THE REGULATORY REGIME GOVERNING THE CASINO INDUSTRY IN KENYA: A NEED FOR REFORMS A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DEGREE OF MASTER OF LAWS (LL.M) OF UNIVERSITY OF NAIROBI BY MBASI FREDRICK MUTUKU REGISTRATION NUMBER: G62/72051/2008 SUPERVISOR: YASH VYAS JULY 2013 DECLARATION I, MBASI FREDRICK MUTUKU, do hereby declare that this is my original work, and that the same has not been sub mitted for the award of a degree in any other university. Signed …………………………………… Date …………………………… MBASI FREDRICK MUTUKU This thesis has been submitted for examination with my approval as University Supervisor Signed ……………………… Date ……………………………… MR YASH VYAS i DEDICATION To my wife Muthina and my daughter Grace Mbithe for their inspiration and support. ii ACKNOWLEDGEMENT First, I acknowledge the guidance and support I received from my supervisor Yash Vyas who dedicated a lot of time, effort and knowledge to enable the success of this study. Secondly, I wish to acknowledge my family, friends, lecturers and classmates at the Law School for their support and encouragement. iii ACRONYMNS BBBEE BROAD –BASED BLACK ECONOMIC EMPOWERMENT FATF FINANCIAL ACTION TASK FORCE FRC FINANCIAL REPORTING CENTRE G7 GROUP OF SEVEN HDI’s HISTORICALLY DISADVANTAGED INDIVIDUALS KBS KENYA BUREAU OF STANDARDS MGEI’S MEGA GAMING ENTERPRISES MICS MINIMUM INTERNAL CONTROL STANDARDS NGB NATIONAL GAMING BOARD PGRA’S SMALL MEDIUM AND MICRO ENTERPRISES DEVELOPMENT TBVC TRANSKEI, BOPHUTHASWANA, VENDA AND CISKEI UK UNITED KINGDOM UN UNITED NATIONS USA UNITED STATES OF AMERICA VAT VALUE ADDED TAX iv DEFINITIONS AND TERMS Betting This is another term for wagering. It is staking something (usually money) on the outcome of a contest or any uncertain event or matter. The principal forms of betting include racing and sports betting. Casino It is an arrangement or building whereby people are given an opportunity to participate in one or more casino games. In many jurisdictions the arrangement is defined as a gaming premise. Gambling This is staking money on uncertain events driven by chance. The major forms of gambling are betting (racing and sports), gaming (casinos, gaming machines) and lotteries. Gaming This encompasses all games of chance played in casinos. The term excludes betting and lotteries. Gaming Device It is any device manufactured with the intention of being used for gaming purposes. These include amongst many others gaming machines, monitoring and control systems, data control units and software. Gaming Machines These are electronic or electromechanical devices or machines for playing a game of chance, being a game which requires no action by a player other than the actuation or manipulation of the machine. These are popularly known as slot machines. They come in two main types, where the player makes no strategic decisions after starting the game, and where the player can make strategic decisions such as in draw card poker machines. v Lottery This is a scheme where a person is required to participate in the arrangement where one or more prizes are allocated to one or more of the participants through a series of processes which wholly relies on chance. Odds The average chances of winning in a game. Pathological The term is used in the United States to refer to persons Gamblers thought to be suffering from a psychiatric condition due to gaming. The term is related to problem gambling below. Problem Gambling This refers to a condition where gamblers are unable to control their gambling habits. Regulatory reform Refers to changes geared towards improving the quality of a regulatory framework to enhance its effectiveness. This can be done through revision, repealing or amending a particular law. Stake This is the total monetary value of all bets or wagers put at risk to play a single game. Wagering This is another term for betting. vi ABSTRACT In the last two decades, the global Casino gaming has expanded in a manner never envisaged. The demand to supply games of chance has proved insatiable in all gaming jurisdictions. The expansion has led into globalization of the industry whose growth has generated billions of revenue for governments while millions have been exposed to its negative consequences. With this exponential growth, there exists a dilemma on whether the current gaming regulatory regimes are effective. In addressing this impasse, different gaming jurisdictions have embarked on a periodic and continuous assessment of the effectiveness of their gaming orders. Regulators further appear to often question and test their frameworks to ensure they achieve their policies for regulating the industry. Where gaming laws are established to and are seemingly inoperative, obsolete and wanting, regulatory actions have been recommended