Image: Protests after casino fire
Arnulfo Franco  /  AP
Demonstrators, one holding up a sign that reads in Spanish "Love, solidarity, peace, union," protest in Monterrey, northern Mexico, on Aug. 28. Hundreds of people protested outside the state government offices three days after an arson attack on a casino killed some 52 people. Most held protest signs against political leaders.
updated 9/2/2011 3:17:12 PM ET 2011-09-02T19:17:12

A casino fire that killed 52 people in the northern city of Monterrey last week has put new pressure on the Mexican government to regulate a rapidly growing gambling industry that many 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 the 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 2006 and instead blamed 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 their rulings approving 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, S.A., 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," said David Elizaga, Codere chief financial officer, speaking in a conference call with investors last week.

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

Story: 'Fast and Furious' fallout: ATF boss reassigned; US attorney losing job

Nuevo Leon Gov. Rodrigo Medina announced initiatives to ban new betting operations and to better regulate existing ones. He 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 that one wad of cash passed in a cell phone box was 400,000 pesos ($32,000). Mayor Fernando Larrazabal 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."

Medina also said he will push for changes in federal law so that no concession is granted for a casino without the approval of state and local authorities.

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

Casino suspects are part of Zetas drug cartel
Gunmen entered the Casino Royale in Monterrey last Thursday, 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 owners to appear and believe the owners are in the United States.

It was one of the worst attacks related to drug violence on civilians 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, according to government figures, though other sources put the number at 40,000.

Image: Security checks in Monterrey
Hans Maximo Musielik  /  AP
Federal police officers check vehicles in Monterrey, Mexico, on Monday. Police in northern Mexico arrested five alleged members of the Zetas drug cartel suspected of setting a casino fire that killed 52 people.

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

But allegations of public corruption 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, according to a court official who couldn't be named because he wasn't authorized to speak on the record.

Esiquio Martinez, a court secretary, has been detained and investigated for illegal enrichment and irregular activities after 400 million pesos ($32 million) showed up in his bank account, the source 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 source 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 casinos, legal and illegal, have quadrupled under Calderon to nearly 800 compared to about 200 when he took office.

The Interior Ministry says 100 new permits were granted during Calderon's term but all of them 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 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 a subsidiary of the Mexico's giant Televisa network.

But most complaints have centered on smaller companies such as Attraciones y Emociones Vallarta, S.A., operators of 26 betting operations, plus the Casino Royale, according to the city of Monterrey. At least one other Vallarta operation was among 11 casinos raided by federal authorities last weekend after the fire. Some 700 army, federal police and tax agents confiscated more than 3,500 machines in Monterrey and Mexico City, according to the Interior Ministry.

Alfredo Lazcano, a Mexico City attorney who represents casino equipment makers, said he steered clients away from Casino Royale after two years of negotiations 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."

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

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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