal landscape and establish appropriate penalties for violations under the legalized framework.
  • Advertising of gambling and betting games is also strictly regulated under Article 46 of the Law on Advertising, which prohibits the advertising of gambling and other risk-based games, including online games. This law would need to be amended to allow for the advertising of licensed gambling operators, with appropriate restrictions and warnings.

Responsible Gambling

Given the country’s deeply rooted religious and cultural values, the potential for gambling addiction, family breakdown, and financial ruin cannot be ignored. International experience demonstrates that these issues are not merely theoretical; they are tangible risks that can have devastating consequences for individuals, families, and communities. To mitigate these risks, Uzbekistan must proactively implement robust responsible gambling measures, such as:

  • Deposit limits, which limits on the amount of money players can deposit into their accounts within a certain period can help prevent excessive spending and subsequent financial hardship.
  • Mandatory breaks: Requiring players to take breaks after a certain number of hours of play can disrupt the cycle and reduce the risk of developing addiction.

The Hidden Cost of Illegal Gambling

The unregulated nature of online gambling in Uzbekistan has created a shadow economy that siphons millions of dollars from the country each year. While precise figures are elusive due to the clandestine nature of these activities, estimates from 2019 suggest annual losses of approximately $50 million to foreign platforms. This exodus of funds not only deprives the state of potential tax revenue but also hinders the development of a domestic gambling industry that could stimulate economic growth. The lack of legal alternatives pushes Uzbek citizens to offshore platforms, where consumer protections are often minimal, and the risk of fraud and addiction is heightened.  According to preliminary estimates, the state budget will receive about $6 million per year.

International Experience: Lessons for Uzbekistan

Neighboring and developing countries have adopted varying approaches to gambling regulation, offering valuable insights for Uzbekistan.

For example, Kazakhstan. Gambling was initially legalized in Kazakhstan in 2007, with subsequent amendments and restrictions implemented over the years. Recent amendments in 2023 focused on strengthening responsible gambling measures. This included restricting betting to sports events and requiring physical betting shops to be located in designated gambling zones. The government also established a “center for accounting of bets” to monitor online betting operators and totalizators.

While Georgia has a liberalized gambling market with various forms of gambling allowed, recent attempts to legalize sports betting have faced setbacks. Lawmakers failed to reach an agreement on how to allocate the tax revenue generated from sports betting, resulting in the legislation not being passed. This highlights the importance of considering not only the economic benefits of legalizing different forms of gambling but also the social and political implications, including how the revenue will be used.

Turkey has taken a largely restrictive approach to gambling, with most forms being prohibited since the late 1990s. While land-based casinos were banned in 1998, online gambling followed suit in 2007. The only exceptions are state-run lotteries and sports betting through IDDAA, the sole entity authorized to offer online gambling services.

International Organizations’ Guidelines and Recommendations

To establish a credible and sustainable gambling industry, Uzbekistan must navigate a complex landscape of international legal considerations. Aligning with the Financial Action Task Force (FATF) recommendations on anti-money laundering and counter-terrorist financing is paramount, requiring robust measures such as customer due diligence, suspicious transaction reporting, and ongoing monitoring. Furthermore, adhering to international data protection and privacy standards, like the GDPR, is crucial for safeguarding player information and fostering trust. Integrating responsible gambling measures, including self-exclusion programs and deposit limits, demonstrates a commitment to player well-being and aligns with global best practices. Finally, active international cooperation with other jurisdictions and relevant organizations is essential for addressing cross-border challenges like money laundering and fraud, ensuring a secure and reputable gambling sector in Uzbekistan.

World Health Organization (WHO) recognizes gambling disorder as a mental health condition listed in the International Classification of Diseases (ICD-11).  The WHO’s recognition further reinforces the legal and ethical imperative for Uzbekistan to establish robust responsible gambling measures as an integral part of its gambling legalization framework.

United Nations Office on Drugs and Crime (UNODC) has highlighted the vulnerabilities of the gambling industry to money laundering and other financial crimes. Uzbekistan, as a signatory to the UN Convention against Transnational Organized Crime, has a legal obligation to implement the UNODC’s recommendations on combating money laundering in the gambling sector. These include,

  • Conducting thorough checks to verify the identity of customers and assess their risk profile, particularly for high-value transactions or politically exposed persons.
  • Establishing systems for identifying and reporting suspicious transactions that could indicate money laundering or terrorist financing activities.
  • Maintaining detailed records of customer transactions and interactions for a specified period to aid in investigations and ensure transparency.

The Role of Technology in Enhancing Transparency and Security

The integration of advanced technologies, such as blockchain and artificial intelligence (AI), can significantly enhance the transparency, security, and fairness of Uzbekistan’s upcoming gambling industry. According to a report by the World Economic Forum, blockchain technology can reduce fraud by up to 30% and increase transparency in various industries, including gambling. By leveraging blockchain’s decentralized and immutable ledger, Uzbekistan can ensure the integrity of transactions, prevent fraud, and foster trust among players and operators. Smart contracts powered by blockchain can automate payouts, reduce operational costs, and minimize disputes.

Moreover, AI can play a crucial role in promoting responsible gambling practices and preventing financial crimes. A study by the University of London found that AI algorithms can detect problem gambling behaviors with an accuracy of up to 87%. By analyzing player behavior patterns, AI can help identify and intervene in cases of problem gambling, ensuring a safer environment for players. Furthermore, AI can assist in detecting and preventing money laundering attempts. According to a report by the United Nations Office on Drugs and Crime (UNODC), the global annual cost of money laundering is estimated to be between $800 billion and $2 trillion. Implementing AI-powered algorithms can help Uzbekistan’s gambling industry comply with international anti-money laundering regulations, such as those set by the Financial Action Task Force (FATF).

Conclusion

The legalization of gambling in Uzbekistan presents both opportunities and challenges. To ensure a successful transition, policymakers must address conflicts with existing laws, draw lessons from international experiences, and comply with guidelines from organizations. A comprehensive reform process that balances economic benefits with social responsibility and player protection is crucial. Uzbekistan must approach this process critically and inclusively to establish a well-regulated gambling industry that contributes to its socio-economic development while prioritizing the well-being of its citizens. Ongoing monitoring and evaluation will be essential to ensure the effectiveness of the regulatory framework and its responsiveness to emerging challenges.

Cite as:  Abdulaziz Janturaev, “The Legalization of Gambling in Uzbekistan: A Critical Analysis”, Uzbekistan Law Blog, 25.07.2024.