by José Luis Benavides Carl Emerson Faris
November 10, 2011
In one tragic way, the brutal attack on Monterrey, Mexico–based Casino Royale was like any other violent crime in which plans to do something threatening escalated into something unimaginably evil; in this case, the deaths of 52 people from a fire set at the property by the suspects.
The five suspects arrested in connection with the attack this past August told investigators they did not plan to kill anyone and only wanted to scare the establishment’s owners, Grupo Royale, according to an AP report. The suspects told investigators they were actually “scolded” by their bosses for killing so many people at the casino, which was the target of an extortion racket common in several parts of Mexico.
The two-story Monterrey property, which opened in 2008, operates slots and table games with room for 250 people on the first floor and a second-floor poker room. Los Zetas, one of Mexico’s most violent drug cartels, is suspected of ordering the attack on the casino, the report added.
In the immediate aftermath of this crime, Mexico’s federal government deployed army troops in Monterrey to bolster security within the city. In addition, a total of 1,500 Federal Police officers arrived in Monterrey as part of the federal government’s efforts to restore order to the industrial city.
But the repercussions from this incident are still being felt by the Mexican gaming industry months later. In September, Mexico’s Interior Ministry (Gobernacion) shut down eight casinos in Guadalajara as part of an ongoing investigation into casino licensing and security following the Monterrey attack, according to the Guadalajara Reporter. Meantime, the Reporter noted that Hector Vielma, mayor of Zapopan, which is home to 10 gaming properties, has vowed not to authorize the opening of another casino during the rest of his administration.
Exacerbating this situation is a recent political corruption scandal in which several government authorities were caught on video accepting payoffs from illegal casino owners. This last act likely explains a recent government decision to crack down on live card and table games, the staples of under-the-radar gaming establishments, which are still considered illegal under current Mexican gaming laws.
But harsher retribution may be on the horizon—there are growing rumors that President Felipe Calderon is considering dumping the gaming business altogether.
Of course, these recent events are a splash of cold water to what had been a red-hot gaming market, growing since 2006 when court decisions and government action began altering gaming machine laws, liberalizing Class II video bingo devices and eventually clearing the way for Las Vegas-style Class III slots.
Prior to these changes, any form of traditional table and card wagering games were prohibited and the gaming machine market in Mexico was restricted to electronic bingo facsimiles. Much like the United States, the market evolved with the simple attachment of a video slot entertainment sequence to bingo game play, essentially creating the Class II video machine. The Mexico Supreme Court eventually ruled this bingo/slot hybrid was merely a modern machine version of bingo and therefore legal.
At the same time the court remained mum on the legality of slots that used random number generators. That presented a legal limbo and opened a giant loophole for operators to start running Class III slots and video poker.
The trickle of Class III slot introductions became a flood when Ministers of the Interior decided that the electronic images appearing on video poker machines were not actually real cards, which would have made the devices illegal under existing gaming regulations banning live card and table games. Regulators instead decided these images were virtual depictions of a hierarchy of suits and ranks, which meant when poker or any other casino game is displayed in a virtual manner it could be deemed legal and still adhere to existing laws.
It’s important to understand is just how powerful the Minister of the Interior post is regarding gaming in Mexico. He is the ultimate authority—whatever he decides as legal or illegal is the law and can override any existing gaming regulation on the books. That said, the Ministers’ gaming machine decisions were likely influenced by both the Fox and Calderon administrations, both of which likely wanted to stimulate local economies and the tourist industry through the creation of casino resorts offering modern slots.
However it came about, this new Class III ruling allowed Mexico to take a giant leap forward towards establishing a viable gaming industry. The Class III upgrade allowed international gaming machine manufacturers to open up their full arsenal of classic casino games to Mexican casino operators. Most of the machines in Mexico are placed by manufacturers on a participation basis. Every major name from around the world has opened up offices in the country to service existing placements and partner with any new casinos coming on line.
TROUBLES IN PARADISE
Despite these rulings and the subsequent spur in casino growth, the gaming market in Mexico is still something of a runaway train—most everyone does whatever they please with absolutely no regard for the law. Mexico is not so much a regulated gaming jurisdiction as it is an economic free-for-all.
By law, if you wish to operate a casino, you need a Federal gaming permit; however, until recently, the Mexican government has had little or no interest in enforcing its gaming laws. Who does or doesn’t have a gaming license, the types of slot or wagering games provided by an operator and other touchstones of a legalized casino market have been of little or no interest to the government, now and in the past. With the right connections anyone can obtain “Amparoa” from a local official or judge that allows you to operate a casino as long as money passes hands or until the Feds come if ever to shut the joint down.
Given the long list of issues facing Mexican authorities, it’s not surprising that the enforcement of gaming laws is not a top priority. The government’s focus now and for the foreseeable future is finding ways to curtail the influence and violence of nation’s powerful drug cartels as they battle to control the smuggling corridors and lucrative in and out country drug trade. It’s estimated that upwards of 50,000 people have been killed in this conflict—gun battles between rival cartels and cartels and governments troops occur almost daily in many northern Mexican cities.
The cartels are so powerful and emboldened that they can terrorize whole cities with unthinkable brutalities and gruesome displays for all to see. And any move by the government to control the cartels is met with heavily armed and hostile resistance.
It’s hard to envision a thriving tourist and gaming trade so long as rival drug gangs are blasting away in the streets. Unfortunately, the administration is uncertain on how to proceed. Some want the government to continue to put pressure on the cartels. Others, such as former President Vicente Fox, advocate giving the cartels amnesty, hoping to quickly stop the bloodshed and bad press that is killing tourism, investment, and development in Mexico.
Whatever the future may hold, one thing is certain—the Casino Royale attack and fire brought to the forefront the total disarray associated with the federal government’s handling of its gaming industry and its inability to control drug cartels in any meaningful way. This will likely remain the case until the next Presidential election in 2012. Once in power, the new administration will have to decide their vision for Mexico’s future and what part gaming will play in it.
Additional reporting and editing for this article was provided by Paul Doocey.
José Luis Benavides
is a partner with Mexico-based Benavides & Asociados. His practice concentrates in corporate law, international business transactions, project finance, infrastructure development, foreign investment, mergers and acquisitions, real estate, telecommunications, broadcasting, technology, litigation, taxation gaming, lobbying and politics. In addition, he is a regular journalist for a several newspapers and specialized magazines around the world. Benavides is an attorney and counselor-at-law, admitted in Mexico in 1996. Benavides is also a general member of the International Masters of Gaming Law (IMGL) and official representative in Mexico of the Instituto Interamericano de Derecho Sobre Juegos de Azar y Apuestas (IIAA).
Carl Emerson Faris
is managing director of Snowflake, Ariz.-based Gaming Dynamics, LLC, a game development and gaming industry consulting firm. His areas of expertise include the invention and development of proprietary games of chance and skill, international marketing as well as consulting clients on various aspects of the gaming business.
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