Gambling Law
What is the difference between gaming and gambling law?
Gambling law regulates criminal activities of people or businesses through state anti-gambling statutes, whereas gaming law regulates licenses and rules that must be followed in order to open and run a place of gaming.
Federal gambling laws, a detailed listing of state anti-gambling laws as well as state charitable gambling laws may be found on my colleague Chuck Humphrey’s website at: http://www.gambling-law-us.com/
Basics of Gaming Law
Gaming is one of the most highly regulated businesses in the United States. This regulation causes the gaming application process to be rigorous, forcing the applicant to provide significant information about personal and business endeavors, which then is investigated. It is of paramount importance that an applicant provide full disclosure and truthful answers to all questions. Failure to do so could result in not being able to obtain a gaming license.
Most gaming regulatory structures, as well as in Colorado, are two tiered, consisting of a decision making group and a staff function group. In Colorado the decision making group is called the Colorado Limited Gaming Commission (CLGC). The CLGC is made up of 5 members with no more than 1 member coming from the same congressional district and no more than half coming from the same political party. One member has to have a law enforcement background with five years experience, one with a legal background and five years experience, one has to be a certified or public accountant, one has to have a business management background, and one is a citizen at large. All are appointed for 4 years by the governor and confirmed by the senate on staggered terms and can be re-elected once. No commission member can have an interest in any casino, and no family members can gamble at any of the casinos. In CO the director is appointed by the head of the department of revenue. The CLGC has the final say on all licensing matters and serves as the adjudicative body (disciplinary action) unless the duties are delegated to the staff function group which is always an option. Also the CLGC reserves the right to review decisions of people who appeal decisions from the staff function. Most CLGC positions are done on a part time basis
The Staff function in Colorado is called the Colorado Division of Gaming. This division provides all of the staff functions and makes recommendations to the gaming commission such as audits or investigations. Also most staff functions are full time positions. There are three divisions within the Colorado Division of Gaming that you might have to deal with on a regular basis and include the audit division, investigative division, and enforcement division. The audit division makes sure money and slot systems are working properly. They do periodic spot audits and check on money in the cage and ratios of winners as well as check the financial reports of the casino. The investigative division is the division that will do the investigation into whether you can get a gaming license. They make sure people are suitable to be involved in gaming. The enforcement division makes sure all the gaming rules are followed and maintain the integrity within the casino.
The gaming amendment to the Colorado constitution signed into action in November of 1990, allowed for limited gaming in Central City, Black Hawk, and Cripple Creek Colorado. Limited gaming can have a variety of meanings which include limiting gaming by jurisdiction or location (only on the water, certain towns, etc.) limited by the types of games (slots, table games), limited by the amount you can bet (CO $5 max bet) or limited to when a boat is sailing or dockside (for riverboats). The Colorado amendment also established some requirements in which casinos have to follow in order to obtain a gaming license.
(1) All casinos had to be in commercial districts within the 3 towns discussed above as well as be in historical buildings, in which the gaming commission could determine what was historical.
(2) There usually had to be a pre-WWI facade.
(3) The gaming is limited the size of the building, 50% of a floor, or 35% of the building for gambling not including walkways, bars, cages.
(4) The amendment also allows the gaming commission to set the tax up to 40% of the adjusted gross proceeds (money that comes in minus the payout). The tax money goes towards the commission who sets the budget so that they can regulate gaming. Fines and licenses are also collected by the commission. The rest of the tax money goes to the historical society and others, and 50% goes to the state.
Gaming Licenses
In order to operate a casino legally in Colorado gaming licensing must be obtained by every employee involved in gaming. The type of license depends on an individual’s specific job and the license must be renewed on a yearly basis for all licenses except for support and key licensees which expire after two years. There are five types of gaming licenses in Colorado which include:
(1) Retail license
a. The retail license must be obtained by anybody operating a casino and allowing gaming on their premises, including the business itself
(2) Manufacturer/distributor license
a. The manufacturer/distributor license must be obtained by anybody who makes any kind of gaming devices (slots) or anybody who distributes gaming devices and sells them to casinos.
(3) Operator license
a. The operator license must only be obtained if a retail license has not been obtained and you are a business allowing gaming or slots on your floor.
