The Gambling Law Review: Mexico
For the purposes of this chapter, and as defined in some cases in Mexican legislation, the definitions listed hereunder must be understood as follows:
- Aleatory contract. In accordance with civil law, an agreement where performance by one party depends on the occurrence of an uncertain event or an uncertain date (such as death in a life insurance policy), in which the profit of a party is the loss of the other. Although gambling contracts are classified under this category, gaming business (through permitted gambling contracts), as a state-controlled activity, is regulated under the Regulations of the Mexican Federal Law of Gambling and Raffles (the Regulations).
- Bet. Any amount of money (always in Mexican pesos) risked in a game allowed by the Regulations or by the regulatory authority, with the possibility of obtaining or winning a prize, the amount of which must be bigger than the amount risked.
- Draw. The sporadic activity in which the holders of any ticket obtained through the pre-selection of any number, combination of numbers or any other symbol, have obtained the right to participate, for free (e.g., free prize draws) or by paying, in any proceeding previously determined and authorised by the Gambling and Raffles Bureau, according to which one or more winners of a prize are determined through a number or combination of numbers, or a symbol or symbols, drawn at random.
- Gaming Law. The Mexican Federal Law of Games and Raffles, published in the Official Gazette of the Federation on 31 December 1947 and its Regulations published on 17 September 2004.
- Lottery. Regulations classify a lottery as a subcategory of a draw. The organising of betting on the results of lottery draws will require a permit (by event), including betting on the result of the domestic national lottery.
- Machines for the drawing of numbers and symbols better known as slot machines. A device of any kind through which a participant randomly places a bet by inserting a tab, ticket or any means of payment, in order to get a prize.
- Online gaming. A betting game that is performed through the web, in real time, through the use of any electronic device that can be connected to the internet, and in which there is no physical contact between the participant and the concessionaire. Online gaming should not be confused with the collection of bets through the internet, telephone or mobile at the remote betting centre, also known as sportsbooks. Under other legislation, spread betting is considered a form of online gaming, and no specific regulations or criteria have addressed this type of betting under Mexican legislation.
- Permit. The Regulations establish four types of gambling permits:
- permits for opening and operating horse and greyhound race tracks, jai alai fronton arenas, remote betting centres (sportsbooks) and betting centres or rooms for drawing numbers (land-based casinos under which live gaming, slot machines and online gaming activities are classified);
- permits for opening and operating facilities for gambling in national fairs (i.e., Feria Nacional de San Marcos);
- permits for the opening and operation of horse-racing tracks in temporary scenarios and cockfighting; and
- permits for drawings.
The work contained in this chapter will not address any comment to fairs, horse racing in temporary scenarios or cockfighting.
- Permit holder. Any individual to whom the Department of the Interior, through the Gambling and Raffles Bureau, issues an authorisation to carry out any activity in the field of gambling permitted by the Regulations.
- Price. The revenue of any individual of the income resulting from bets and raffles.
- Skill game. Games where the outcome is determined mainly by mental or physical skill, rather than by chance. Games of skill and competitive sports for prizes are not regulated under gambling legislation.
- Sportsbooks. A physical establishment authorised by the Gambling and Raffles Bureau to collect and operate bets on events, sports competitions and games, conducted in Mexico or abroad, broadcast in real time and simultaneously in audio and video. Pool betting is prohibited under the Regulations.
ii Gambling policy
On 31 December 1947, President Miguel Alemán Valdés published the Gaming Law, which has remained without any amendments for over 70 years. The Law, consisting of only 17 articles, expressly sets forth that 'gambling and raffles are prohibited throughout the national territory, in terms of this Law', although 'the Ministry of the Interior may lay down rules and authorise games with bets', and for years this has represented a regulatory gap that the authorities have tried to remedy through interpretations, public policies and regulations.
