All gaming in Mexico is governed and regulated by two keystone documents: (i) the 60-year-old Federal Gambling and Drawings Law (Ley Federal de Juegos y Sorteos, 1947), and (ii) the recently enacted Regulations to the Federal Gambling and Drawings Law (Reglamento de la Ley Federal de Juegos y Sorteos, 2004).
The only legitimate gaming authority in Mexico is the Ministry of the Interior (Secretaría de Gobernación). Nationally and federally it is forbidden to operate games of chance and/or betting activities anywhere in the country without express authorization under a permit (permiso) that has been legally submitted, processed and issued before the Ministry of the Interior.
Despite the existence of these relatively clear laws and regulations, there continues to be puzzling disparities and unexplained gaps between what is legal within the law and what is actually occurring in Mexico.
For example, according to an official document filed before the Mexican Congress, dated July 25, 2007, and duly signed by Roberto Correa Mendez, director of the General Office of Games and Drawings of the Ministry of the Interior, a total of only 22 companies have ever been granted a legal permit to operate gaming activities.
According to Correa, at that time in 2007, the only legitimate permit holders were:
1. Administradora Mexicana de Hipódromo S.A. de C.V.
2. Atracciones y Emociones Vallarta S.A. de C.V.
3. Cesta – Punta Deportes S.A. de C.V.
4. Comercial de Juegos de la Frontera S.A. de C.V.
5. Divertimex S.A. de C.V.
6. Espectáculos Deportivos de Cancún S.A. de C.V.
7. Espectáculos Deportivos de Occidente S.A. de C.V.
8. Espectáculos Latinoamericanos Deportivos S.A. de C.V.
9. Grupo Océano Haman S.A. de C.V.
10. Hipódromo de Agua Caliente S.A. de C.V.
11. Impulsora Géminis S.A. de C.V.
12. Libros Foráneos S.A. de C.V.
13. Operadora Cantabria S.A. de C.V.
14. Operadora de Apuestas Caliente S.A. de C.V.
15. Operadora de Espectáculos Deportivos S.A. de C.V.
16. Promociones e Inversiones de Guerrero S.A. de C.V.
17. Mio Games S.A. de C.V.
18. Eventos Festivos de México S.A. de C.V.
19. Promojuegos de México S.A. de C.V.
20. Apuestas Internacionales S.A. de C.V.
21. Entretenimiento de México S. A. de C.V.
22. Juega y Juega S.A. de C.V.
While it appears that all of the permits listed by Correa and his department in 2007 were originally authorized to operate multiple locations, it is also important to note that several of the permits listed had been previously challenged or revoked by the Ministry of the Interior. Some of those revocations were the result of alleged or presumed violation of the law, but in other cases the government’s actions were taken as discretional acts motivated by political dynamics or simply improper application of the law.
Without a doubt, licensed companies that are subject to any federal action or revocation are also entitled to judicially challenge such acts, as was the situation in some of the cases listed; in some of those cases the permit holders prevailed. It follows logically, then, that any federally revoked permit not revived through a proper appeal or judicial process must be considered illegal, especially if the permit holder ignores administrative rulings and continues gaming activities despite revocations.
Despite official and diaphanous documentation issued by the Secretaría de Gobernación about which corporations are entitled to conduct legitimate operations in the country, recent surveys estimate that at least 70 illicit gaming parlors are currently operating in some of the most important cities in Mexico.
In the view of many in Mexico’s gaming sector (including authorities, journalists, permit holders, manufacturers, attorneys, legislators, etc.), the illegal gaming operations inside the country can be basically classified into two main groups:
a) Establishments that operate games of chance or wagering
activities without a permit issued by the Ministry of the
Interior; and
b) Companies that operate with “purported permits” which
have not been legally issued by the Ministry of the Interior
or which not been fully, duly or properly recognized by such
authority.
How Some Illegal Operations Came to Exist
Article 4 of the Federal Gaming Law expressly states: “No location, open-air or enclosed, where any gambling is practiced or any drawings are run, shall be established without a permit granted by the Ministry of the Interior.” In other words, it is against the law to operate any games of chance and/or any betting activities in Mexico without the previous issuance of a valid permit by the gaming authorities.
Interestingly, there are numerous locations in Mexico operating Class III games or slot machines (as defined in the United States), which are expressly forbidden and considered illegal by Mexico’s Federal Gambling and Drawings Law and the Regulations. In combination with several operators possibly doing business under permits that could be not considered in-force as noted above, the net result over the past decade now indicates a shameful proliferation of illegal establishments that defies explanation or oversight by the Mexican authorities.
In some cases, the way these illegal facilities and operators have circumvented the law is very complex and clever, while for others it probably came down to some form of consideration to a well-placed bureaucrat in charge at the time.
Recent investigations indicate a prevalent method for circumventing the law by illegal operators over the past 10 years. In these instances, the perpetrators submitted a writ or formal petition before the Ministry of the Interior asking for an authorization for the importation and operation of video machines that were “games of skill and dexterity,” when in reality, it was a way to disguise the introduction of tragamonedas (slot machines) expressly prohibited under Mexican law. It is clear now that when some of the “authorizations” were denied by the government, challenges were filed under the now well-known Amparo actions, a constitutional injunction method. Properly manipulated, Amparos can effectively neutralize federal dictates for a period of time, but even more significantly, they introduce the possibility of a corrupt judge becoming involved to the benefit of enterprising and motivated operators.
While some of the machines in the previous instances may have had skill features, invariably there were random number generators in the machines as well. The continued existence of these machines in certain areas continues to pose a challenge to the Mexican gaming authorities and certainly underscores the need for more robust regulation as well as independent testing laboratories.
