July 19 (Bloomberg) -- It's 11 p.m. and inside an office building on the northeastern tip of the Philippines a dozen people place wagers on blackjack and baccarat. No matter how much they bet, none of the gamblers will win -- or lose -- a thing.

They are all proxy bettors, making wagers on behalf of patrons who track the action and issue instructions from outside the country by way of a live Internet link.

``There is no place like this in Asia yet,'' said Kan Goh, general manager of Eastern Hawaii Leisure Co., which operates the casino in Santa Ana, a town of 20,000 fishermen and farmers.

Cagayan Freeport, a 12-year-old special investment zone that includes Santa Ana, is using the gaming provisions in its charter to chase a slice of the estimated $12 billion wagered over the Internet each year. The zone is the first Asian jurisdiction to legalize online casinos, giving it a head start in the race to lure the region's bettors.

The zone targets Chinese gamblers who helped Macau overtake Las Vegas as the biggest casino market last year, said Jose Mari Ponce, chairman of Cagayan Freeport, who rented his office to Eastern Hawaii as a temporary home. Harrah's Entertainment Inc. and MGM Mirage, the largest casino operators, so far have failed to persuade the U.S. Congress to let them take Internet wagers.

``This can succeed over time,'' said Andrew Lee, an Internet gaming analyst at Dresdner Kleinwort Group Ltd. in London, of the Cagayan initiative. ``There's no doubt that China has a huge potential to be a very large online gaming nation.''

Most Asian countries ban Web casinos, including the rest of the Philippines, Macau, Singapore and Hong Kong. Internet gaming is a regulatory gray area in China. Laws banning gambling were framed before the Internet existed and don't clearly outlaw online casinos, Lee said.

`One Eye Open'

``China's policy is like keeping one eye open and one eye closed,'' said Hsu Hwa-min, chairman of iFaFa Ltd., one of about 40 online casinos registered in the Cagayan zone. ``The expectation is that eventually they'll opt to regulate this industry instead of losing the business to other countries. By then, the Philippines will have moved ahead.''

The U.S. is being left behind. Congress, which bans Internet casinos, last year curbed payments from banks to offshore operators to stop players using credit cards.

Cagayan's proxy bettors may also help attract gamblers who are wary that the electronic games featured on sites based in Europe or the Caribbean may be rigged, said Nadine Javellana, an analyst at Macquarie Securities Ltd. in Manila.

``Online video streaming addresses the issue of trust that is a concern for some when the interface is just graphics,'' she said. ``It also creates the atmosphere of being in a casino.''

Powerful Support

Cagayan has a powerful supporter. Senator Juan Ponce Enrile, 83, who represents the province, drew up the zone's charter in 1992. The charter emphasizes tax incentives to lure industries and resorts to the 541 square-kilometer (209 square-mile) zone. Until Web gambling took off, few investors came.

``The gaming portion was just added as an extra feature,'' said Enrile, a former secretary of justice and defense who is credited with helping topple the late dictator Ferdinand Marcos, his former ally.

Eastern Hawaii opened in December and now draws $13 million of bets a day, Enrile said. About 90 percent of gamblers are from Asia, said Hsu of iFaFa.

``Online gaming operators based in Europe and other jurisdictions like Antigua don't have the expertise in China or Asia,'' said Hsu, 63, who runs Chinese-language sites. ``You have to know the culture.''

Challenges still abound. Santa Ana has one bank and no international airport. The telecommunications cables can handle the operations of only Eastern Hawaii and Sun City, which opened an online casino last month.

Makeshift in Manila

Until development catches up, the national government is letting other Web casinos set up in Manila, 640 kilometers (400 miles) south, where iFaFa runs four baccarat tables. The switch means jobs aren't filtering down to Cagayan residents.

Charissa Diego, 22, left Santa Ana to work as a data analyst in Manila after finishing college. She returned home to join Eastern Hawaii as a payroll clerk in January.

``I wouldn't have gone to Manila if this job was here after I was through with school,'' she said.

Even the Catholic Church, some of whose clergy oppose gambling in the Philippines, recognizes the benefits for Cagayan.

At St. Anthony's College, the only tertiary school in Santa Ana, Sister Nemy Licayu said she may offer hospitality courses to equip residents for casino-resort work.

``The local government unit on its own can't retool the community,'' she said.

Administrator Ponce, 50, who now works out of a health clinic, is looking forward to getting his office back. Eastern Hawaii broke ground on its permanent home -- a 2 billion-peso ($45 million), 300-room casino -- in December.

``It's an office building too big for me managing nothing,'' Ponce said. ``But Internet gaming is the goldmine that will sustain operations and help build the infrastructure needed to bring in other investors.''

To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net.

Last Updated: July 18, 2007 16:56 EDT