(4) Key employee license
a. The key employee license must be obtained if you are in charge of making significant decisions over the whole gaming operation of a casino. Some examples include a CEO or cage managers. There must be at least one key employee present during operation so that somebody can be responsible in the event something goes wrong at the casino.
(5) Support license.
a. Finally there is a support license which is for everyone else that we haven’t talked about that is involved in gaming. People who have to obtain these licenses could include a ticket in ticket out clerk or a bar tender because they make change or make payouts.
When being involved in gaming we must always remember that gaming is a matter of privilege conferred by the state rather than a matter of right. That gaming is a unique enterprise and the sole responsibility for licensing is vested exclusively in the gaming commission because they are familiar with the unique enterprise. The gaming commission has full power to deny any application for any cause deemed reasonable.
Is it a good idea to have a gambling educational program?
It is always a good idea to have a gambling educational program. We must take into consideration that 95% of Americans enjoy gaming responsibly but there are 5% which might have some sort of a gaming problem. This means that the Casino and the gaming community have a responsibility to help those in need even though there is no legal obligation to help. In order to help casinos should come up with gambling programs, educate employees to spot compulsive gamers, and make brochures that can help compulsive gamblers deal with their problems and let them know where they can get help. You must remember that these kinds of programs will not work unless the upper management is supporting the programs. You want to promote a corporate culture and responsibility. If employees believe in the program they will help others. This all helps to increase the business base and awareness in the community. In order to get employees to buy into the program it is a good idea to set goals and targets as well as provide some sort of incentive program for the employees who can spot and help problem gamers.
Employees can do three things to help:
(1) Have the brochures for the employees to hand out
(2) They can share information (hotline, counseling), and
(3) They can ask simple questions to patrons such as (are you having fun?).
It would be a good idea to have a director of marketing or communications director involved in implementing these programs. You should also be aware of underage gaming and implement an employee pledge program so that they support underage and problem gaming. These programs are often paid for by casinos for their own employees to get help, funded from non-profit organizations, and some times privately funded. If your casino is caught allowing underage gaming, it could be shut down or fined so you must take this very seriously and allow all employees to card anybody who might be under 21.
What are the disciplinary procedures used by the Colorado Division of Gaming?
In Colorado, the disciplinary procedures in gaming are progressive. This means that for each violation of the gaming rules by an individual working in a casino or a violation by the casino itself, as regulated by the Colorado Division of Gaming, the potential penalty may increase in terms of warnings, fines, or potentially getting the casino shut down. All violations are kept track by the Colorado Division of Gaming and with the first violation usually comes a verbal warning to the casino or employee. After a verbal warning is given, a written warning is usually issued if the violation has not been fixed or attended to within a timely fashion. The time it takes to fix a problem may vary depending on the violation. The written warning will set forth what the observed violation was and usually goes to the retail licensee of the casino. A written warning requires a written response which addresses the violation and says what has been done to fix the problem.
If a written warning has not been successful in addressing the violation, the Colorado Division of Gaming will prepare an order to show cause. This order must be approved by the Colorado Limited Gaming Commission for issuance, and will be delivered to the licensee who has violated the gaming regulations. This order asks for reasons why disciplinary actions should not be taken against a gaming license. After an order has been issued to an individual or business, it is up to that person/business to put everyone with whom they are involved in gaming with on notice and let them know that an order has been issued, what the order was issued for, and when the hearing regarding the order will take place.
The most severe disciplinary action that can be taken in Colorado related to gaming is a notice of summary suspension. This action is usually not issued to businesses but to individuals or key employees who violate gaming regulations.
Do casino’s have to comply with Title 31?