This uncertainty was not fully addressed until the ruling of President Vicente Fox Quesada, when the Regulation of the Federal Law of Games and Raffles was published in the Federal Official Gazette on 17 September 2004, which was modified in 2013 with important amendments, in order to make it compatible with historical realities, the needs of the emerging industry and technological advances. However, there is still a lot more to be done in matters such as training, live gambling, online gaming, responsibilities and secure gambling.
On 27 November 2014, the Special Commission to Investigate the Performance of the Entities of the Federal Government related to the Granting of Permits for Gambling and Raffles submitted a new bill. The purpose of this bill was to regulate gaming activities so that they could be carried out in a responsible and safe way to guarantee the rights of participants, concessionaires and operators and set the guidelines and limits for authorisation, control, surveillance, inspection and penalties of behaviour on the matter.
This 'new' Federal Law was approved on 3 December 2014 by a majority of the members of the Chamber of Deputies, and was sent to the Senate for review and approval, which at the time of writing has not happened, and is unlikely to be approved during Mexico's new administration (2018–2024).
In recent years, policies against illegal gaming have been strengthened, causing many closures of unregulated casinos and the revocation of permits. Although certain projects have been authorised, the current administration has been reluctant to alter the position towards new land-based casinos and sportsbooks.
iii State control and private enterprise
Even before Mexico became an independent country, the state was directly involved in several national lotteries, such as New Spain's Royal General Lottery (1771), which made the first contribution to public charity, channelling it to New Spain's Hospice for the Poor. As a result of its success, many other lotteries and raffles took place at the same time at convents, parishes and schools, in order to obtain resources.
Currently, the main purpose of the National Lottery for Public Assistance, which is a decentralised organ of the federal government, is to economically support the federal executive branch's public welfare activities, obtaining for such purpose any resources obtained thereby through lotteries.
There is no prohibition whatsoever in the legislation against the organisation of lotteries through private parties; in other words, any private party that meets the corresponding regulatory requirements (established by the Regulations) may organise lotteries that may compete with those organised by the National Lottery for Public Assistance (ruled by the Organic Law of the National Lottery for Public Assistance and its regulations).
iv Territorial issues
In terms of the Mexican Constitution, gambling and raffles legislation corresponds exclusively to the Federal Legislative Power, through Congress. Likewise, the Federal Executive Branch has the power to issue regulations on every law issued by Congress, in terms of Section I of Article 89 of the Constitution.
Local congresses of each of Mexico's states are authorised to allow or prohibit the opening of establishments where gambling and lotteries take place, through the authority they have to legislate on urban development matters.
Therefore, although it is true that local authorities are not legally entitled to prohibit gambling and lotteries, it is also true that they may indirectly prevent and veto the installation of land-based casinos and sportsbooks, such as through zoning prohibitions. For example, the Constitution of the Mexican state of Guanajuato provides the following prohibition:
Article 5. The owner of one thing may enjoy and sell it with the limitations and modalities established by the laws.
Zonings and buildings to be used as casinos, gambling centres, lottery rooms, gaming houses and similar establishments, as well as for the establishment of show centres featuring naked or semi-naked people are prohibited.
In Mexico, there are no places or territories that are legally favoured for the opening of casinos. However, there are have been unexecuted projects that meant to favour the opening of this kind of establishment in the country's key or preferred tourist zones, such as the Mayan Riviera, in the state of Quintana Roo, and Loreto in Baja California Sur, among others.
Although there is a federal tax on gaming (the IEPS), local legislative powers may establish local player-withholding taxes, local operator taxes and taxes on gambling winnings (prices).
v Offshore gambling
Currently, the authorities' efforts are concentrated on the sector's internal regulation and control in Mexico. Although there is no clear prohibition under the Regulations, it is reasonable to sustain that anyone placed in Mexican territory cannot participate in offshore gambling; that being said, there are no effective systems or means of control that may directly pursue such gaming activities, or products that exist beyond Mexican borders, specifically online gaming products.
However, in order to promote, advertise through any means or publicise any lottery, draw, land-based casino in Mexican territory, or online gaming activities, it is necessary to comply with the specific provisions of the Regulations, and to display the Ministry of the Interior authorisation folio, otherwise such activities may not be publicised in any way whatsoever.
