Before Duterte’s POGO, Cagayan had ‘i-Gaming.’ Where did it go wrong?

A report from the United Nations Office on Drugs and Crime links casino syndicates to a company based in CEZA

Ulysis, not his real name, tried to uncuff himself from his bed on the night of June 5. He was trying to escape from the Lucky South 99 POGO — or Philippine offshore gaming operator — where many Chinese like him and other foreigners are trafficked and tortured to work at its scam hub in Porac, Pampanga. For seven hours, Ulysis tried to unshackle himself, but only managed to remove part of the bed frame where his handcuff was connected to. When it was already early morning of June 6, he decided it was time to go.

Ulysis, 36, said he came to the Philippines as a tourist but “it was difficult to come back to China in 2020 [during the pandemic] so I made an online shop here.” According to him, he was in Pasay when he was abducted and taken to Porac where he was extorted for money. When he couldn’t give any, he was forced to work in Lucky South.

“I was there for three days. But in those three days, I didn’t do the operation, the work, the chatting. I was hungry for the two days. They beat me on the first day, and locked me in the room for the next two days,” Ulysis told Rappler through an interpreter.

He walked out of his building in the dark, still attached to his bed frame, and in five minutes got to the compound grounds where an operation was already underway. When operatives saw him, he had a black eye and large bruises on his left arm and across his back.

For the Presidential Anti-Organized Crime Commission (PAOCC), Ulysis’ abduction shows how the criminal activities of shady POGOs are a threat to national security. “There are so many crimes associated with [POGOs] — kidnapping, murder, trafficking. Wherever there is money, gun runs. How many times have we seen shooting incidents in Makati, BGC, if [Filipinos] get caught in the crossfire, does that remain to be a foreign problem?” PAOCC spokesperson Winston Casio told Rappler.

A mutated monster

So when President Ferdinand Marcos Jr. announced a total ban on POGOs, he was trying to slay a monster that has mutated through time. At least according to the former gaming regulation chief, the germ started with Marcos Jr.’s father, the dictator Ferdinand E. Marcos, when the latter legalized gambling and created the Philippine Amusement and Gaming Corporation (Pagcor) in 1977, through Presidential Decree (PD) 1869.

“Nag-regulate lang po si President Ferdinand Marcos noon ng mga casinos (it was only then that President Ferdinand Marcos regulated casinos) because they thought, instead of putting them down, I guess it was a very difficult task, they actually legalized it by creating Pagcor to regulate the gaming industry,” Andrea Domingo, Pagcor chair during the Duterte administration, told a House committee on Wednesday, July 31.

But if you ask the Enriles, who run the Cagayan Economic Zone Authority (CEZA), it was Domingo and Duterte who created the monster.

“Yes, [it was a mistake],” said CEZA chief executive officer Katrina Ponce Enrile when asked during the House hearing whether Duterte’s policy was a mistake. “Such menacing activities…were wrought, not only by the criminal designs of syndicates, but also clearly by failure, if not total breakdown, of regulation,” she added.

The Enriles were at the hearing to defend CEZA, which had online gaming way before the Duterte government created POGOs.

Let’s backtrack.

Pagcor’s charter, which was amended by RA 9487 in 2007, has no mention of offshore gaming. In fact, its provisions always emphasize that Pagcor’s authority is “within the territorial jurisdiction of the Republic of the Philippines.” To this day, there are petitions before the Supreme Court questioning the constitutionality of offshore gaming. One petition, Evangelista vs Pagcor, was dismissed by the Supreme Court in 2023 but on a technicality — that the petitioners had no legal standing to question the legality of POGOs.

Still, Domingo likes to mention that case because in the discussion of the merits, the Supreme Court said POGOs were created “pursuant to Pagcor’s power under Section 8 of P.D. No. 1869 to promulgate rules and regulations relevant to the registration of persons engaged in gambling.”

“Hindi po ako abogado pero tinanong ko po sa mga kasamahan ko, ang sabi po nila (I am not a lawyer but I asked my colleagues and they told me) notably it was a recognition of the Supreme Court that the authority of Pagcor extends to online gaming,” said Domingo.

As pointed out to her by Surigao del Norte 2nd District Representative Robert Ace Barbers, that part was not a ruling of the Supreme Court, because the ruling was to dismiss the petition based on lack of legal standing. In short, the Supreme Court did not make a constitutional ruling of POGOs.

POGOs — referring to the term itself and their regulation — were created first in 2016 when the Domingo-led Pagcor board issued the rules and regulations for POGOs or RR-POGOs. This is what is being contested in the Supreme Court.

But even before 2016, CEZA already had i-Gaming or interactive gaming.

CEZA is a special economic zone, and as such, is allowed more or less to operate outside of the strict trade and immigration laws, provided it still complies with the Constitution. This is why CEZA was able to create, more or less, an offshore gaming system. One of CEZA’s powers is granting visas and permanent residence status to foreigners in its own capacity. Katrina said they issue working visas “in coordination with the Bureau of Immigration.”

The Philippine Economic Zone Authority (PEZA) said it had issued 17,000 visas to foreigners since 2021. Congressional committees have yet to pin down the source of fraudulent visas because fugitives were able to enter and operate within the country using fake passports and visas.

