|
Looking to the success of newly authorized gaming operations and the boom of Indian Gaming in many states throughout the United States, the Mexican Congress is reviewing a proposed law ("Initiative") that, if enacted, will effectively replace the Ley Federal de Juegos y Sorteos ("Law"), the Mexican anti-gaming law that has been in effect since 1947. The Initiative is backed by several members of Congress who believe the time is right to open Mexico to casino type gaming.
Public hearings on the effects of the legalization of casino operations have been held in some regions of Mexico and more are planned. The Initiative will be considered during the next regular session of the Mexican Congress that begins September 1. The tendency in Mexico is to see legalized, regulated gaming as a source of increased tax revenue, revenue from foreign tourist, employment opportunities and economic and social development of the municipalities and regions in Mexico where gaming establishments will be located. The vision of those backing the Initiative includes new mega-resorts with world class luxury hotel facilities, restaurants and related amenities and favorable opportunities that will attract increased domestic and foreign investment.
Whether the concerns over increased crime, money laundering, organized theft, prostitution, personal debt and addiction that have historically been raised by those opposed to legalized gaming in Mexico can be overcome by the perceived economic benefits of gaming remains to be seen. Some people wonder what distinguishes the Initiative from similar proposals that have failed in the past. Supporters argue that past proposals did not include the detailed rules and procedures that are included in this Initiative that will help to ensure that legal gaming operations do not result in increased vice. The reality is that illegal gambling has historically existed all over Mexico, therefore why not legalize those activities and reap the resulting benefits for the public.
A strong lobbying effort is under way by certain regions that could be among those chosen in the first round of casino concessions. Locations frequently mentioned are Mexico City, Acapulco, Cancun, Cuidad Juarez, Ensenada, Matamoros, Mazatlan, Puerto Vallarta, Rosarito and Veracruz. Nevertheless, the Initiative makes no mention of limiting authorized operations to any specific location, city or region.
GAMES REGULATED
The Initiative regulates games of chance and lotteries, and includes casino activities. The Initiative changes the Law by including casino activities as newly permitted operations; specifying the broad powers and capacity of the authorities to grant permits and licenses; and establishing the requirements that interested parties must meet in order to qualify for permits to operate lotteries, games of chance and activities related to games of chance in approved casinos.
The Initiative states that games of roulette, games played with dice, playing cards, wheels of fortune and slot machines can only be played in casinos. Numbers games (i.e. bingo and keno) are allowed in casinos, remote wagering centers and numbers wagering halls. Games in which there can be cross betting will also be authorized, including sporting events and competitions transmitted in real time shown in casinos and remote wagering centers; horse races at tracks; greyhound racing; cock fights that are held in arenas; and hand ball racquetball or jai alai.
GAMING COMMISSION
The Initiative provides that the Federal Commission of Games of Chance and Lotteries ("Commission") will be a decentralized administrative body of the Secretary of Gobernación, with technical and operational autonomy and its own regulatory powers. The Commission will be responsible for drafting and enforcing policies and programs related to holding, developing and operating games of chance and lotteries and supervising and auditing the establishments and their activities with respect to games of chance and lotteries. The Commission shall include a President of the Board of Commissioners, citizen commissioners; an Executive Board, Executive Secretary and other employees, administrative units and regional, state or local delegations established according to the internal Commission regulations. The Commission shall be comprised of fourteen commissioners. The Secretary of Gobernación shall preside over the Commission and it shall include representatives of the Secretaries of the Treasury and Public Credit, Tourism, Public Safety, the Economy and of the Attorney General of the Republic. The Commission shall also include a Senator, a Congressman and six citizens who are prestigious professionals, recognized for their honesty and appointed by the President and confirmed by the Senate.
Among other things, the Commission shall have the ability to sign agreements for cooperation with the municipal authorities or political subdivisions and state governments for the monitoring and authorization of games of chance regulated by the Initiative. The Commission shall name the number of inspectors and auditors that it deems necessary for control, inspection and monitoring of lotteries and shall specify the functions of the inspectors and auditors.
The Commission shall be empowered to act as the mediator for permit holders and patrons, in order to protect the patron's interests and can reject claims that are obviously frivolous and inappropriate by an official letter. If mediation does not result in settlement, the parties may submit to arbitration before one arbitrator according to procedures as agreed by each other.
Finally, the Initiative provides that the Commission shall have the authority to seize and warehouse equipment and supplies from establishments when audits and inspections detect irregularities, until such time as the irregularities are corrected. The Commission shall establish optimal procedures and controls for the prevention and detection of operations with resources that are the proceeds of illegal activities. Administrative violations and their respective sanctions are also specified in the Initiative. Gaming crimes are defined together with resulting punishments of fifteen years in prison, a fine equal to ten thousand to fifty thousand days minimum wage1 and potential loss of employment, position or commission.
PERMITS, OFFICIAL FEES AND TAXES
Permits that are issued will among other things, include a description of the regulated activities that are authorized by the permit, the rights and obligations of the permit holder, the natural resources that must be paid for as a condition of the issuance of the permit as required by law, and the term and causes for revocation.
Companies that intend to obtain a permit for the installation and operation of a gaming establishment shall pay the following official fees: a fee in an amount equal to 1% of the investment the company intends to make in the establishment for the examination and processing of the application for authorization for the organization and operation of the establishment that shall be no less than MN $300,000; a fee of MN$100,000 for the authorization of the installation and operation of each establishment; and a fee equal to 0.5% of the total gross income of the respective establishment for annual inspection and audit.