Notwithstanding the above, the project of the new bill confers powers to the regulating authority to implement mechanisms to effectively prevent, control or combat offshore gaming activities in Mexico.
Legal and regulatory framework
i Legislation and jurisprudence
The following are the governing gaming and lotteries laws:
- the Political Constitution of the Federal Mexican United States;
- the Federal Gaming and Lotteries Law published in the Federal Official Gazette dated 31 December 1947;
- the Regulations to the Federal Gaming and Lotteries Law published in the Federal Official Gazette on 17 September 2004; and
- the Federal Law of Administrative Procedure.
Branches of related law are:
- administrative law for the installation and operation of gambling and lottery establishments;
- criminal law for combating illegal gaming and money laundering;
- corporate law for the fulfilment of the corresponding administrative law in the incorporation of permit holders and operators, such as good governance provisions;
- tax law for the payment of taxes and contributions;
- health law to avoid irresponsible gaming and ensure health measures;
- consumer protection for the protection of the participant's rights; and
- anti-money-laundering law regarding activities associated with the practice of betting games, contests or lotteries.
To date, the area of gambling and lotteries has been regulated by a law dated 1947 and by regulations dated 2004, which means that there is very little relevant jurisprudence. However, as a result of a constitutional claim (114/2013) filed by the House of Representatives of Congress, demanding the invalidity of the amendments to Articles 2, 91 Section IV, 137 bis, 137 ter and 137 quater of the Regulations, the constitutionality of the legal provisions that allow lotteries of numbers and symbols through the use of machines were analysed, and the Supreme Court of Justice, Mexico's highest court, established their validity and lawfulness, which is considered a triumph because it ended a dispute regarding the fact of whether or not such machines are included in the prohibition established in Article 1 of the Gaming Law.
ii The regulator
Ministry of the Interior
The Ministry of the Interior, through the Gambling and Raffles Bureau, is in charge of issuing the corresponding licences in order to hold gambling and lotteries, provided that the requirements established in the Regulations are met.
In Mexico, the Interior Minister is appointed by the President. The head of the Gambling and Raffles Bureau (the Director) will define the criterion to be followed under its administration, and is appointed directly by the Interior Minister.
Tax Administration Service (SAT)
The SAT is the federal authority in charge of collecting taxes resulting from gambling or lotteries (tax credits).
Financial Intelligence Unit
Under the Anti-Money Laundering Law, all activities associated with the practice of betting games, draws or lotteries carried out by decentralised organisms in accordance with the applicable legal provisions, or carried out in accordance to permits, are considered vulnerable activities.
Department of Health
This federal agency, through the National Commission Against Addictions and in coordination with the National Centre for the Prevention and Control of Addictions, is in charge of carrying out actions for the attention of pathological gaming 'gambling addiction'.
iii Remote and land-based gambling
It is undeniable that in recent years our lifestyle has changed owing to the constant and sudden progress of technology, means of communication and trends. One such progress in technology is the installation, operation and profit collection through gambling on the internet or mobile phones, interactive shows, as well as participation in online gaming. Unfortunately, such changes have not been adopted by our legislation yet, since it is mainly focused on the regulation of physical establishments (land-based casinos and sportsbooks).
The above is exemplified in the Regulations, which specify only in a limited number of articles (specifically Articles 85, 86, 87 and 104 of the Regulations) the attraction of telephone, electronic and internet betting (online gaming). Naturally, such a limited provision left a hole that needed to be filled by several criteria or policies from the authorities, issued through official communications and permits.
Currently, several authorisations for the offering of remote bets by remote betting centres or sportsbooks, as well as for the operation of online gaming through the internet or mobile phones, have been granted through the Gambling and Raffles Bureau of the Ministry of the Interior.
iv Land-based gambling
Regarding land-based casinos and sportsbooks, regulations establish and define the following:
- Betting centres, drawing numbers rooms, or both: physical establishments in possession of an authorised operator or permit holder, where the lottery of symbols or numbers takes place through the use of machines (slot machines). These rooms may be installed together with remote betting centres or sportsbooks.
