Mexico gov opens corruption probe in deadly fire

August 31, 2011 - 9:30 PM
Mexico Casino Attack

People, one holding up a sign that reads in Spanish

MONTERREY, Mexico (AP) — A casino fire that killed 52 people in the northern city of Monterrey has put new pressure on the government to regulate a rapidly growing gambling industry that many Mexicans believe is vulnerable to corruption, money laundering and extortion.

The state of Nuevo Leon, where Monterrey is located, launched a new offensive Wednesday against casinos as a videotape was released of the brother of the city's mayor taking wads of cash inside an unidentified gambling establishment days before last week's deadly arson attack.

Mexico's gaming boom has occurred under the administration of President Felipe Calderon, which has led a bloody crackdown on organized crime. The Calderon government says it has not approved a single casino permit since he took office in late 2006 and blames judges for issuing injunctions to allow gambling halls to operate outside of local authority.

Since March, a federal judge and a court secretary have come under investigation for rulings related to casino operations.

London-based researcher Gambling Compliance Ltd. says Mexico may have eclipsed Brazil, Panama and Argentina as Latin America's largest gambling market. Mexico's largest gambling interest, the publicly traded Spanish company Codere SA, says the boom has outpaced government regulation.

"The pace of growth has been very fast, outstripping the authorities' ability to enforce the existing regulations, including prosecuting those who are operating without the necessary permits," David Elizaga, Codere's chief financial officer, said during a conference call with investors last week.

Gambling businesses must report their earnings to Mexico's tax agency, which industry experts say has had trouble monitoring the income of legal operations, let alone illegal ones.

Some 700 soldiers, federal police and tax agents raided 11 casinos and confiscated more than 3,500 machines in Monterrey and Mexico City over the weekend, an operation the tax agency said was part of its regular enforcement.

Nuevo Leon Gov. Rodrigo Medina on Wednesday announced initiatives to ban new betting operations and to better regulate existing ones and said he will push for changes in federal law so no concession is granted for a casino without the approval of state and local authorities.

He also launched a corruption probe into Jonas Larrazabal, brother of Monterrey Mayor Fernando Larrazabal, who was seen on tape visiting casinos and being handed large amounts of money.

The newspaper Reforma, which published the images Wednesday, estimated one wad of cash passed in a cell phone box was 400,000 pesos ($32,000).

The mayor said that he supports the probe. "I'm not responsible for my brother's actions," he said. "I will ask the prosecutor to investigate and bring whoever is responsible to justice."

Jesus Martinez, lawyer for Jonas Larrazabal, told Milenio TV that his client goes to casinos for fun, like any customer, but also sells them cheese, mezcal and other products from the southern state of Oaxaca. He said he has asked his client to provide documents to prove the sales so he can give them to authorities.

At least two proposals to better regulate gambling have been pending for months in Mexico's Congress, including one that would create a federal gaming commission, according to a Gambling Compliance report.

Gunmen entered the Casino Royale in Monterrey on Aug. 25, spread gasoline and set the building on fire, trapping and asphyxiating dozens of gamblers and employees in what's believed to be a case of extortion. Most of the victims were women playing bingo and slots or lunching that afternoon.

Officials say the five suspects arrested so far confessed to being part of the Zetas drug cartel. Authorities says they are searching for seven others. They've also ordered the casino's owners to appear and believe the owners are in the United States.

It was one of the worst attacks on civilians related to drug gangs since Calderon's crackdown on cartels, prompting him to call three days of national mourning last week. At least 35,000 people have died in drug violence across Mexico, according to government figures, though other sources put the number at 40,000.

There have been several attacks on casinos in Mexico, all suspected extortion attempts. Casinos also have been used globally to launder money, though there have been no specific cases of this in Mexico.

Allegations of public corruption involving casinos were rampant even before the Larrazabal videotape. A judge and a court secretary are under investigation by the federal court and the attorney general for connections to casinos, said a court official, who discussed the matter on condition of anonymity because he wasn't authorized to release the information.

Esiquio Martinez, a court secretary, was detained earlier this year and is under investigation for illegal enrichment and irregular activities after 400 million pesos ($32 million) showed up in his bank account, the official said.

Ricardo Hiram Barbosa, a federal judge in Monterrey, has been suspended and is under investigation after several complaints about his rulings in favor of casinos, the official said.

No one has clear numbers on how many casinos or gambling machines operate in Mexico, legally or otherwise.

The investigative magazine Proceso obtained statistics that say the number of casinos, legal and illegal, has quadrupled under Calderon to nearly 800.

The Interior Ministry says 100 new establishments have been allowed to open during Calderon's term for a total of 561 establishments, though only 306 are operating. All were issued by court order and not by the government.

Legal gambling machines in Mexico number anywhere from 70,000 to 90,000, according to industry experts. But they say thousands or even tens of thousands more operate illegally.

Three large corporations hold most of Mexico's casino permits, including Grupo Caliente, headed by former Tijuana mayor Jorge Hank Rhon, Codere and Apuestas Internacionales SA, a subsidiary of the Mexico's giant Televisa network.

While there have been many allegations that Hank Rhon is tied to organize crime, there has never been any proof. He has countered allegations over the years by hiring respected former U.S. law enforcement officials who have vouched for him and his company. He was arrested in June on weapons charges and on suspicion of ordering the murder of his son's former girlfriend, only to be let go for lack of evidence.

Most complaints have centered on smaller companies such as Atracciones y Emociones Vallarta SA, operators of 26 betting operations. Casino Royale doesn't appear on its list of licensed venues on the Interior Ministry gambling regulation website, only in a link to a court injunction allowing the casino to operate. At least one other Vallarta operation was among the 11 casinos raided by federal authorities last weekend after the fire.

Alfredo Lazcano, a Mexico City lawyer who represents casino equipment makers, said he steered clients away from Casino Royale after negotiations about two years ago to install equipment.

"I never got physical proof that they had licenses. I didn't like it," he said.

Federal congresswoman Lizbeth Garcia Coronado, who serves on the tourism committee, filed three gambling complaints with the federal Attorney General on May 2. One charged that 16 casinos were operating illegally in Monterrey, including Casino Royale.

She says the interior ministry allows the casinos to proliferate by not acting on the permit applications within the required 90 days, which moves their fate to the jurisdiction of the courts.

"It's a trick between the interior ministry and the courts," she said. "If the interior ministry had listened to my complaints, I'm sure that a lot of people who died Thursday would still be alive."

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Associated Press writers E. Eduardo Castillo in Mexico City and Porfirio Ibarra Ramirez in Monterrey contributed to this report.