Since the introduction of electronic gaming devices in Mexico in 2003, there has been confusion and ongoing controversy over what is a legal gaming device. The result has been a chaotic and uneven application of regulation and enforcement that has led to a situation where supposedly illegal tragamonedas, or what might be called outright Class III slot machines, operate openly next to centrally determined numbers drawing machines—essentially Class II games—which are supposedly legal under Mexico’s 2004 Gaming Regulations.
On May 21, Gaming Laboratories International (GLI) and Mexico’s Normalización y Certificación Electrónica (NYCE), a civil certification organiztation, announced a business alliance designed to create a uniform code of technical standards for electronic gaming devices, as well as a world-class testing and certification process. Initially the NYCE-GLI alliance will create a structured and voluntary testing process for manufacturers and operators, but the two organizations are working with the Mexican government to perhaps eventually make testing and standards compliance mandatory, in an effort to bring accountability and transparency to Mexico’s fledgling gaming industry.
In order to better understand these organizations and the objectives involved in their new business alliance, we sat down with the key managers of each organization in Las Vegas and Mexico City for a round-table Q&A and discussion of the venture.
The participating NYCE representatives were Carlos M. Perez Munguia, manager of planning and business development; and Manuel Fernandez Suarez, projects coordinator.
Representatives from GLI included Kevin Mullally, general counsel and director of government affairs; Bill Treger, senior director of development; Ian Hughes, senior director of engineering and client services; Karen Sierra-Hughes, manager of development for Latin America and Spain; and Robert Reyes, supplier development representative for Mexico and Latin America.
John R. Long: Kevin, since you were involved in the formation of the venture, let’s start with you. Please give CEM’s readers an overview of the nature of the base agreement between GLI, NYCE and the Mexican government.
Kevin Mullally: GLI and NYCE have formed a business alliance as a means to advance technical regulatory standards in Mexico. The agreement stipulates the process for the acceptance of GLI test results in Mexico. The agreement also provides that GLI will provide training to assist NYCE in developing gaming device technical expertise and field verification techniques. Furthermore, GLI and NYCE have agreed to work together to promote mandatory technical standards, testing and field verification, and to provide technical assistance to policy makers toward the development of a regulatory system designed to insure the integrity of gaming and protect the citizens of Mexico.
Alfredo Lazcano: Sr. Perez, you are the principal manager in Mexico who worked with GLI to create this venture. Before we discuss the nature of your work together, can you explain to our readers what NYCE is?
Carlos Perez Munguia: NYCE stands for Normalización y Certificación Electrónica A.C. We are a non-profit organization founded in November 1994 by a group of leading companies in the electronics, telecommunications and information technology industries—Compaq, Dell, Sony, Alcatel, Ericsson and Arrow, among many others. They were brought together by their need for an organization with nationwide jurisdiction that could represent their interests in relation to regulatory certification and compliance.
NYCE’s mission is to give companies in the electronics, telecommunication and information technology industries, as well as other related sectors, a regulatory framework that allows them to market their products and services and raise their competitiveness while maintaining internationally accepted standards.
Lazcano: To better understand the processes that will be implemented by NYCE and GLI, can you explain what standards are recognized by Mexican law?
Perez: Standards are documents that contain the characteristics of a process, a product or a service. Their purpose is to provide solutions to technical problems. For example, international standards are those developed by international standards organizations, and basically represent the language of international trade as a means of eliminating any kind of technical or cultural barriers—International Standards Organization (ISO), International Electrotechnical Commission (IEC), Codex Alimentarius Commission, and International Organization of Legal Metrology (OIML), among others.
Official Mexican Standards (Spanish acronym NOM) are developed by the competent government agencies and describe the required specifications and characteristics of a product, service, method, process, facility or establishment.
Mexican Standards (Spanish acronym NMX) are developed by local standards organizations or the Ministry of Economy, with the participation of all interested sectors, and serve as references to determine the quality of the products and services in question, particularly for the protection and orientation of consumers.
It is important to keep in mind that NOMs are mandatory and NMXs are voluntary.
Long: There has been much confusion about the existing 2004 Mexican Regulations and seeming contradictions between those regulations, existing laws, and what is actually installed and in operation throughout the country. Will GLI and NYCE be involved in clarifying the specifications?
Karen Sierra-Hughes: GLI and NYCE can provide the Mexican government with technical advice regarding the implementation of technical standards to meet the goals set forth in Mexican law. However, GLI and NYCE do not set policy and cannot officially “approve” devices. Only government regulators can do that. The role of GLI and NYCE will be to certify gaming devices to standards set by Mexican regulators. While it may be necessary for GLI and NYCE to participate in a voluntary testing and certification process as a bridge to mandatory government standards, it is critical that those participating in this debate understand that a voluntary certification process is not a final solution.
