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Report On Business Magazine Sorry Rob Ford, but there’s little upside to building a casino

If Toronto Mayor Rob Ford has not figured out that casinos and crime often go together, Hollywood certainly has. When is the last time you saw a casino in a film that did not provide the backdrop for truly atrocious (if sometimes glam) behaviour? Take Daniel Craig as James Bond in Casino Royale. Le Chiffre, the villain with the bleeding eye, wants to raise $115 million (U.S.) for his terrorist money-laundering operation in a high-stakes poker game. But Bond, of course, wins the pot.

Casinos are almost everywhere on the planet, multiplying like Viagra-popping rabbits. Macau, the former Portuguese colony just off the Chinese mainland, long ago displaced Las Vegas as the world's top gambling centre. Last year, Macau's gross gambling revenues were $38 billion (U.S.). Casinos breed casinos—local governments cannot stand to be without one if the government next door has licensed one—and Canada has been no slouch in the game. At last count, Canada had 68 casinos. There are 13 in Ontario, including four big "resort" casinos—one in Windsor, two in Niagara Falls and one northeast of Orillia. The four are owned by the Ontario Lottery and Gaming Corp. (OLG) and run by private operators.

Ford has been dreaming of a monster development in downtown Toronto. Even though city council voted no to a downtown casino, Ford has vowed to make it an election issue next year.

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As usual with politicians and developers who covet megaprojects, the benefits are wildly exaggerated and risks wildly downplayed. Ford gets teary-eyed with joy, and says a casino will deliver up to $150 million a year in municipal revenue and 10,000 good-paying jobs, plus lure in armies of tourists and business visitors. The downside? Well, none, really, according to cheerleader politicians—perhaps a small increase in petty crime, or maybe some traffic congestion. So what's not to like?

A lot, as it turns out. Casinos can turn into financial black holes and, worse, they can be magnets for money laundering. Mobster and casino magnate Meyer Lansky (1902-1983) said the house always wins: "The winners are those who control the game.…All the rest are suckers."

Were Lansky alive today, he might say the suckers are Ontario's casinos, not their patrons. The 2010 provincial Auditor General's report found that the four big resort casinos began losing money in 2006-07, as American patrons grew scarce, and have been under water since then. Which begs the question: Wouldn't an enormous casino in Toronto just make things worse by cannibalizing the others?

Conveniently left out of most cost-benefit analyses of any casino are the additional indirect costs for the taxpayer. Since casinos are more convenient—and fun—than banks for money laundering, they have to be monitored closely by the police and, depending on the jurisdiction, perhaps a dozen agencies, ranging from Interpol and immigration authorities to domestic security and financial intelligence units. In Canada, the money laundering and terrorism financing watchdog is the Financial Transactions and Reports Analysis Centre of Canada.

Let's do some math. Fintrac's rather alarming 2009 report on casinos, "Money Laundering and Terrorist Financing Typologies and Trends in Canadian Casinos," said that more than 100 suspicious financial transactions were conducted at casinos that year, "mostly related to suspected drug offences and also to suspected fraud, organized crime activities and terrorist financing." In 2003, Julian Fantino, then Toronto's police chief, now a Conservative MP, estimated the cost of a money laundering investigation (excluding court costs) at $200,000. This suggests that the cost of investigations, based on Fintrac's 100 cases figure, is $20 million a year.

Henry Lotin, an economist, retired Canadian diplomat and former delegate to the Organization for Security and Co-operation in Europe, has studied casinos for years and thinks the true cost would be much higher. If Ontario were to build three new casinos, the combined federal, provincial and local policing, enforcement, reporting and other costs could approach $500 million a year, he says.

Yet you won't hear pro-casino politicians talk about criminal money laundering, even though police and financial regulators do. You certainly will not hear Ford or other boosters talk about Mohamed Harkat, an Algerian who arrived in Canada in 1995 and was arrested on a security certificate (allowing the detention and deportation of foreigners suspected of terrorism) in 2002. It was alleged that he had links to Islamic extremists, including the Bin Laden group. Casinos were a regular part of his life. According to court documents, he gambled and lost more than $100,000 in the Lac-Leamy and Montreal casinos.

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The economic and social case for casinos anywhere was always dubious. Toronto is building its reputation as an upmarket cultural destination that is also brimming with restaurants and sports. Besides making no financial sense, a monster casino would deliver a reputational hit to Canada's premier city.

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