or undertaken. These actions involve both selective and direct overhaul of existing regulatory statutes. The global regulation of Casino gaming has been based on three different regulatory regimes as exists in the United Kingdom, and those of the States of Nevada and New Jersey in the United States of America. Aspects borrowed from these gaming legislations are found in almost all gaming jurisdictions. In Kenya, the Betting Lotteries and Gaming Act, Chapter 131 Laws of Kenya, served the Country well until the early 1990’s when the number of Casinos grew. The reasons for the exponential growth has been associated with, a weak and obsolete legislation, the perceived economic size of the industry, lack of a clear gaming policy and political interference of the operations of the regulatory Board amongst other reasons. vii TABLE OF CONTENTS DECLARATION ................................................................................................................... i DEDICATION ...................................................................................................................... ii ACKNOWLEDGEMENT .................................................................................................... iii ACRONYMNS .................................................................................................................... iv DEFINITIONS AND TERMS .............................................................................................. v ABSTRACT…… ................................................................................................................ vii TABLE OF CONTENTS ................................................................................................... viii LIST OF CASES................................................................................................................... x LIST OF STATUTES .......................................................................................................... xi INTRODUCTION ................................................................................................................ 1 CHAPTER ONE………………………………………………………………………..……3 GENERAL OVERVIEW ...................................................................................................... 3 1.0 BACKGROUND OF THE STUDY ........................................................................... 3 1.1 STATEMENT OF THE PROBLEM ........................................................................ 12 1.2 JUSTIFICATION OF THE STUDY ........................................................................ 13 1.3 THE CONCEPTUAL FRAMEWORK .................................................................... 14 1.4 OBJECTIVES OF THE STUDY ............................................................................. 15 1.5 HYPOTHESES ...................................................................................................... 16 1.6 LITERATURE REVIEW ....................................................................................... 18 1.7 RESEARCH METHODOLOGY .......................................................................... 26 1.8 SCOPE AND LIMITATIONS OF THE RESEARCH ............................................. 27 1.9 CHAPTER BREAKDOWN .................................................................................. 28 CHAPTER TWO……………………………………………………………………………30 2.0 THE LEGAL FRAMEWORK REGULATING THE CASINO INDUSTRY IN KENYA ..................................................................................................................... 30 2.1 ASPECTS OF CASINO GAMBLING WHICH OUGHT TO BE REGULATED ..... 30 2.2 THE CONSTITUTION ............................................................................................ 31 2.3 THE BETTING, LOTTERIES AND GAMING ACT, CHAPTER 131 ..................... 33 2.4 STANDARDS ACT CHAPTER 496 ....................................................................... 33 2.5 THE PROCEEDS OF CRIME AND ANTI-MONEY LAUNDERING .................... 36 2.6 THE CONTRACT ACT CHAPTER 23 ................................................................... 41 2.7 COMMMON LAW ................................................................................................. 42 CHAPTER THREE………………………………………………………………………...46 3.0: THE GROWTH AND REGULATION OF THE INDUSTRY IN KENYA ............ 46 3.1: THE OBJECTIVES OF LEGALIZING THE CASINO INDUSRTY ....................... 46 viii 3.2: TRACING THE STEPS: ACTUALIZING THE OPERATION OF CASINOS IN KENYA……………………………………………………………………………….50 3.3: REASONS BEHIND THE PROLIFERATION OF CASINOS IN THE 90's………...52 3.4 THE CONSEQUENCES OF THE EXPONENTIAL GROWTH TO THE EXISTING REGULATORY REGIME ...................................................................................... 60