Gambling watchdog's 'scary' link to Greek firm

The Department of Internal Affairs entered into a contract with a firm to run a gambling monitoring system despite concerns about corruption and bribery allegations engulfing the Greek chairman of its parent company.

Documents obtained by the Sunday Star-Times under the Official Information Act reveal the department sought advice on whether it could terminate its contract with Intralot NZ if the chairman of its parent company, Socrates Kokkalis, was ever convicted. The answer was no.

Kokkalis was subsequently cleared of the allegations and has not been convicted of any crime.

The department went on to sign a $35m contract with Intralot to build an electronic monitoring system (EMS) for New Zealand's gaming machines.

Despite Kokkalis' name continuing to crop up in corruption reports in Europe, Internal Affairs later awarded Intralot a contract to build and maintain an Integrated Gambling Platform (IGP) to administer and enforce all casino and non-casino gambling regulation - without doing any further probity checks. New Zealand is the only place in the world where Intralot is involved in the regulation of the gambling industry. The department has spent $6.6m on the IGP so far.

Internal Affairs confirmed to the Star-Times the IGP contains private information, including police and credit agency checks, on more than 16,000 people involved in the gaming industry, and Intralot staff in Greece have access to it. The Community Gaming Association described that as "scary".

It has been alleged that Kokkalis, chairman and founder of Intralot SA, Intralot New Zealand's parent company, was a Stasi agent. In 1998, the German Bundestag devoted 26 pages to Kokkalis, his firms and associates in a report on Stasi involvement in commercial and other activities.

A 2010 study on the links between organised crime and corruption by the European Commission's Centre for Democratic Studies, devotes a section to him.

In 2010, Intralot lost out on a bid to privately manage the Illinois state lottery, partly because it would not have passed a background check, State Revenue Department officials said.

The department's report says: "In light of the questionable background of certain key executives of Intralot and its parent corporation, numerous criminal indictments brought against them for alleged money laundering, fraud, embezzlement, bribery, misleading investors and espionage, coupled with Intralot's loss of licences in Bulgaria and South Africa, and its dismal performance record in Australia, Intralot would be hard pressed to establish that it would have passed Illinois' probity standards."

Internal Affairs did not investigate these matters when it signed an agreement with Intralot in 2010 to build the IGP, as it considered the "extensive" probity checks it did in 2005 for the EMS were sufficient. No ministers were briefed on the issue.

Intralot's New Zealand chief executive, Garry Mitchell, said allegations against Kokkalis were unproven and "industry gossip".

"All independent investigations into the historical allegations have proven that the allegations have no substance, and were politically motivated."

A due diligence report prepared by Internal Affairs in 2005 dedicated a section to the allegations against Kokkalis. Inquiries had found that under the Greek legal system, if allegations were made in the media prosecutors must initiate an investigation.

An investigation by Nebraska lottery officials as part of a due diligence project had found the allegations had no substance and had a "political and business sabotage flavour". Kokkalis had won defamation cases against those who made the allegations.

However, there was one outstanding allegation still under investigation in 2005 and there was "some measure of risk" to Internal Affairs should Kokkalis be found guilty of that charge or any other.

"Questions may be asked of the department as to why we proceeded with a contract with this company with the knowledge that there were outstanding issues regarding Mr Kokkalis. A strategy Q&A document has been developed to assist with any such inquiries," the report says. Kokkalis was cleared of the outstanding charge in 2007.

The report said the due diligence team had taken advice on whether the contract with Intralot could be terminated should Kokkalis be convicted.

"The answer appears to be no, the department could not terminate for convenience under these circumstances. It appears as chairman he has little or no involvement in projects of this nature and it would be difficult to prove he is a key person in this contract, should we wish to invoke a clause relating to the probity of key persons."

The report concluded that with a communications plan in place and Kokkalis' "remoteness" to New Zealand, the risks were "manageable".

A copy of the communications strategy provided under the Official Information Act shows officials were advised to emphasise Audit NZ was reviewing and assuring every stage of the procurement process.

If asked why Internal Affairs was dealing with a company whose chairman was alleged to be corrupt, officials were to say: "we are focusing on Intralot SA and their ability to do the job", explain that Greek media were "aggressive, sensationalist and frequently irresponsible" and that Kokkalis was not involved in day-to-day operations.

The department's general manager of regulatory service, Maarten Quivooy, said the department had worked successfully with Intralot NZ for more than eight years and "no integrity issues have arisen . . . nor has Intralot NZ been the subject of any alleged probity breaches".

Brian Corbett of the Community Gaming Association said he had written to the department about the industry's concerns about Intralot and Kokkalis and did not get a satisfactory response.

"The problem we have as an industry is that we are held to account on every cent we turn over . . . we are held feet-to-the-fire to ensure that we maintain probity . . . but this just seems like turning a complete blind eye."

Sunday Star Times