Date of publication: 30 August 2013
Maksym Kopeychykov, Partner, Attorney at Law
Source: Dzerkalo Tyzhnia
In May 2009, Ukrainian MPs passed a bill banning all gambling business in the country, from roulette and slot machines to betting. The bill was served under the sauce of caring for vulnerable social groups like students and senior citizens, who, the authors of the bill believe, often gamble their last rent or grocery money. Critics said that the bill addresses the effects of addiction rather than the root cause of it.
Despite the criticism, the bill has been passed by the Parliament and signed into law. Legal gambling business drove into the woodwork, killing some 200,000 jobs. However, illegal gambling facilities continue to flourish. What’s more, the act can not rule out the thirst for thrill and, more importantly, the desire to get rich quick, a prospect that is particularly sweet during the recession. No surprise, therefore, that these days increasingly more Ukrainians are looking for an alternative to casinos and totos. Many succeed, but what comes in the end is as disappointing as it used to be.
A fistful of Hryvnias
In the wake of the Gambling Act, Ukrainian gamblers have faced a dilemma. They are either to play by new rules (which means to stop playing) or look for alternative ways of quenching their thirst for gambling. Many of those who like to make quick buck on nothing hit the web to fill the vacuum – many websites offer an opportunity to make much of your hard-earned savings. This is why many regular gamblers have migrated to online casinos.
Rising demand for betting thrill has attracted Internet scammers and con artists who diddle the victims out of their money, often by resorting to elaborate plots and schemes. There have been an increasing number of auctions and lotteries of all sorts offering an opportunity to win a house or a vehicle for just a few Hryvnias. Some websites deploy Ponzi schemes designed in the fashion of MMM, a fraudulent investing plan deployed by Sergei Mavrodi that was extremely popular in the 90s.
The so called Internet banks are a new type of scam that has been successful in Russia and can take over to Ukrainian Internet. Fiddlers tout the customers to open an account by promising extremely high rates of return.
Why do they get away with it?
One of the «benefits» of engaging in Internet scams is that the victims are reluctant to go to the police. There are a number of reasons why this happens. As the amounts of money that phonies manage to fish out of their victims are often relatively small, many victims prefer to forget about a hundred or two rather that file a complaint. It is not unlikely that people seriously doubt the police would catch the crooks. That is why official police statistics have a small ratio of Internet scams.
It is useful to remember that most of the victims realize the risk of never getting their money back. When betting, any gambling man is in his mind prepared to lose the entire bet. Therefore, it is no surprise that part of the Ukrainians view Internet scams with a grain of salt: what will be, will be, they say.
Another important factor is that con artists and scammers make their victims swallow the gudgeon by allowing them to win a small amount or something of little value. This type of income is never stated on a tax return so many victims of the Internet scammers can be qualified as tax evaders and they know it. So here’s yet another reason why they prefer not to go to the police.
Besides, not everyone can easily admit that he ensnared himself and just gave the money to the conmen. Our fellow citizens would rather say they had lost the money than confess to their families that they swallowed hook, line and sinker and made fools of themselves.
There is a popular belief that Internet scammers can not be caught and prosecuted. However, that is not true. Internet is nothing more than the channel for the scam. Con artists can make use of the papers, magazines and billboards and transit ads as well. Tracing and prosecuting the phonies is not as hard as you could imagine, particularly if the website is registered in Ukraine. Detectives will only need to request the provider for owners’ data and trace it to the promoter of the scheme. The rest is paperwork, and if there is no problem with that, the culprit will be identified.
Another story is that the police are unwilling to investigate Internet scams. The reason is that in most cases the damage is only a few hundred while the costs of tracing and catching the culprits are more than significant. That’s why police officers would by hook or by crook persuade the victims to leave without filing a complaint. Now that the new Criminal Procedure Rules forbids such practices, I can still assume that these complaints are pushed to the end of the waiting list.
Things get more uncomfortable if the phonies act via a website registered outside Ukraine. Since Ukrainian police and National Security Service have no jurisdiction outside the country, any investigation involving foreign-based promoters will require complex procedures under international and intergovernmental treaties. Besides, there is no guarantee that the criminals will be caught.
With regard to the above, some experts suggest that the Penal Code should be amended to include liability for Internet scams. However, this standpoint is at least doubtful since the authors failed to explain the statutory difference between the elements of the crime of an Internet scam and of a «conventional» fraud and why Internet scams are more or less dangerous.
In theory, everyone can become a victim, particularly if the entire affair was meticulously planned. So every man should remember the golden rule: there is no such thing as a free lunch.
Scams are easy with those people who are eager to become reach without paying much effort. Well, the country is full of them now, and where there is demand, there is supply.
Consumer education is the most efficient way of fighting con artists. The government may impose tight control over the Internet in an effort to combat the scammers and even get certain improvements, but such kind of policy is likely to have negative repercussions. Interfering with Internet providers under the guise of protecting citizens can result in total control and restricting the constitutional freedoms of law-abiding Ukrainians, an Orwell’s anti-utopia late for 30 years but as frightening as it could be in 1984.
To prevent involvement in any type of scam, including Internet scams, Ukrainians need to develop a couple of stereotypes. First thing to remember is that there are no «virtual» banks in our country. Any bank or financial institution must be duly incorporated and have a valid license, which can be easily verified on the Internet. Missing certificate of incorporation and license is a serious reason for doubt.
Secondly, it is useful to remember that chances to pay a buck and win a million are virtually nil.
Third thing to consider is that no legitimate business raising money from the public will ever offer interest rates times higher than the average for country’s financial markets.
Importantly, consumer education should extend to the members of credit unions and mutual aid funds (simply said, to the entire nation) rather than focus on prospective gamblers only. These efforts shall cover the most depressed regions in the first place. If followed, this strategy could help avoid the events of March 2013 when a depositor took hostage the stuff of a credit union headquartered in Donetsk and, threatening them with a knife, demanded his money back. As it turned later, the poor guy invested 3.5 thousand to qualify for a 50 thousand loan but never got both.
Notably, there are way more victims of fake credit unions than those who got scammed on the Internet, with the retired prevailing. Amounts lost by depositors are also impressing.
Here is the good news. National Financial Markets Commission have been reported to commence a consumer education program by placing sobering warnings on billboards and streetlights. For a while, the only place I’ve seen them is Kyiv where exposure is less than in the rest of the country.
Being on guard does not help. I am appealing to reason of my fellow citizens: think well before giving your hard-earned money to anybody. Ask yourself a couple of questions: who are you going to deal with, do these people operate legally and what are the guarantees that you can at least get your money back if not make a profit. This good advice is, of course, not for professional gamblers and middle-brow venture capitalists – they have their own reasons, and risk is a significant part of their lives.
And remember – there’s no such thing as a free lunch.