- Remote betting centres or sportsbooks: establishments authorised by the Ministry of the Interior to attract and operate bets on events, sports competitions and games allowed by the gambling profit collection, carried out abroad or within national territory, broadcast live and simultaneously in both video and audio, as well as for number lotteries. The foregoing is in accordance with Article 76 of the Regulations.
There is no limit to the number of establishments allowed per permit holder (land-based casinos and sportsbooks), so the authorities have discretion in determining such number. However, in order to end this practice, there is a proposed limit of one establishment per permit holder (Article 20 of the proposed new Regulations).
v Remote gambling
The Ministry of the Interior has authorised the development and operation of various games through the internet or mobile phones, and in such cases permit holders are required to seek and obtain the approval of their internal control systems for the transactions, procedures and rules that ensure no infringement and prevent any manipulation of betting systems over the internet or via mobile phone, so that these online casinos may be reliable and legal, based on honest behaviour, including towards the users.
One way to achieve this is by using modern software algorithms, as used for slot machines, which are based on random number generators, which should ensure the inviolability of betting systems and prevent their manipulation.
Moreover, and taking into account that online gambling has been legalised in several countries, given that the same have shown positive effects and results on the community, in order to continue with this image, online gambling providers must have the necessary controls, filters and tools to establish and develop responsible gambling, such as:
- Protection of those who are under age. Given that this is a matter of utmost gravity, teenagers under 18 years old must be prevented from having access to and playing at online casinos, through vigorous prevention and monitoring measures and discouragement. This is accomplished through software containing filters that monitor profiles and behaviour, to verify if an underaged person is accessing an online game.
- Responsible gambling. Users will be taught to gamble responsibly at all times so that the same may only be considered as a form of entertainment, conducting activities of education, information, prevention and control for compulsive gamblers addicted to or dependent on betting games.
vi Ancillary matters
In recent years, the trend has been to establish strong controls on slot machines, on the understanding that the authority has transferred to permit holders the burden to prove: (1) the lawful import of the machines into the country (through import rules); or (2) otherwise prove their domestic manufacture through the corresponding invoice, and that such documents meet the corresponding Mexican Official Standards such as 001 (electronic devices for domestic use fed by different sources of electricity – safety requirements and testing methods for type approval) and 024 (commercial packaging information, instructions and warranties for electronics, electrics and appliances).
Also, permit holders are obligated to file monthly reports regarding their inventory of slot machines, informing the Gambling and Raffles Bureau of any registrations and cancellations of, or changes to, the machines from one establishment to another and the final destination of the machines, as well as a quarterly report, including the machines in each establishment as of the date of the corresponding report. This is in order to have a full record of the machines that enter and are operating in the country, and to avoid any illegal gaming.
Moreover, the new bill, which is pending authorisation by the Senate, contemplates the obtaining of a registration by all companies engaged in the import, distribution, sale and lease of machines, as well as the obligation to certify or homologate all number or symbol slot machines, on the understanding that those that have not been certified by the authority may not operate in the country.
vii Financial payment mechanisms
Use of virtual assets such as cryptocurrencies may be made through fintech institutions (FTIs), entities authorised to operate through regulatory sandbox models, an area that has recently been regulated in Mexico under the Fintech Law published in the Federal Official Gazette on 10 March 2018.
As virtual asset management institutions, FTIs will contact third parties through digital means in order to buy, sell or dispose of their own or a third party's virtual asset, and receive virtual assets to make transfers or payments to a person, including another virtual asset management institution.
However, on 8 March 2019, Mexico's Central Bank (Banxico) published surprisingly restrictive criteria on the use of virtual assets, preventing consumers from accessing these payment mechanisms (in opposition to the primary legislation). Regulations have been in place for a short period of time, and the authorities, industry and market are still adapting to their content and compliance.
