Mexico Proposes Draconian New Gaming Law

A draft Federal Gaming Law has been proposed by Senator Maria Espinoza, a member of the ruling Institutional Revolutionary Party (PRI). The law would repeal the 1947 Federal Law of Games and Raffles which currently governs gambling.

Rationale

Apart from the old law being inappropriate for modern gambling, the motivation behind the proposed law is: “… to put in order a highly questionable activity … because of tragedies that have occurred as the result of its poor regulation and also because of the alleged illegality of a large percentage of the establishments engaged in betting.”

Additional motives quoted in the preamble to the law include the protection of the young and vulnerable; the protection of players and to combat money laundering.

A New National Gaming Commission

The new law proposes the establishment of a National Gaming Commission (NGC) within 180 days of the enactment of the law. The NGC would take responsibility for enforcement, inspection, verification and issuing licenses.

The NGC would also be required to maintain a central register of players not allowed to gamble because they have voluntarily self-excluded themselves; or been declared excluded on medical advice—which can be requested by a family member— or who are excluded by a judicial decision.

Players with complaints would be able to take them to the NGC which must conform to a strict timetable in investigating the claims. Players and operators with complaints would alternatively be able to opt for a formal arbitration mechanism to be established by the NGC.

Draconian Licensee Requirements

The new law would seriously impact operators offering online gaming to Mexican residents as it restricts licenses to operators who hold or are granted a license for a land-based gaming facility.

It also requires all servers to be based in authorized locations inside the country. All operating businesses must be legally established in Mexico and there are provisions to deal with corporate takeovers and changes in shareholding that require new owners to meet the same conditions as the original license applicants.

Those licensing requirements would exclude almost all major online poker operators as they require the major shareholders or beneficial owners of the Mexican licensed company to not be resident in countries with low taxes or preferential fiscal regimes—the list of countries to be determined by the Ministry of Finance.

Article 79 sets out a version of the bad actor clauses which some US States are including in their legislation. Sub-paragraph 17 sets out the requirement that any foreign operator must prove that it has a legal license to operate in any country where they do business and that the license regulations should set similar standards to those in the proposed Mexican law.

Scope of the Proposed Law

In determining what games are within the scope of the law, skill is specifically excluded as a factor. The determinant shall be whether money or an object of value is put at risk based on the outcome of the game.

The definition of permissible games has been drawn widely so that no form of gambling is specifically forbidden, but the NGC must authorize all games that are offered. Game device and software suppliers must also be licensed. This is a particularly onerous requirement which many international operators would find difficult to fulfill. Most gaming software licenses are held by a separate company and licensed to operators.

Home games are excluded, so long as they are not run for the profit of the organizer. All other games which fall under the definition of gambling, other than those such as the State lottery which have their own governing law, are covered by the new proposals. Any and all gambling carried out by Mexican residents is included and operators will need to get a gaming license.

Online Restrictions

All web sites which provide gaming must display prominent notices setting out the symptoms of problem gambling to warn players that they might be at risk.

Web sites must be registered as .com.mx, and operators must have a properly staffed support and help service fluent in all the languages used on the site.

There is a clause, Article 4, which is difficult to interpret that may make it difficult for poker networks. Players may be automatically redirected to one site from another but only if it is a .com.mx site owned by the operator.

Severe advertising restrictions prohibit advertising or banner messages on any site that is not explicitly set up for gaming. This can be interpreted to give permission for affiliate marketing, it does not appear that the marketing of gaming sites comes under the list of regulated activities requiring a separate license.

Online money laundering risks are tackled by the requirement that all gaming deposits and withdrawals, no matter how they are made, must be processed through licensed Mexican banking institutions.

Penalties

Stiff penalties are set out for operators who breach the law; “from three to nine years in prison and a fine from ten thousand to one hundred thousand times the current daily minimum wage in the Federal District.”

There are also potential penalties for players: “Players who knowingly attend a local betting centre that is illegal” — i.e. unlicensed— face criminal penalties of one month to two years in prison and a fine equivalent to between 500 to 1500 days of minimum wage. The law implies that this refers only to physical betting locations, but it is possible that the language could be interpreted to mean visiting an internet gambling site.

Player Funds Protection Absent

There is very little in terms of player funds protection in the bill. Operating companies are required to prove their financial viability, but there are no clauses demanding the separation of player funds from operating funds and no provisions to protect player money in the event a company runs into financial difficulty.