All casinos required to comply with Title 31, which is also known as the Bank Secrecy Act (BSA). Compliance with Title 31 is mandatory in all casinos in Colorado as well as in other states in order to avoid civil and criminal consequences if regulations are not followed properly. Having a Title 31 compliance program as well as a compliance officer within the casino is imperative. The BSA focuses on cash in and cash out transactions in excess of $10,000. A cash in transaction involves cash being brought into the casino through a guest. An example would be a guest giving cash to the casino cage and getting playing chips. A cash out transaction would involve cash being given out to a guest, or cashing in chips or getting money from a slot machine. When a transactions totaling over $10,000 in cash occurs during a gaming day within a casino, a Casino Transaction Report for Casinos (CTRC) must be filed and sent to the Financial Crimes Enforcement Network (FINCEN) headquartered in Detroit. A gaming day is defined by a casino and is any 24 hour period within the casino. A CTRC report does not need to be filed for cashier checks or anything else not involving cash since these items are easier to track in case there are any problems. Also, this information is reported to the Internal Revenue Service (IRS) on a form which must have the name, address, and information of a customer so that a multiple transaction log (MTL) may be filed. A MTL may be filed at a minimum of $5,000. These financial reports must be filed within 15 days of the money transactions. Also, these reports must be in writing and identify a Title 31 compliance officer. Furthermore, a casino must have somebody in senior management involved in the BSA compliance program such as a CFO or Controller. Also the program must be tested every 6 months and include a training program for employees. In terms of training, higher level employees will require more training than lower level employees. For instance a person working in the cage should get a higher level of training than somebody who works in the gift shop. Employees giving change for slot machines would have moderate training. The training should also include how to fill out an MTL. The report is usually filled out by a shift or floor manager which would be considered a draft report. The accounting department should then complete the report. A copy is made to show that the report is filed timely, and the information is correct. If the report is not correct there are serious penalties which could result in fines or a suspension of a gaming license.
In addition it is important that a casino gather information on their patrons through looking at driver’s licenses or passports to verify identity and have the information if it is needed for any reason. This can usually be done when players sign up for players club cards which keep track of a players gaming activity in order to award prizes or complimentary items such as food. All reports should be kept on file for a period of 5 years. This is done so that if gaming regulators or law enforcement want to look at reports, they can see them. FINCEN may give the regulators a copy of the reports; however Fire Mesa would not be able to obtain any copies from FINCEN.
Should a casino report suspicious activity?
Every casino should also be active in identifying any suspicious activity that might be occurring on the premises in order to minimize any kind of risk to the business or guests. If an employee believes that suspicious activity has occurred, then it is mandatory that it be reported. Suspicious activity may come in many forms and it is at the discretion of the casino to determine if any suspicious activity has occurred. If the casino believes that any kind of suspicious activity has occurred a Suspicious Activity Report for Casinos (SARC) detailing the activity must be filed with FINCEN within 30 days of suspicious activity. The SARC was implemented under the impression that casinos need to know their customers better than the regulatory agency. Suspicious activity may include any guest or employee attempting to avoid Title 31 and anybody asking what the gaming day is who is not privileged to know. If a person finds out what the gaming day is, they may be tempted to involve themselves in the suspicious activity of structuring. Structuring is done to avoid Title 31 and break money transactions up within a casino so that they occur over two different gaming days. This kind of activity is considered suspicious since money paid out or coming in over a gaming day might be less than $10,000 if no structuring occurred and Title 31 may be avoided. If a casino believes structuring has occurred, it is a good idea to look for patterns in guest cash transactions. Those involved in structuring can move from casino to casino cashing out funds without gambling and trying to break between the gaming days. In terms of not being considered suspicious, oddly dressed regular players don’t need a report, because the casino should be familiar with these players. When an employee files the report, they have complete immunity in the matter and are also prohibited from telling the suspicious person that they have filed the report. Also, if there are any disputes within a casino involving $200 or more, such as a slot machine not paying out when looks like it should have, the Colorado Division of Gaming must be notified. The Casino must report the incident. If no report has been filed, the law has been violated and a casino could be subjected to disciplinary action.
Does my casino need a compliance program?
In order to make sure a casino has complied with all of the rules and regulations involved in gaming, a compliance program should be implemented within the casino. Although a compliance program is not mandatory, it will help to insure the casino runs smoothly. It also should be noted that compliance programs are sometimes required in order for a casino to obtain a gaming license. The compliance program is implemented on a holding company level and affects all other entities of the company. A compliance program is a good idea to implement in order to protect the gaming license and make sure people take compliance seriously and to protect integrity of gaming company.