The licensing process
i Application and renewal
The requirements for the opening and operation of bets at horse and greyhound race tracks, frontons, and for the installation of remote betting centres and betting centres or drawing numbers rooms, are established in Articles 21 and 22 of the Regulations.
In addition to the above requirements, and in order to obtain such a permit, the information and requirements established in Article 22 of the Regulations to the Federal Law of Gambling and Raffles Law must be met.
Article 33 of the Gaming Law establishes a minimum duration of one year and a maximum of 25 years for such premises. The duration may be extended for subsequent periods of up to 15 years provided that the permit holders are up to date in the fulfilment of all of their obligations.
Once the application is filed before the Ministry of the Interior, the Gambling and Raffles Bureau will analyse whether or not the applicant meets the requirements established by the Regulations. Otherwise, it shall require the applicant to clarify or file the missing information within a period of 10 business days.
In the event that the requirement is omitted, the application will be dismissed. However, if the requirement is fulfilled, the Gambling and Raffles Bureau will review that the provided information complies with the applicable law.
Once the submitted information and documentation has been analysed, the Gambling and Raffles Bureau shall issue a resolution in which it may grant the Permit, or as the case may be, deny it, duly grounded in law.
The Gaming Law and Regulations do not establish a time frame for the permit-granting process. However, in practice, and in our experience, it takes between six and 12 months to do so. Application is free of charge.
As for the requirements for lotteries, all individuals and legal entities incorporated in accordance with the laws of the Mexican United States that wish to organise lotteries should comply with the information and documentation established in Article 26 of the Regulations to the Federal Law of Gambling and Raffles.
ii Sanctions for non-compliance
Article 17 of the Gambling Law and Article 147 of the Regulations provide the sanctions and infractions applicable to persons defaulting on the law, regulations or the terms and conditions of the permit issued by the Gambling and Raffles Bureau. The administrative sanctions given below may be applied jointly or separately, depending on the nature, seriousness and frequency of the infraction, taking into consideration the individual circumstances of each case:
- Fine. From 100 pesos to 10,000 pesos.
- Detention. Up to 15 days' imprisonment.
- Suspension of duties. Suspension for up to one year, of performing their respective activity, to players, referees, bookies or any other person who performs any duty in the corresponding show, game, establishment or lottery.
- Permit revocation. Considered a serious sanction, this may be applicable whenever infractions are frequent; in other words, when they are committed two or more times during one year.
- Closure of establishment. This is considered to be a serious sanction and may be applied whenever infractions are frequent; in other words, when they are committed two or more times during one year.
Article 151 of the Regulations to the Gaming Law provides the scenarios of serious infractions by the permit holder.
To impose any kind of sanction, the Ministry of the Interior must previously notify the offender at the beginning of the corresponding administrative procedure, in order for the latter to be able to provide the evidence it deems pertinent and to assert the corresponding legal arguments, in accordance with Article 152 of the Regulations.
The Ministry of the Interior's authority to impose the corresponding administrative sanction expires in five years, counted from the day on which the default was committed or administrative infraction, if consummated, or the date on which it ended, in the case of having been continuous. The foregoing is in accordance with Article 133 of the Regulations.
Whenever the infraction is committed by the players, referees, bookies or by any other person who performs any duties in the corresponding show, game, establishment or lottery, the Gambling and Raffles Bureau may sanction them with suspension for up to one year, or with permanent disqualification from performing the respective activity or duty.
Lastly, in accordance with Article 14 of the Gaming Law, the penalty of confiscation of all gaming tools and objects and of all goods or money that are of interest thereof shall be applicable, and the dissolution of the business or company that supported the perpetration of the crime may be declared.
Anti-money-laundering legislation is relatively new in Mexico. On 17 October 2012, the Anti-Money-Laundering Law was published in the Federal Official Gazette and became effective nine months later on 17 July 2013.
