Over the past decade, Mexican legislators have labored to refine or replace the antiquated law that has governed gaming in the country since 1947. While many foreign observers have become cynical of the rapid proliferation of gaming machines, inadequate, tainted and inconsistent regulation, along with a tantalizing new tax base, seem to have finally given rise to a serious legislative effort.
In December, Casino Enterprise Management conducted an exclusive interview with Diputado Armando García-Méndez, whose position as a federal representative is the equivalent of a United States congressman. García-Méndez is the chairman of the Federal Subcommittee on Games and Drawings, and our interview focused on his new Bill of the Law of Games With Bets and Drawings, which was formally submitted to the Chamber of Deputies on Dec. 11, 2008, just prior to its winter recess.
CEM: What is the general intention of this proposed law?
Armando García-Méndez: The idea is to have a modern statute that will foster new national and international investments, create jobs and have establishments with the highest international gaming standards.
CEM: Did you consider other countries’ legislation while drafting this proposed law?
García-Méndez: Yes, we considered the current legislation in Nevada, the United States, Chile, Argentina and Peru.
CEM: How is this proposed law different from the current legislation?
García-Méndez: Under the current legislation, only the federal government, through the Ministry of the Interior, has the power to grant gaming permits at its discretion and under a vague set of regulations. Now the rules are clearer, and in addition to a newly formed federal gaming commission, the municipal and state governments will also provide their opinions on the granting the permits.
CEM: How will the new federal gaming commission be formed?
García-Méndez: The proposed Gambling Games and Drawings Commission (Comisión de Juegos con Apuestas y Sorteos) will be directed and managed by the Board of Commissioners, which will be comprised of the Secretary of the Interior, the Secretary of Treasury, the Secretary of Tourism, the Secretary of Public Safety and five individual commissioners with good professional and moral reputations as appointed by the Mexican president and ratified by the Senate. The president of the board will be elected by all the commissioners and will have the deciding vote in case of a tie.
CEM: What will be the benefit for the municipalities and states?
García-Méndez: Taxes and government dues resulting from the games and drawings will be shared with the municipalities and states.
CEM: What are the other objectives of the proposed legislation?
García-Méndez: We want customers and players to be able to participate in a safe and controlled environment; therefore, the parties subject to the proposed legislation will also be subject to verification under the Federal Law Against Organized Crime, as well as to the provisions issued by the Federal Public Prosecutor and the Ministry of Treasury on money laundering.
CEM: How else will the proposed law improve the gaming industry in Mexico?
García-Méndez: The proposed law includes the standardization and minimum requirements for the construction and layout of gaming establishments, as well as standards for gaming equipment, installations and accessories. The Ministry of Economy, at the suggestion of a new gaming commission, will issue standards called Mexican Official Standards (NOMs) specifically applicable to the gaming industry.
CEM: Will Internet gaming be allowed?
García-Méndez: Booking through closed networks is allowed, but gaming through the Internet is not allowed. However, we recognize that Internet gaming cannot currently be controlled.
The Proposed Law
Following is a brief summary of the proposed new law, as it exists in its current form.
The proposed law will repeal the old Federal Law Of Games and Drawings published in 1947, as well as any opposing administrative provisions and resolutions granted under the prior law. It is expected that provisions in the current regulations that do not conflict with the proposed law will continue to be in effect. Existing gaming permits and authorizations granted under the prior legislation will also continue to be in effect. Finally, the proposed law will request the enactment of a new set of administrative regulations within the 12 months following its publication.
Due to the new diversity of games and technological advances in the gambling and entertainment industries, the proposed law is meant to regulate all types of betting games, including roulette, cards, raffles and drawings, horse and dog racing, slot machines and traditional Mexican games like cockfighting and jai alai.
Such games can only be performed in establishments authorized by the yet-to-be-formed Gambling Games and Drawings Commission and approved by the corresponding state and local authorities. This new commission is an independent agency of the Ministry of the Interior (Secretaría de Gobernación).