Lazcano: What purpose is there in creating NMXs if they are not mandatory?
Perez: There are certain exceptions to the voluntary nature of NMXs. For example, they can be made mandatory in the following cases:
1. When private individuals or organizations demonstrate that their products, processes or services conform to NMXs.
2. When government agencies, in a NOM, require their observance for specific purposes.
3. In civil, commercial or administrative disputes, when judicial or administrative authorities must take a NOM as a source of technical and technological standards, and in its defect NMX, for reference.
4. When government agencies raise NMXs to the category of NOMs, as has occurred, for example, in the automotive industry (tires, seat belts, brake fluid, etc.).
5. In cases of emergency, in accordance with the guidelines established in the Federal Law on Metrology and Standardization (Spanish acronym LFMN).
Long: There have recently been a series of “normalizations,” or proposed technical specifications, published in Mexico. Did GLI provide those specifications and how and when will the proposed normas be formalized, adopted and instituted?
Sierra-Hughes: GLI granted NYCE permission to utilize the GLI Standards Series while the two organizations were in the process of negotiating the alliance agreement. NYCE used the GLI standards to develop a proposed standard for devices being operated by the licensed gaming operators in Mexico. Among the first challenges for GLI and NYCE is to further develop these standards to ensure that they are tailored to the gaming environment in Mexico and that they fully meet the Mexican government’s goals for regulation. The process for adoption will include an immediate strategy for the voluntary adoption of standards by operators and manufacturers while engaging the Mexican government to encourage the adoption of mandatory standards.
Lazcano: NYCE was founded in accordance with the Federal Law on Metrology and Standardization of 1992, which established the legal foundation for the creation of private organizations in Mexico, like those in other countries, to engage in activities of certification and verification, which previously were the exclusive province of government agencies. What does this mean for NYCE?
Perez: NYCE is accredited and authorized by the legal instances and agencies of the federal government and is part of the Mexican System for Metrology, Standardization and Evaluation of Compliance (Spanish acronym SISMENEC), which in turn is made up of agencies devoted to standardization, product certification, systems certification, personnel certification, verification, testing, metrology and accreditation, among other local organizations that help to coordinate efforts, balance interests and ensure transparency in standardization processes.
Long: Will equipment testing for Mexican gaming devices be done in Mexico or will all of the worldwide GLI labs accept equipment for that jurisdiction? Bill, can you elaborate on this process?
Bill Treger: One of the advantages of the agreement is that it provides NYCE and Mexico with the ability to leverage GLI’s extensive worldwide network of technical resources. With nine fully accredited laboratories on five continents, with more than 500 employees, GLI can provide NYCE with 24-hour technical support and the experience and expertise to handle any type of technical issue that might confront the gaming industry in Mexico. Furthermore, by accepting certification results from any of GLI’s worldwide laboratories, Mexican gaming operators will have the advantage of participating in the world market for gaming devices, providing consumers with more choices and access to the best and most recent technology in the gaming industry. The agreement also anticipates the establishment of technical laboratory resources in Mexico to enable the development of gaming manufacturing resources in Mexico.
Lazcano: Sr. Suarez, you will be in charge of the testing processes in Mexico. Can you explain what standards have been issued to date in relation to gambling and what standards are in development?
Manuel Suarez: To date, two standards have been published and one NMX is pending publication. (See Chart 1.)
Long: Robert, you are the point of contact for manufacturers seeking certification at GLI. Will application for testing and resulting certification be made through NYCE in Mexico, GLI or both? Can you elaborate on the process?
Robert Reyes: The agreement provides that NYCE will accept GLI test results. It is the intent of GLI and NYCE to develop a submissions and certification process that is consistent with other well-regulated gaming jurisdictions around the world. Thus, the goal is to build efficiency into the system while providing Mexican citizens and their government with assurance that the games are fair and that they operate according the Mexican law.
Lazcano: How will standardization help to fight illegal activity in Mexico’s relatively new gaming industry?
Perez: We will seek to make self-regulation the motor for regulation in the gambling industry. If players are interested in the legal, the certainty and transparency offered by legally recognized mechanisms for compliance evaluation, certification and verification of equipment will become inputs in the growth of a national industry of gambling and drawings.
It is pertinent to mention that if the authorities are interested in raising NMXs to the category of NOMs, the enforceability and control mechanisms established by the state would have greater legal weight.
Long: Ian, what will be the status of technical compliance for gaming devices already installed in Mexico? Will installed devices be audited and post-certified? Will existing or installed devices not in compliance with new specifications be grandfathered or removed?
