Online Gaming Leader Clashes With Ukrainian Government Over War-Time Regulation Using Corruption Rhetoric

The Ukrainian government issued a regulation of online gambling aiming to protect serving military personnel from negative impact and overwhelming spendings. This also limits advertising and other promo activities, encouraging Ukrainians to spend assets on gambling. One of the largest players on the market launched a massive information campaign involving lobbyists and shell investment schemes to compromise government decisions.

According to Opendatabot, ten major online gambling companies significantly increased their assets in 2023. Cosmolot and Favbet showed massive success owing to a large portion of their annual turnover of UAH 12-15 billion (USD 300 M—375 M). Ukrainians spend UAH 400M daily on online gambling, and a significant number of serving soldiers do so. This fact initiated multi-level discussions in Ukrainian society that lasted for years and resulted in the new regulation signed by President Zelensky in April 2024.

However, some gambling market players refused to accept the loss of profits and initiated a massive media campaign to defend their business. Thus, one of the Cosmolot online casino investors, Arnulf Damerau, accused Ukraine and Zelenskiy’s administration of corruption, pressure on business and obstruction of work. However, the business Cosmolot is not so squeaky clean, and the mister Arnulf Damerau himself is not the investor he portrays himself to be.

Western Cover

The Cosmolot case should not be considered starting from January, when Arnulf Damerau made a post on his Facebook page, nor even from October 2023, when the Security Service of Ukraine visited the company’s office, but from the summer of 2023, when Mr Damerau was invited to become the company’s face.

Quite often, dubious businesses use celebrities or simply prestigious people, mostly from the US or Europe, to make them the face of their business in third countries. The scheme is fairly simple: if your ‘main’ investor is a representative of Western business, then your company will have fewer questions from the regulatory authorities, and its operations will seem more trustworthy. Additionally, such a cover will help conceal the real owners and beneficiaries, especially if they are Russians, as Russian citizenship has become highly unpopular since 2022.

The publication states that Arnulf Damerau is the main investor, and the business is supervised by UK and US investors. But it’s not. Firstly, Cosmolot doesn’t have other Western investors except for Damerau, and the beneficiaries of SPACEIKS LLC, which owns the rights to one of the Cosmolot trademarks, are Damerau himself and Ukrainian investor Serhii Potapov.

Secondly, Arnulf Damerau became a Cosmolot investor in the Summer of 2023, with a specified share of 49%. According to public data and EBIDTA calculations, Cosmolot is worth around 2.5 billion dollars. All Damerau assets, with the Euroatlantic group as the main one, cost approximately 1 billion euros.

So, even selling all assets wouldn’t allow Damerau to raise the amount needed to acquire 49% of a company, costing approximately 1.225 billion. And Damerau didn’t sell his assets in either Euroatlantic Group or LVS Hotels & Resorts S in 2023. (If these are indeed Damerau’s assets, as there’s no official confirmation, only publications in Ukrainian media released simultaneously.)

The thing is that even before 2023, online casino Cosmolot owners were aware that questions would arise about their business due to a number of significant factors, such as tax dodging and ties to Russia. That’s why they invited Arnulf Damerau to create the illusion of “Western roots.”

Ties With Russia?

As the publication states, Mr Damerau is a “Western” and “English-German” investor, and those titles are especially emphasized. So, there’s no way he has ties with Russia. Except for the fact that his father and grandfather were born in the Kaliningrad region, Russian territory, which he himself emphasized in an interview with a Russian journalist during a forum dedicated to the 2018 FIFA World Cup in Russia. And the fact that Arnulf Damerau’s work with Russian authorities contributed to Kaliningrad becoming one of the cities that hosted the championship.

In this case, Cosmolot has no ties with Russia apart from connections with Lucky Labs and Serhii Tokarev, a citizen of the Russian Federation and a sanctioned person in Ukraine from 2017 to 2020.

Lucky Labs, a company founded by two Russians, has close and diverse cooperation with Cosmolot, ranging from employee to traffic exchange between online projects. Additionally, 30% of TM Cosmolot was owned by the Seychelles-based “LAKI489 LTD”. Quite an interesting coincidence regarding the names, isn’t it?

