Illegal Gaming in Latin America: A Growing Problem?

While huge advancements have been made in almost every jurisdiction, and lawmakers have enacted sweeping gaming laws to create a more regulated gaming landscape, the Latin American gaming industry remains plagued by illegal gaming, slot machines, casinos and street lotteries. So just how widespread is illegal gaming in Latin America and what are governments doing to address the issue?

In Chile, which is widely regarded as one of the most well-regulated sectors in the region, illegal gaming has been growing rapidly over recent years, and there are now an estimated 150,000 illegal slot machines nationwide. In 2005, operators were invited to bid for 18 new casino licenses after the government passed Act No. 19.995, which allowed for the construction of casinos as long as they were part of hotel and improved tourist infrastructure. The act also created an independent gaming commission called the Superintendencia de Casinos de Juego (SCJ). The subsequent boom in gaming in Chile and the efficient way the new regulatory body supervised the industry ensured the law of 1995 was quickly adopted as a role model for other jurisdictions seeking ways to generate additional tax revenue and improve tourist infrastructure.

While the casino industry continues to be well-regulated, there has been an unfortunate upsurge in illegal gaming with slot machine parlors spreading throughout the nation, even though the 1995 act clearly states that slot machines may only be permitted in casinos. The rise of illegal slot parlors is really down to local municipalities, as local governments have allowed amusement arcades to operate in their jurisdictions, but they have not drawn a clear line between machines that award prizes and those that have an element of skill involved (skill-with-prizes machines) and slot machines. Subsequently, a great many slot parlors house both, with revenue increasingly deriving from the latter.

According to The Association of Chilean Casinos (ACCJ), illegal gaming has meant that casino tax revenue is down by as much as 20 percent this year. Indeed, the issue has become so serious that the ACCJ announced in June that it brought legal action against the head of the Chilean Gaming Control Board, Renato Hamel, for failing to provide adequate oversight of the industry. But rather than seeking to curb the rise of slot parlors, the control board is currently looking at ways to permit slot machines outside of casinos, arguing that “it is better to have some regulation rather than none at all.” Under current proposals now being considered by Hamel, small-scale slot machine parlors would be permitted and regulated jointly by the local municipalities where they are located and the SJC.

Recent developments would suggest, however, that local municipal governments are taking an increasingly hard line on the issue. In the capital, Santiago government inspectors carried out a sweeping on-spot inspection in July, during which they confiscated almost 1,000 slot machines and fined 28 arcade owners. The local government will soon vote on the issue to specifically outlaw slot machines in arcades. In another move, the mayor of the region of Valparaíso, Raúl Celis, has said his government will “make life impossible” for illegal slot parlor operators and is currently meeting with the state prosecutor and police officials to coordinate a strategy to tackle the issue. In the city of Valparaíso alone, there are an estimated 100 illegal slot parlors and a further 6,000 illegal slot machines in the state.

As is the case in Chile, the issue of illegal gaming in Mexico is also becoming an increasingly significant issue. A special investigative committee has recently been informed that there could be as many as 107 casinos currently operating without a license. As well as investigating the extent of gaming in Mexico, the committee has been charged with delivering a report to the Chamber of Deputies and proposing legal measures and legislation on the back of its findings. This could lead to a complete overhaul of Mexico’s gaming laws that date back to 1947.

In fact, fundamental change to Mexico’s gaming laws looks increasingly likely as the committee continues to unveil a picture of widespread corruption when it comes to the granting of licenses by the government and stays of closure granted to gaming establishments by local courts. The committee has been paying special attention to the workings of SEGOB (the Interior Ministry), the body that is responsible for industry oversight. This was after local lawyer Talía Vázquez Alatorre told the press last year that three ex-members of SEGOB, including her ex-husband, Juan Peña Neder, had been part of a corruption ring when it came to the granting of licenses.

So far the committee has asked that the District Attorney General’s Office look into the public complaints against former gaming officials and events related to the establishment of illegal casinos in the country, while the Mexican Data Protection Authority has ordered that SEGOB provide data on the granting of gaming licenses. Indeed, the longer the investigation continues, the bleaker the picture becomes.

Among its findings, the committee has discovered that there could be as many as 300 gaming establishments that remain open due to court stays-of-closure. And speaking in front of the committee, Alfonso Perez Lizaur, president of the Mexican gaming organization ASPJAC, revealed that on top of the more than 100 casinos that are operating without a license, as many as 250,000 slot machines could be located in small businesses, such as chemists and shops.

Illegal slot machines in small businesses are also a growing problem in Uruguay where, according to government sources, there could be as many as 20,000 located nationwide. The issue has become so serious that Head of the Uruguayan Gaming Board Javier Chá has called for urgent changes to Uruguay’s gaming laws as, according to government statistics, unregulated slot machines in Uruguay generate an estimated $170 million a year. This is not too far from the $240 million generated by legal slots. Despite this, there is very little political will when it comes to tackling the issue and previous attempts to eliminate all slot machines outside of casinos—such as the initiative put forward by the previous administration of President Tabaré Vázquez—have failed.

The new proposals put forward by the gaming board and being considered by the Uruguayan Parliament could, however, be greeted with more enthusiasm as the government would only be required to limit the number of slot machines to three per location and slot machines would only be allowed in bars. At the same time, taxes on legal slot machines in Uruguay could be raised in order to provide funds to local municipalities to close down illegal gaming establishments.

While advances in other jurisdictions are being made, there is still a long way to go, and authorities are waging an almost constant battle against the rising number of slot machine parlors. However, there is no doubt that governments are becoming increasingly aware of the issue and there is a growing willingness to act. In Paraguay, where illegal gaming still remains an issue and gaming is relatively under-developed, the government made major headway in 2012 when it placed illegal gaming offenses into Paraguay’s criminal code and empowered police to investigate and shut down illegal gaming centers.

Progress is also being made in Colombia. The new gaming board Coljuegos has been extremely active in closing down illegal slot parlors after it replaced the previous gaming board ETESA. The new board aims to increase tax gaming revenues—a vital source of funding for the Health Service—by as much as fivefold over the coming years. Huge improvements have also been made, especially in jurisdictions such as Peru, which has changed from having less than 5 percent of gaming operations regulated by the government to having illegal gaming eradicated.

All the same, many jurisdictions continue to suffer the adverse affects of illegal gaming due to antiquated gaming laws that are in urgent need of reform. Nowhere is this more clearly illustrated than in Brazil, where gaming legislation—which bans almost all types of gaming—dates back to 1946. While the law was amended to allow for bingo halls in 1993 and then slot machines in 1998, they were all banned in 2004 after a number of scandals involving the runners of an illegal street lottery, bingo hall owners and local politicians. Since then, the majority of bingo halls have been able to remain open by individual judicial order or via specific legislation now in place in several Brazilian states. As this continues, illegal slot parlors have increased nationwide, and while police carry out regular raids on illegal slot parlors, the raids have little long-term effect.

Over the last 10 years, regulatory bodies in Latin America have met varying levels of success in eliminating illegal gambling, while governments have struggled to create a clearer legislative framework in which the land-based sector can operate. As is the case in Brazil due to the sensitive nature of the issue, there is very little political will in some jurisdictions to address the issue directly, and proposed changes to old established laws have been met with a lukewarm response at best. Until governments adopt new gaming laws that address and regulate the modern gaming landscape and create gaming commissions with sufficient staff and powers to act, illegal gaming will, unfortunately, continue to grow.

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