Para leer la versión en Español, por favor vea el reverso de este boletín. is the newsletter prepared by the bilingual attorneys of enfoque latinoSheppard Mullin’s Hispanic/Latino Business Practice. SHEPPARD MULLIN SHEPPARD MULLIN RICHTER & HAMPTON LLP Fall 2007 Edition Latino Mexican Gambling and the Law enfoqueNEWSLETTER By Daniella Estrella, Visiting Foreign Attorney, 1 Sheppard Mullin and César Martínez Alemán, Barrera, Siqueiros y Torres Landa, S.C. Public Green, Private Gold: Opportunities Mexican Gambling From Climate Change Regulation in the U.S. and the Law 5 and Mexico By Daniella Estrella, Visiting Foreign By Rafael Muilenburg, Sheppard Mullin, and Gloria Attorney, Sheppard Mullin and César Park and Estuardo Anaya, Santamarina y Steta Martínez Alemán, Barrera, Siqueiros y Torres Landa, S.C. Moving Technology Across the Border: The Introduction 10 Future of Biotech for the U.S. and Mexico By Beni Surpin and Abraham Hanono, Sheppard Mexico banned casino gambling in 1934 Mullin and Joseph Panetta, CEO Of BIOCOM and with the new age of on-line gaming, it was expected that Mexico would amend its gaming laws and legalize Common Misconceptions Surround Electronic gambling within the country. 14 Transactions with Consumers By Ethna Piazza, Sheppard Mullin In response to the constitutional challenge filed by Mexico’s House of Representatives, the Mexican Supreme Just One Good Idea – IP Licensing Strategies Court ruled on January 22, 2007, that the for the 21st Century Regulation of the Federal Gaming and 18 By Amar Thakur and Beni Surpin, Sheppard Mullin Raffles Law (the “Regulations”) enacted in 2004 under the Vicente Fox’s EDITOR: Douglas Farmer Los Angeles | Century City | New York | San Francisco | Washington, D.C. | Orange County | Santa Barbara | San Diego | Del Mar Heights | Shanghai sheppardmullin.com enfoqueLatino NEWSLETTER administration, did not violate the Mexican Constitution and was consistent with the existing gaming law. With the constitutionality of the Regulations being upheld, controversial permits issued in 2005 for remote betting centers were revalidated and several locations throughout Mexico have established sport books and number draws operations. The Supreme Court ruling has created confusion as to whether online gambling is permitted in Mexico. This article intends to provide an overview of what is and is not permitted under Mexican law. Legal Framework Gambling in Mexico is a federal matter regulated through the Federal Gambling and Raffles Law of 1947 (the “Gaming Law”) which was not amended or restated by the Regulations published on September 17, 2004. The Gaming Law comprises only 17 articles regulating the prohibition of gambling and betting and its exceptions. The Regulations provide guidelines for the authorization, control and surveillance of the games authorized as betting games by the Ministry of with bets and raffles, regulates the issuance of permits, Internal Affairs (“Secretaria de Gobernación” – the the opening of gambling establishments, as well as “Ministry”) through the issuance of permits. remote betting centers, fairs, and various kinds of raffles, except for those conducted by the National As for slot machines (máquinas tragamonedas), the Lottery. Mexico’s National Lottery is a separate regime Regulations prohibit those cash or electronic payment and operates under authority of the Organizational machines which allow the user through odds or a Law of the National Lottery for Public Assistance combination of odds and skills to obtain prizes in cash enacted in 1985. or kind, except for (i) vending machines, provided that the value of the money deposited corresponds to the Authorized Gambling value of the merchandise obtained; (ii) music or video Pursuant to the Gaming Law, the general rule is machines, provided they do not allow any type of that games of chance and games with bets are betting to take place (except for free games or prizes prohibited in Mexico. Nevertheless, there are or coupons which value does not exceed the exceptions to this general rule. The Gaming Law participation cost); and (iii) betting machines used in provides that only ball games (bowling, billiard, horse races, sports or lotteries used to develop fronton or jai alai…), skill games (chess, checkers, expressly authorized activities, provided they are dominoes…), and sports competitions may be expressly indicated as such. – 2 – organization of raffles, for a maximum term of one year. Is On-line Gambling Permitted in Mexico? As Internet gambling is sprouting up, Mexican authorities are struggling to keep up with gaming technology and the gaming industry. In 2005, the government controversially authorized several permits for remote betting centers, better known as “books,” in both Spanish and English, where customers can bet on horse races and other sporting events that take place within the territory or offshore The Supreme Court’s decision, the highest tribunal in Mexico, validated the constitutionality of the remote betting centers insofar as they