Nevertheless, such connections do not prevent Damerau and Cosmolot from considering themselves patriotic and beneficial Ukrainian businesses during the war. They claim they are “big taxpayers”, contributing $63 million and sponsors of the Armed Forces of Ukraine, to which Cosmolot donated $3 million, representing either 5% of tax payments or 0.8% of the company’s profit.

Cheap Indulgence or Good Investment?

Therefore, having donated $3 million over two years of war, Cosmolot gained the opportunity to use it for promotion, attracting a growing audience, including militaries. The company began using the symbols of the Armed Forces of Ukraine and advertising its donations where traditional casino advertising is prohibited by law, thereby reaching new platforms.

The negative impact of such unrestricted online casinos on society, particularly on the military, is fully illustrated by the situation involving the appeal of military serviceman Pavlo Petrychenko, who submitted a petition to the President of Ukraine requesting the restriction of gambling in Ukraine and its prohibition within the army.

“Gaming businesses take advantage of this vulnerability by deliberately targeting military personnel, using symbols of the Armed Forces in online casinos, and whitewashing their activities with small charitable donations to the Armed Forces,” the petition states. “It is not uncommon for game-addicted servicemen to spend all their money on games and take out microloans, thus putting themselves and their families in debt, or to pawn drones and thermal imagers, thus harming not only themselves but also their fellow soldiers.”

The petition garnered the necessary number of signatures in record time, and on the same day, Volodymyr Zelensky responded to it. On April 20th, he signed a decree limiting the activities of online casinos and gambling, which will significantly restrict the operations of online casinos in Ukraine. Unfortunately, the petition’s author did not live to see its implementation. Pavlo Petrychenko was killed in action on the front lines while performing a combat mission on April 15, 2024.

The new restrictions aim to limit gambling operations, set limits on user spending, and restrict the time of use of services. Of course, this will reduce Cosmolot’s profits and also decrease the taxes the company pays to the Ukrainian budget.

Pays?

The most exciting part now.

The Security Service of Ukraine raided Cosmolot company in October, but it was not related to accusations of ties with Russia or an attempt to seize the business. The Security Service’s interest was due to non-payment and tax evasion, which Damerau forgot to mention in his Facebook post on January 30. The Economic Security Bureau of Ukraine accuses Cosmolot of violating gambling laws and evading taxes of 560 million euros. This led to freezing the company’s bank accounts, which Damerau calls illegal pressure.

The tax evasion scheme is quite simple: Cosmolot categorizes payouts as “funds return,” which are not taxable. “The mentioned payouts were reflected not as winnings, but as the return of funds, i.e., deposits, to individuals allegedly not used during participation in gambling,” the bureau’s statement says.

Playing With Fire

In his post of January 30, Arnulf Damerau notes that “As soon as it is confirmed that in these actions real representatives of the state authorities take part,” he will provide the evidence and additional information about who and what organized the illegal pressure on Cosmolot. Then, Damerau organized the Financial Titles article, published on April 17, but it has no evidence or names. None.

The FT publication contains only Damerau’s accusations towards Zelensky’s team, which were not mentioned in the post from January 30th. Overall, the FT article is not dedicated to Cosmolot at all. The concern of Western partners about corruption in Ukraine, as well as the times of Yanukovych mentioned as an example of corruption, are the main focuses of it. Familiar narratives. And these narratives appeared immediately after Mike Johnson’s statement on April 16, where he agreed to put aid packages for Ukraine, Taiwan, and Israel to a vote. Damerau chose a good time to exert additional pressure on the Ukrainian government ahead of the vote, but it did not work.

It’s worth mentioning that Financial Times’ material was also translated by Ukrainian media NV.ua.

The publication was edited almost immediately, adding the following information: “After the publication, Arnulf Damerau contacted the editorial office of NV. He clarified that he accused employees of Ukrainian special services, not the Office of the President of Ukraine.” A similar change in the Financial Times publication did not occur; there, Zelensky’s office remains the main accused, which once again highlights the primary purpose of the material.