Permit holders shall pay taxes that are established by the Special Tax Law on Production and Services. The tax shall be calculated based on the gross income of the permit holder, which is understood to mean all income obtained from wagering, less the total amount paid to the players as winnings. Permit holders must file a monthly financial report with the Administrative Tax Service on the operation of their establishments not later than the 20th day of the month following the month that is the subject of the report. The Initiative also specifies how all taxes will be distributed among the municipal, state and Federal governments, with 50% of the total going to the municipalities where casinos are located to pay for the infrastructure necessary to support the resulting increased population.
OBLIGATIONS OF PERMIT HOLDERS
Among other things, applicants for permits must provide evidence that they are entities that have been duly organized according to the laws of the United Mexican States, and they must obtain the respective authorizations from all competent municipal, state, Federal District and territorial subdivisions having jurisdiction. Applications for permits must include information concerning the anticipated employment to be generated by the facility and employee training programs that will be provided which will benefit Mexican citizens. Applications must also contain information on planned marketing activities to promote increased tourism and regional development. Evidence is also required verifying that the funds to be invested are from sources that are legal, according to applicable Mexican financial practices.
REQUIREMENTS FOR ESTABLISHMENTS
Requirements are specified for each type of establishment including dimensions, construction specifications, finishes, quality standards, installations, equipment, accessories and related infrastructure and public safety infrastructure as well as all types of municipal and official tax and financing oversight services. Additional requirements, contained in the Official Mexican Standards ("NOMS"), are also applicable. Permits will only be granted to those applicants who can demonstrate that they have the financial resources to build facilities that comply with all requirements.
Authorized gaming establishments shall have such installations and equipment as are necessary so that they can function optimally, including adequate preventative maintenance so that they are kept in that condition. They must provide security for the installations, equipment, assets and valuables of the establishment and have security in place to prevent accidents. Gaming establishments are also required to maintain civil liability insurance. Conceptual plans and architectural plans for establishments must be submitted to the Commission for approval. Certified, audited financial statements must be submitted to the Commission on a quarterly and annual basis. Additionally, the Commission shall at all times have access to the network of permit holders in order to supervise and maintain complete data on cross betting games, and allow it to make visits to any authorized gaming establishment for verification and inspection. Applicable taxes must be paid on a timely basis. Pre-employment exams must be administered to applicants for employment that must include basic knowledge necessary for the detection of funds that are proceeds of illegal activities.
Establishments shall be required to always ensure that their guests conduct themselves in an appropriate manner. Establishments shall be required to provide monthly reports to the Commission within the first five days of the month following the month that is the subject of the report concerning any cash transactions that exceed an amount equal to two thousand days of minimum salaries. Procedures and measures must be put in place to counteract the secondary effects of gambling on guests of the facilities and the community where the establishment is located. Preference in employment must be given to Mexicans citizens over foreigners when all other factors are equal. Establishments are required to report guests engaged in conduct or practices suspected of being criminal, or of being related to organized crime and/or money laundering, to the Commission. Holders of permanent permits must submit quarterly reports to the Commission concerning the state of their internal finances and annual, audited certified financial statement.
WORK PERMITS
Work permits will be granted by the Commission and will certify that the worker has the ability to perform any activity regulated by the Initiative, and can therefore render services in the establishment. Requirements for the obtaining of work permits, grounds for revocation and termination of work permits are also included.
LOTTERIES
Because of their long history of existence and importance in Mexico, a separate section in the Initiative is devoted to defining and regulating lotteries in order to update standards applicable to them and to confer express authority over them to the Commission.
TRANSITIONAL MEASURES
In its transitional articles, among other requirements, the Initiative provides that during the first two years the law is in effect, the Commission shall only issue permits for the installation and operation of casinos that have direct, ancillary and complementary facilities that must include:
- 1000 permanent direct employees in casino establishments and ancillary and complementary installations;
- 12,000 sq. meters total area, that can also include covered public areas and the following areas for operation and circulation:
- 5,000 sq. square meters of area for games;
- 1,250 slot machines;
- 40 tables for roulette, dice, wheel of fortune and playing cards;
- 1,500 sq. meters of restaurants for 600 patrons;
- 700 sq. meters of entertainment area;
- 200 sq. meters for bars.
In order to ensure the creation of high quality establishments and operations, the cost of specifications, finished equipment, quality standards and other construction characteristics must equal an investment of not less than the equivalent of 223 days of general minimum wage in effect in the Federal District per square meter. As a guideline, the cost of the gaming implements and accessories in general must be equivalent to the average cost of like gaming implements and accessories found in the twenty highest-grossing casinos in the world during the preceding year.
There is no certainty that the Initiative will be enacted into law. However, Mexico is presently in the midst of a worsening economic crisis and the country faces an increasing need for new sources of revenue and employment. This provides an important incentive for the Mexican Congress and the public to make the Initiative law. Foreigners from around the world are keeping a close watch on the nascent Mexican gaming industry because of the perceived opportunities that will be opened if the Initiative becomes law.
U.S. entities and individuals that are interested in participating should not delay in preparing themselves to compete for the limited number of permits that will be available if the Initiative is implemented. There is a myriad of Mexican laws, regulations and standards with which a foreign individual or entity must comply in order to engage in regulated activities, such as legalized gaming. Many of these requirements can be satisfied before the availability of permits is announced by the government. Those that prepare themselves in advance will have a competitive edge once the door is open.
The International Practice Group and the Hospitality Practice Group at Gordon & Rees LLP have a long history of experience and expertise in preparing clients to compete in complex foreign government procurements and the granting of concessions involving processes like that which will most probably be implemented by the Commission for the granting of authorizations for the installation of casinos and other types of gaming establishments.
1 "Minimum Wage" is defined as the "General Minimum Wage for Mexico City" in the proposed law. The Secretaría del Trabajo y Prevision Social sets the general minimum wage each year by region. The "General Minimum Wage for Mexico City" for 2004 is approximately U.S.$4.
| 
