THE COST OF COSTA RICA
Are the negatives beginning to outweigh the positives?

by gary ilines

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There is currently an ongoing debate amongst online gambling players and providers as to the relative favorability of Costa Rica as an online gambling jurisdiction. Unquestionably, Costa Rica is currently the the major center of online gambling outlets because of its traditionally favorable conditions - in particular the low license fee and loose regulations - but those conditions are gradually changing and the balance is slowly dipping in favor of alternative locations, most notably the gambling jurisdiction of Panama.

It has been argued by some that, as a base for online casinos, Costa Rica has become the victim of its own success. Because of the high concentration there of online gambling websites, the country has naturally enough been the origin of an equally high concentration of scams and scandals. However unfairly, this has given Costa Rica a bad reputation in the minds of a large segment of a well-educated online gambling market who know their origins. There is also suggestion that this poor reputation may not be merely statistical. The ease and cheapness of setting up has also helped to make the Costa Rican online gambling industry a hotbed of mediocrity.

Furthermore, the success of Costa Rica has put the country right in the front line of the well-documented Bush administration's war on online gambling, and US pressure has been asserted on the Costa Rican government with significant results, such as increased taxation and a steady creeping of greater regulation. In February 2003, for example, one week after Costa Rica imposed a new tax law geared at improving the image of the country's I-gaming industry, one of the national banks cut off 40 accounts belonging to online gaming companies. It is now impossible for new gambling businesses to open banks accounts or conduct banking within Costa Rica. Even Bodog, the leading I-gaming company in Costa Rica, by the admission of their CEO Calvin Ayre, conducts all of their banking in Europe.

This is quite a contrast to the constitutional democratic republic of Panama, the most important financial center in Central America, which has an impressive history of international banking and services jurisdiction geared in particular to the expatriate and offshore investor. With its absence of a military and central bank, free circulation of US capital, free use of the US dollar as legal tender and zero tax, Panama has been described as a virtual country which makes it ideal for the online gambling industry. There are no double tax treaties that can be used for commercial activities and no VAT is levied on goods or services exported from the Republic of Panama. The gambling industry is furthermore subject to special tax exemptions on imported products for the gaming industry. With it's US standard infrastructure, Panama is at least a generation ahead of Costa Rica in development of technology.

The changing fortunes of the gambling entrepreneur in Costa Rica has also coincided with a change in fortunes for the Costa Rican economy as a whole. The Central American nation's Fitch Ratings have recently gone from "stable" to "negative" amid falling foreign exchange reserves, rising external debt, a growth plummet from over 8% to 1.7%, and lower commodity prices exposing the vunerability of Costa Rica's export base. The consequent tax reform currently being implemented has affected the gambling industy as much as any other economic sector.

It may not be time to pull out of Costa Rica, but for new entrepreneurs entering the industry the alternatives to Costa Rica are looking increasingly tempting. Bodog certainly are staying put in Costa Rica - but that is because it would cost them a predicted several million dollars to relocate. If it wasn't for the cost of moving, however, perhaps they would soon be on their way to Panama too.