Katrina said CEZA “has been regulating and licensing iGaming for more than 20 years.” In Ceza’s iGaming, there is a master licensor which would set up a a dedicated data center to help ensure that all licensees are regulated. These licensees operate from within CEZA and they would offer their services to offshore gaming operators. These local service providers are called “locators” because they are located within CEZA “where we are able to closely monitor them as well as enforce our rules,” said Katrina.

In 2007, CEZA secured an opinion from the Office of the Government Corporate Counsel (OGCC) that says their service providers can set up shop outside the boundaries of the economic zone. After this, CEZA service providers operated in Metro Manila sky rise buildings. Katrina said all these buildings were registered with PEZA.

CEZA’s i-Gaming, Katrina said, was copied by Pagcor when it instituted POGO in 2016. “But it was a flawed replica,” she added.

Duterte’s EO 13

By February 2017, Duterte issued Executive Order No. 13 or EO 13 which “clarified” online gaming jurisdictions. One of the provisions, under Section 3, was to limit online gaming operations to only the jurisdiction of the authority that issued its license.

This meant that CEZA service providers could no longer work in Metro Manila. They had to go back to Cagayan.

According to Katrina, this meant CEZA could no longer compete with Pagcor, so their licensees preferred to just register with Pagcor. “From CEZA’s 300 interactive gaming support service providers and IG licensees, CEZA was down to approximately 30. Definitely CEZA at that point could not compete because we were strictly abiding by our mandate in our charter,” she said.

“Domingo was supposed to give POGO licenses to just 25 operators. But she eventually expanded it. Obviously, they were already dictating the rules on how offshore gaming was to be operated. With all the iterations and mutations from the original concept, it actually transformed into something else that was not anymore reflective of what was being done within CEZA,” she added.

Is CEZA faultless?

“May I beg — those who have in their minds to destroy CEZA, stop it. There is a purpose for CEZA, until today that purpose is being pursued,” said Juan Ponce Enrile, who authored the CEZA charter as a lawmaker in 1995, and who is now chief presidential legal adviser to Marcos.

CEZA is implicated in the controversy due to reports that there are also shady POGOs in their territory. The CEZA CEO denied this. “Wala pong POGO sa CEZA (there is no POGO in CEZA). Again, there never was and there never will be.”

“For more than 20 years that CEZA has been regulating and licensing iGaming and interactive gaming support service provider, it never had any instances of kidnapping, human trafficking, torture, scams, and murder,” Katrina said.

But according to a 2024 report of the United Nations Office on Drugs and Crime (UNODC), a criminal syndicate is linked through layers of companies to an online casino “which was owned and operated by Suncity Group in the First Cagayan Special Economic Zone in the Philippines.”

The same UNODC document says that another syndicate group based in Kokang, a mountainous area in the border of Myanmar and China, is “licensed to operate under the Cagayan Economic Zone Authority (CEZA) and First Cagayan Leisure and Resort Corporation (FCLRC) in the Philippines.”

First Cagayan Leisure was CEZA’s first-ever master licensor, Katrina herself confirmed to the House committee. But the House hearing did not go very far in exploring the issues surrounding CEZA because many lawmakers passionately moved that the Enriles, and other economic zone representatives, be excused.

Among those who fervently, and successfully, convinced the committee to lay off economic zones at least for that day were Isabela First District Representative Antonio Albano, Abang-Lingkod Representative Joseph Stephen Paduano, and Lanao del Sur 1st District Representative Zia Alonto Adiong.

Rappler has requested the CEZA CEO to comment on the UNODC report though intermediaries. We will update this story once she responds.

Where did it go wrong?

If you ask Katrina Enrile, one of the main problems of Pagcor’s POGO design was that they were issuing sub-licenses. Under Pagcor rules, different licenses are issued to the operator, the agent representing an offshore-based operator, and the service providers. Service providers are those who provide, for example, software for the streaming feature of online gaming.

“POGOs sub-licensing model also allowed these all fly-by-night and scam operators to proliferate as Pagcor is no longer able to track how deep the sub-licenses go,” said Katrina.

“Each POGO has to apply for the accreditation of its service providers to be able to operate. There are five services: customer service, strategic support, IT support, gaming software platform provider, and live studio streaming entities. Pinaghihiwa-hiwalay po talaga namin ‘yan dahil hindi po puwedeng kumuha ng taya ang isa na standalone, kailangan mayroon lahat ng services na ito para makakuha ng taya, at ang integrator ng services na ito ay ‘yung POGO licensee,” said Domingo.

(We really separate them because one cannot take a bet on its own, it needs to have all of these services to be able to take a bet, and the integrator of these services is the POGO licensee.)

It didn’t help that Pagcor’s contractor to vet licensees “was a failure,” as House commitee chairperson Sta. Rosa Representative Dan Fernandez said. The Marcos-time Pagcor scrapped its contract with Global ComRCI in March 2023. By October 2023, due to the many controversies surrounding POGOs, Pagcor chief Alejandro Tengco renamed POGOs as internet gaming licensees or IGLs.

Domingo defended the contractor, saying that during her time, the contractor was able to take down suspicious IP addresses.

The POGO that trafficked Ulysis had, at one point, a Pagcor license, but only for one building. In fact, there are Pagcor personnel inside the Lucky South compound.

The multi-body investigations into POGOs have revealed different problems from different points in the process: consular, immigration, regulation, local government and even law enforcement. There is even frustration over the pace of investigation.

“They hide under all these RAs (Republic Acts), which we created,” said Fernandez. – Rappler.com