are establishments that, with the use of new technologies, carry out the same betting activities in horseracing tracks, dog tracks, jai alai frontons, and all types of sport events and games permitted by the Gaming Law with the only difference that in lieu of betting in the place where the events are taking place, individuals can place their bets in remote centers. The central argument was whether the Regulations (complementary authority) were Limitations regulating new activities (remote betting) that Pursuant to the Regulations, permits may only be were outside the scope of the Gaming Law and granted to: therefore against the basic administrative law principles set forth in the Mexican (i) Mexican companies for the establishment and Constitution. operation of betting activities in (x) horseracing tracks, dog-racing tracks, jai-alai courts, remote betting centers The Supreme Court expressly recognized the and bingo rooms, with a maximum term of 25 years; impact of new information and communication and (y) in fairs, with a maximum term of 28 days or a technologies on the gaming industry. The Court term equivalent to the duration of the authorized not only recognized as mentioned above that the season; remote betting centers are legal insofar as such bets are made on activities authorized by the (ii) Mexican companies or Mexican individuals for (x) Gaming Law, but it also distinguished between the establishment and operation of betting capturing bets by internet, telephone or any other activities in horse-racing tracks in a temporary electronic means, which is permitted only for venue and in cock-fights (pelea de gallos), for a those gambling activities authorized by the maximum of 28 days or a term equivalent to the Gaming Law and require prior authorization of duration of the authorized season; and (y) for the the Ministry, and gambling over the internet, – 3 – fine of $500 to $10,000 Mexican pesos ($50 to $1,000 US Dollars approx.) to “those that without the Ministry’s authorization, are in any manner involved in the sale or enfoqueLatino circulation of lottery or gambling tickets or chances that NEWSLETTER are being carried out abroad.” which is a not regulated area.1 The Future of Mexican Gaming In addition, the Supreme Court recognized the The future of legal Mexican gaming and associated constitutionality of Bingo or numbers and symbols investment, development and recreational opportunities raffles, both during fairs and in remote betting centers. are now back in the hands of Congress, who has the authority and responsibility to bring the law into the Advertising for Gaming Services new internet age. Propaganda and advertisement of games and raffles Changing Mexican laws to allow gambling, however, is requires a prior authorization from the Ministry. no small undertaking; various issues have yet to be Gambling advertisement on paid-television in Mexico resolved. may be conducted if a license has been obtained before the Ministry in accordance with the Regulations. Proposals and measures to legalize casinos have languished for years in the Mexican Congress. There has The advertising of non-licensed betting services in been an ongoing debate as to whether the risk of Mexico is punishable. Pursuant to Mexican law, it would allowing casino gambling in Mexico may outweigh the not be possible to claim a prize from an online betting economic benefits (such as development and attraction service that is not licensed in Mexico. to foreign investment, creation of new jobs and increase of tourism). Opponents say casinos will be a haven for In this regard, section 12-III of the Gaming Law imposes money launderers and attract organized crime, drug a prison term of three months up to three years and a trafficking, prostitution and gambling addictions. It is well known that a prohibition policy also has negative effects and encourages the behavior it seeks to curtail. It is no secret that large numbers of illegal gambling halls exist across the country. A far more sensible policy would be to finally legalize casino gambling, including Internet bookmakers. This would allow policies to be put in place that could limit the potential excesses of gambling and minimize the role of criminal elements. Even as politicians continue to argue over both a comprehensive gambling law and the validity of the new licenses, it is anticipated that the growth and explosion in the gaming industry will continue and that entrepreneurs will not wait for the outcome. They will work with the law as it currently stands and will find new means to justify gaming machines by eliminating the element of “chance” so that personal skills determine and control the final result. 1 In this regard Justice José Ramón Cossio stated: “It seems to me much more reasonable to have off-site betting centers that are licensed and controlled by the Ministry than to have people betting on the Internet, which is more difficult to be controlled…” – 4 – Public Green, Private Gold: Opportunities from Climate Change Regulation in the U.S.