Foreign investment into casino-resorts in Korea

Such legal reforms and proactive tourism policies have spurred interest from foreign investors and developers looking to profit from other investment incentives which may be available to them in free economic zones. Recent activities show that legal practice regarding casino-resort development will become a growing area of practice in Korea and Asia as foreign multi-nationals and institutional investors continuously invest into such development projects.

Prohibition on gambling and casino operations
In Korea, gambling activities are highly off-limits to its citizens under the Criminal Act. Current laws prohibit the operation of facilities which conduct gambling activities for profit and violators can be subject to up to three (3) years imprisonment. However, the government has allowed some gambling activities to be operated under very restricted circumstances. There are 17 legally operated casinos in Korea and only one, Kangwon Land, is open to Korean citizens. However, these strict regulations may be subject to reform as a reaction to increasing pressure from foreign investors and Korea’s booming tourism industry.

Legal Incentives for Foreign Investors
The Tourism and Promotion Act permits certain hotels to operate foreigner-only casinos, where only foreign nationals are allowed to enter. Foreign companies are allowed under current laws to invest in casinos and develop casino-resorts. Presently, casinos for foreigners are actively in operation in Seoul, Incheon and Jeju under the supervision of the Ministry of Culture and Tourism.

Recently, the Korean government has allowed foreign gaming and hotel companies to bid for development projects and casino licenses via an open bidding process. In March 2014, the Korean government approved its first foreign casino operator by granted a preliminary casino license to LOCZ Korea, a joint venture between Las-Vegas based Caesars Entertainment Corp. and Hong Kong developer Lippo Ltd for a project to build a casino resort on Yeongjongdo Island which is part of the Incheon Free Economic Zone. The LOCZ project has been valued to be worth as much as US$2.2 billion, with LOCZ announcing that it plans to spend as much as US$730 million before 2018.

Most foreign investors have set up operations in Korea in the form of joint ventures. Other than LOCZ Korea, joint ventures include those between Genting Singapore PLC. and Landing International Development Ltd. for a development project in Jeju reported to be worth over US$2 billion and Sega Sammy Holdings Inc. and Paradise Co. for a casino-hotel in Incheon worth over US$1.7 billion.

Pursuant to the Tourism Promotion Act, when a casino operation license becomes available, an announcement will be made by the Ministry of Culture, Sports and Tourism. Foreign companies looking to apply for a license will then submit their application in response to such an announcement along with supporting materials such as:
• the completed official application form;
• a detailed investment proposal which includes the committed investors and origin of funds;
• an operation plan for the proposed casino-resort; and
• a detailed development plan for the resort which verifies that the facilities and construction will conform to applicable legal standards.

Furthermore, a foreign investor must commit a minimum amount of US$500 million into the proposed development project in order to qualify for a casino operator license.

Ministry officials will take into account certain factors such as the financial stability of the applicant, the amount of employment and business generated by the development project and the number of tourists the proposed development project will attract to Korea. In certain territories, applicants may be subject to a pre-screening process. Additionally, even after the applicable licenses and permits are granted for a casino-resort development project, any violations of Korean law may be subject to a criminal fine or imprisonment.

Considering the large amount of resources and time which are involved in developing these casino resorts, it remains to be seen what sort of regulatory measures or incentives may be additionally given by the government with respect issues such as construction, labor, foreign exchange, tax, zoning, immigration and other matters which will appear within the next few years.