The compliance program needs to be in writing and has to have a mission statement. The writing should list the five main topics which include, having a definition section (material transaction, material litigation, unsuitable person or transaction or situation), stating the process for investigation, provide when the committee will meet, what the recording and reporting requirements are, and who is required to attend the compliance committee meetings and who invited guests may be. Once the compliance plan is in place and written, the board of directors of the holding company must adopt it as well as the gaming regulators if the plan is required. If there is a problem with the compliance plan the casino must amend the plan and send the new plan to the regulators who must approve it, then the board must approve the amendment. Usually a senior executive of the holding company is on the compliance committee which usually includes five people. The committee should have a compliance officer, an internal auditor (accounting person), somebody from security or surveillance, and an outside person with no relationship to the company (understands the gaming regulatory program). There are five main points to having a compliance plan and committee which include, that there will be assurance that compliance with all gaming laws in all jurisdictions for the licensee and affiliates will occur, that the board of directors will get advice on gaming issues that will adversely affect (directly or indirectly) the companies suitability to maintain their license, to make sure that the company reports on a regular basis to the agency that gives the gaming license, act as a liaison to the regulators (meeting minutes are sent), have people responsible for due diligence (checking up on things) by doing background checks on senior and key employees who are new employees, and looking at unsuitable situations often involving leasing land and researching it and looking at the people involved.
What is the Johnson Act?
It is also important that a casino comply with the Johnson Act. The Johnson Act is a generic statute that prohibits the interstate transportation of gaming devices across state lines and through federal territories. This act applies to components of gaming devices as well such as gaming tickets and tokens. There is an exception to the Johnson Act that a casino must be aware of. This exemption involves whether the state within which you operate or the state to which you are shipping the gaming device, allows for that device. If the device is allowed (it is allowed in Colorado) then you may ship the device if the gaming company registers with the justice department to get an exemption to ship the gaming device, slot machine or component part of the machine. The exemption is good for 1 year and is renewable. If a casino does not renew, then the Johnson act has been violated upon the expiration of the Johnson Act exception. It would be a good idea to plan ahead with getting the exception as soon as possible, so that gaming devices may be shipped to Fire Mesa in a timely fashion.
What type of Games are allowed in Idian/Tribal Gaming?
Indian gaming is a multi-billion dollar industry today up from $0 a year 17 years ago. Indian casinos may only have gaming on reservation or trust land and is currently located in 28 States.
Indian Gaming Regulatory Act Divided gaming into three categories
(1) Class one Games
a. Social games played for prizes or minimal value or traditional Indian games. (stick ball contests they could bet on)
b. Regulated by the tribe
i. Para mutual racing is not included (racetracks)
(2) Class two Games
a. Regulated by the tribes and the federal government (National Indian Gaming Commission)
b. Bingo, Pull Tabs, Non Banked card games (poker, playing against each other and not the house) – (A banked game is banked by the house)
(3) Class three Gaming
a. All other gaming
b. Roulette, Black Jack, horse track
c. Regulated a mostly by the tribe but there must be a compact between the state and the Tribes. This can only occur if the state has the same kind of games of its own on its own land. Once there is 1 class three game in the state, then you can have all class three games. (charitable casino nights can count)
d. Compact is an intergovernmental agreement between the state and the tribe to allow class three games.
i. If state refuses to have a compact, the tribe can sue the state
ii. Must negotiate for 6 months before state can be sued
iii. A compact can be created by the court even if the state does not comply
What kind of license do I need to serve liquor at a casino or entertainment event?
Getting a license
(1) Must have legal possession of the property where the liquor will be sold (owned or leased for more than 1 year.
(2) Apply for the license through the municipality
(3) Public hearing is held
a. People can say why or why not there is a need for the license
b. Usually people don’t object with a casino
(4) If a license is denied you can’t re-apply for 2 years
(5) Once the municpality approves the licenses the state makes sure there is not inconsitencies in the process.
Types of licenses
a. Licenses for a retail liquor store
b. Beer and Wine shops
c. Hotel/restaurant license
i. Requires you to serve significant food
d. Tavern license (must have limited snacks)
i. Limited to 3 licenses per person or business. Can’t be a part of any others
e. Retail, gaming, tavern license (casinos)
i. Allows them to sell beer, wine, spirits, and may provide as much or limited food as they want.
ii. Limited to 3 licenses because you can only hold 3 retail gaming licenses.
Additional Colorado liquor license information may be found at the Liquor Enforcement Division of the Colorado Department of Revenue:
http://www.colorado.gov/revenue/liquor
Richard Symmes
Jay Hsu