The law will apply to individuals, legal entities and any kind of economic unit of any form, including political parties that engage in wagers with an economic purpose (i.e., fundraising) or activities related to the operation, management or offer to third parties of gambling and drawing games. The new law will also apply in any of the following situations:
A. Where wagering operations are established either in a permanent or periodic form;
B. Where an admission fee is charged;
C. To users of the establishments who are not part of the organizers—that is, any person who is different: (i) form the establishments’ employees, and (ii) from the organizers;
D. Where an amount or percentage of the bets is charged or withheld; or
E. Where an amount or percentage or fee is charged or withheld in the winnings of players or users (participants).
In general, all operations regulated by law must be conducted in Mexican currency, with the exception of remote horse and dog racing that may accept bets in U.S. dollars if such currency is used for placing bets in their location.
The law has the advantage of stating the definition of all concepts and terminology related to gambling and of establishing specific regulations for each type of game or event where bets can be placed, even if the events are promoted by political parties. The new law will also apply to regional and state fairs, which are a tradition in Mexico, and will forbid operators from granting credit to players.
Wagering games or drawings can only be offered or organized by Mexican individuals or companies that meet and fulfill specific requirements stated in the law, though foreigners can invest fully and own wholly a Mexican company involved in the gaming industry, as long as the company is incorporated in Mexico according to Mexican law.
In order to be a gaming concessionaire, operator or permit holder, the new law would impose the following requirements:
1) Be a Mexican individual or company incorporated according to Mexican laws;
2) Obtain the corresponding authorization from the state, municipal, federal district and local counties (Delegaciones) of the federal district;
3) Disclose the origin of any investment to ensure the strict compliance to law;
4) Demonstrate economic solvency;
5) Demonstrate the legal possession of the property or real estate where the gaming establishment will be installed;
6) Have a general business plan;
7) Have programs and investment commitments with the purpose to improve tourism;
8) Meet technical and operational specifications, including a description of betting games to be offered or operated;
9) Meet any additional requirements imposed by any local authority;
10) Adhere to internal regulation and compliance processes; and
11) Comply with the term of the kind of permit requested.
The commission will be in charge of granting gaming permits, and those permits must contain: (i) a description of the activities authorized to perform, (ii) rights and obligations of the owner-operator, (iii) government fees, (iv) the term, and (v) causes for termination or revocation, among others requirements.
In addition, the proposed new law will establish standards for facilities, equipment, maintenance, safety measures and insurance policy requirements that the concessionaire’s establishment must fulfill in order to begin operations.
The new gaming commission will also be in charge of creating and conducting policies and programs related to the performance and operation of betting games and drawings, as well as the surveillance, control and regulation of the activities and establishments related to games with bets and drawings.
One of the main purposes of creating the commission is to ensure the free competition and performance of the activities regulated by the law in accordance with the Economic Competence Commission. The commission will also be in charge of conciliating any claim or problem between concessionaires and players, with the purpose of protecting the interests of the public.
Concessionaires are bound to pay all the taxes stated by the Production and Services Special Taxes Law (Ley del Impuesto Especial Sobre Producción y Servicios). Taxes generated by gaming operations will be distributed among the federal government, states, municipalities and local counties of the federal district in which the establishments are located, in the proportion that the foregoing law states. Likewise, any person that obtains any income from betting games and drawings will be bound to pay any taxes established by federal, state or municipal laws or regulations.
Finally, the law establishes crimes and administrative sanctions related to gambling activities, with a penalty up to 50,000 times the minimum wager or the revocation of an issued gaming permit and up to 15 years in jail for any crimes committed.
While the proposed new legislation was submitted for debate in December, it is not expected to be out of committee or considered for a vote until midsummer at the earliest.
Jorge Santistevan is a Business Lawyer with nearly 30 years of experience counseling international companies in all areas of business in Mexico. He is admitted to practice both in Mexico and in the state of Illinois. He was also a Fulbright Scholar, lecturing on international business transactions at the University of San Diego. He can be reached at jsantistevan@santistevan.com.mx.
José Luis Benavides is a practicing attorney representing some of the largest corporations in Mexico. He can be reached at jlbenavides@benavideslaw.com.mx.
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