Ian Hughes: GLI and NYCE will work together with Mexican government officials, gaming operators, manufacturers and other interested parties to develop technical standards to ensure the integrity of gaming. The goal of the standards is ensure that gaming devices in Mexico give each patron an equal chance to win, that the games are safe and reliable, and provide the government with adequate tools to monitor gaming activity and collect the appropriate taxes.
Since Mexico has already developed an extensive network of licensed gaming operations, a key consideration in the development of the testing and certification process will be how to develop a reasonable methodology to review installed devices. This is yet another area where GLI’s extensive experience and worldwide presence will assist in bringing efficiency to the testing of Mexican gaming equipment. NYCE’s experience in the implementation of technical standards in Mexico will ensure that we adhere to local business practices and customs. The goal is to develop an efficient process for the submission and certification of devices that Mexican operators wish to include on their gaming floors, along with an efficient method for field verification of devices in play. The result will be a cost-effective process for ensuring the integrity of electronic gaming devices in Mexico.
Lazcano: Aside from GLI, what players in the gambling industry have worked with NYCE on the standardization process?
Perez: The leading concession holders and interested parties such as international manufacturers or their representatives in Latin American countries, as well as the Mexican Ministry of the Interior through the Adjunct Directorate General of Gambling and Drawings, have participated.
Long: What might happen if there is a lengthy delay in the implementation of a robust regulatory system in Mexico?
Mullally: We have seen the consequences of the failure to construct a proper regulatory framework in many places throughout the world. The most recent example is Russia, whose experience is quite typical in instances where gaming is not properly regulated. In Russia, the industry started with AWP machines in the early 1990s. Since the Russian market was taxed but not regulated, it underwent rapid and massive growth, expanding to more than 220,000 machines. Efforts to enact a regulatory system were unsuccessful because of conflicts between regional gaming interests and Moscow operators. The industry spiraled out of control, much negative publicity ensued, and finally the federal government decimated the industry with a new set of market regulations that many industry analysts believe will eradicate commercial gaming in Russia.
If Mexico chooses to remain on its current path by failing to implement a clear and robust system of regulation for its gaming industry, it could inherit a similar fate. Without regulation, the market spins out of control. Devices that were never envisioned by the founders of the gaming law make their way into the market. Bad people get involved in gaming and scandals ensue. Patrons are cheated or deceived and become skeptical of the integrity of all gaming operators. Negative publicity ensnarls the gaming industry and ultimately the government feels pressure to do something. Often the easy thing is to eliminate the problem and gaming is outlawed.
Conversely, we have seen other instances where unregulated casino gaming generates widespread negative publicity only to have the situation remedied by the creation of a strict regulatory regime. Las Vegas is the most notable example of this scenario. The famous Las Vegas strip began in the 1940s under the influence of many risk-taking entrepreneurs. In the 1950s the strip became home to increasingly larger resorts, and by the 1960s the strip was booming despite many casinos having been infiltrated by organized crime. The organized crime influence was both ignored and tolerated until the regulatory system matured in the 1980s, when mob influence in Las Vegas casinos was wiped out by the cooperative efforts of law enforcement and gaming regulators. Las Vegas is now governed by strict regulation that has protected the integrity of gaming while allowing the industry to thrive. Among the goals of the relationship between GLI and NYCE is to encourage the Mexican government to pursue the path of strict regulation rather than face the consequences of the failure to properly regulate.
Lazcano: In your opinion, Sr. Perez, what is the future of the relationship between NYCE and GLI?
Perez: We are looking forward to developing a long-term relationship with GLI in which they will provide us with technology and expertise to quickly develop IT tools to conduct laboratory tests or verify certified equipment in the field. We think that with their help and experience, we will soon (January 2009) have a certification and verification service approved by the Mexican Accreditation Organization and by recognized by permitees and, we hope, by the competent authorities.
Long: Finally, Bill, can you tell us when GLI and NYCE will be open for business?
Treger: The first joint planning meeting between the GLI and NYCE was held in mid-July. We now expect a quick ramp-up period that involves discussions with operators, manufacturers, associated industries and government officials, with a goal of having tangible results by early 2009.
John R. Long has been a product and market development consultant for major manufacturers and gaming companies since 1994. He has also been extensively involved in several gaming projects in Mexico. Long can be reached at suncomjohn@aol.com.
Alfredo G. Lazcano is a litigator with many years of experience, including complex civil cases involving gaming interests, as well as the government of Mexico and regulators. He can be reached at (5255) 3187-0690 or als@lazcanosamano.com.
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