Forbidden gaming activities in Mexico are sometimes more a result of inadequately following compliance procedures before embarking on business ventures, usually as U.S. or foreign companies try to gain entry to the market. Others, it seems, show a fundamental lack of understanding or respect for the enforceability of existing Mexican laws. One example of such an endeavor might be that of the International Thunderbird Gaming Corporation. After repeated legal challenges and claims in Mexico as well as in the United States following closure of its gaming operations in Mexico, an arbitration process was submitted by Thunderbird under Chapter Eleven of the North American Free Trade Agreement (NAFTA). The case ended on Jan. 26, 2006, when the Washington, D.C.-based Arbitral Tribunal dismissed the hundred-million dollar damages claim against the Mexican government, and instead rendered a million dollar determination against Thunderbird.
Yet another indication of how other companies that do not hold permits might find their way into the Mexican gaming market is the numerous news stories and editorials by Mexican reporters and media sources, which continually suggest that certain operators are seeking ways to operate with legitimate permits in an effort to become “legal” by appearance through legendary methods.
In some ways, this phenomenon of morphing from illegal to legitimate is reminiscent of a more colorful time in the history of gaming in the United States, if not around the world. But if the Mexican media suggestions are true, those “permits” and owners would definitively not be in compliance with the current federal gaming laws and regulations.
Permits Under a Questionable Status
The following category is considered irregular and gray by many industry observers in Mexico because of non-transparent circumstances and relevant inconsistencies involved in granting the entitling documents.
As described previously, on July 25, 2007, the Ministry of the Interior officially recognized a total of 22 companies that were granted legal permits. The document delivered to Congress also noted a cautionary consideration that Compañía Operadora Megasport S.A. de C.V. had obtained a judgment by a federal court which “ordered the recognition” of its “permit” for the operation of a hippodrome-dog race track and seven centers for remote wagering. Curiously, the Ministry’s 2007 document did not clarify if the court’s ruling conformed to the gaming law, but for some unknown reason, it separated the name of this company from the other list of 22 permit holders.
Another name that has raised some questions is Entretenimiento de México S.A. de C.V., a company that visibly holds a valid and in-force permit issued on March 29, 2005, but which apparently has not started operations. While no direct connection has been established with illegal facilities, a brother of one of the owners with the nickname “Tsar of Games and Casinos” has been coincidentally linked with dubious and controversial gaming establishments in Monterrey and other cities in Mexico. That brother was the target of an assassination attempt in November 2007. His bodyguard was murdered in the incident, according to news stories published in Milenio and Cronica newspapers in Mexico.
A last example of this uncertainty is a corporation called El Palacio de los Números S.A. de C.V. that has just recently appeared on the Ministry’s website listing authorized permit holders. The curiosity of this case comes from the fact that this operator is holding a permiso purportedly dated Feb. 7, 2006, but according to an official document issued under the rules of the Federal Law of Transparency and Access to Public Information (Ley Federal de Transparencia y Acceso a la Información Pública Gubernamental), dated June 19, 2007, no permits were issued to any company during the year of 2006, nor was this company included in the list of permit holders presented to the Mexican Congress in July 2007.
Given this course of events and formal documentation, common sense and logic could lead a reasonable person to believe that the specific status of permits such as those cited above may be unclear if not questionable.
Enforcing Regulations Against Illegal Operations
According to Article 10 of the Federal Gambling and Drawings Law and Article 2, Paragraph 4, of the Regulations, the Ministry of the Interior, through the Government Department (Unidad de Gobierno), is entitled by law to “take action against the activities prohibited by law” with the assistance of the federal, local and municipal entities, including the police forces as well, all of which are bound to assist the ministry with the enforcement and compliance of gaming laws.
Without a doubt, it would not be fair to ignore some efforts by past and present administrations in the fight against prohibited gaming where, once again, the Thunderbird case might serve as an example of a vigorous and severe legal action taken by the Mexican government to enforce the country’s gaming law as recently as two years ago.
But the reality even today is that problematic and illegal operators are still in business, with some likely connected to sophisticated criminal organizations based in Mexico and abroad, while maintaining illicit or inappropriate infiltrations inside federal, state and local levels of government.
The Bottom Line
As many as 25–30 percent of the casinos in Mexico may be operating without bona fide permits, or are possibly being fronted by individuals who do not represent the true ownership or control of the businesses. At the same time, some Mexican operators are still leading gaming manufacturers and suppliers to believe that “games of skill” or “entertainment machines” have somehow been approved, when in fact that is not the case. Wise businessmen should be wary of these situations so as to not end up on the wrong side of the law.
Mexico may appear to be a quick and easy way to get into the gaming business, but for companies with an eye on the market, it is necessary to do homework in advance, as for any regulated market. Despite flaws and pitfalls, however, the long-term prospects for gaming in Mexico are excellent. The government is making strides to address the shortcomings, doing all it can to foster an industry with a sustainable tax base for the future while creating jobs and contributing to the economy.
A Note of Caution
Anyone visiting the Ministry of the Interior’s website at www.juegosysorteos.gob.mx should be aware that information reflected there is not necessarily 100 percent accurate regarding corporations which have been granted legal permits.
Uncertainty about the names listed as permit holders on the website could be explained by Gobernación because the Article 18 of the Federal Gaming Regulations states that, “The general office may broadcast the information contained in the database on the ministry’s website…” In a strict legal interpretation, therefore, since the broadcasting by the Internet is optional and discretional, and not mandatory, the permit holders’ list that actually appears on the government’s website is not necessary the complete official database of the ministry and may be considered only as a preliminary source of information.
Jose Luis Benavides is a practicing attorney representing some of the largest corporations in Mexico. He can be reached at jlbenavides@benavideslaw.com.mx.
John R. Long has been a product and market development consultant for major manufacturers and gaming companies since 1994. 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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