The Anti-Money Laundering Law has been complemented by the issuance of the Anti-Money-Laundering Regulations published on 16 August 2013, as well as by the Anti-Money-Laundering Rules published in the Federal Official Gazette on 30 August 2013.
The main factor that leads to the application of the Anti-Money-Laundering Law is for an individual or legal entity to carry out what the Law has specified to be a 'vulnerable activity'. Regarding gaming activities, the Anti-Money-Laundering Law establishes the following modalities (for transactions higher than a pre-established amount) as vulnerable activities: (1) the sale of tickets, chips or any other kind of similar receipt for the practice of betting games, contests or lotteries; and (2) the delivery or payment of prizes.
Some of the most relevant obligations of those who carry out vulnerable activities are:
- to register as 'performer' of the vulnerable activity referred to in Section I of Article 17 of the Anti-Money-Laundering Law, before the SAT;
- to identify clients, players or buyers, verifying their identity, based on credentials or official documentation, gathering copies of the documentation supporting such identification (in online gaming, this obligation will have to be fulfilled before the sale of tickets or game credit);
- to ask its clients whether they have knowledge about the existence of the owner or beneficiary and, in any case, to exhibit the corresponding official documentation that allows clients to identify the owner;
- to hold, protect, safeguard and avoid the destruction or hiding of information and documentation that serves to support the vulnerable activity, including information identifying its clients or users;
- to file notices regarding their respective reportable vulnerable activities before the SAT in the time frames and in the form provided in the regulations; and
- to refrain from receiving payments in cash for the purchase of tickets that allow participation in betting games, contests or lotteries, as well as the delivery or payment of prizes (for transactions higher than a pre-established amount).
The following taxes are applied to gambling operations in Mexico:
- Income tax. For tax purposes, such as Mexican corporations, Mexican residents must pay an income tax called 'profit tax' at a rate of approximately 30 per cent. This is applied to their entire income (regardless of its origin) minus authorised deductions (expenses). Casinos shall also pay an income tax called the tax on production and services.
- Permit fees. A permit fee has to be paid by permit holders to the Ministry of the Interior in an amount of 1 or 2 per cent of their income, depending on the origin of the bet and their permit. Generally, the fee is 2 per cent on horse and greyhound race tracks and 1 per cent on national and international sporting events.
- Local and state taxes. Some Mexican states impose additional taxes to be paid by casino users (such as value added tax). The tax applies to the amount of the prizes received by the users, or for each machine installed.
Advertising and marketing
Advertising and publicity for gambling and raffles by any means may only be done once a gambling permit has been received from the Ministry of the Interior, and always in accordance with the following rules:
- permit holders shall not explicitly promote the gambling activities authorised by their permits;
- gambling advertising and publicity must be expressed clearly and precisely in order to prevent inducing the public towards an unsuccessful outcome, deception or confusion of the services offered;
- gambling advertising and publicity must always include the permit number;
- advertising should include messages that indicate that the gambling games are prohibited for minors; and
- advertising and publicity should include messages that invite people to play responsibly and with the main purposes of entertainment and recreation.
For some years now, there has been a draft of a new Federal Law waiting to be approved by Mexico's Senate. The bill contains some innovations such as the fact that permit holders may only be able to operate the game online (in opposition to authorised operators). Therefore, there would not be any possibility of supporting or delegating such activities or transactions to third parties.
The legal entities obtaining a permit for online games should fulfil the following obligations:
- to publish on the website the identification data of the permit allowing operation of the site, as well as the applicable law on the matter at hand;
- to provide information to the participant on the development of its selection of betting and how to recover it in the event of any communication problems;
- to establish the necessary controls to prevent access to persons referred to in Article 7 of the Law;
- to offer participants chances of restraint with respect to the time of playing the game or the betting amounts;
- to implement alert protocols that enable the detection of people suffering from addiction to gambling;
- to publish contact details of the institute and other institutions involved in the prevention and treatment of addiction to gambling;
- to refrain from offering free or sample gambling to any person;
- to provide support equipment that may process on a daily basis and consistently any questions and requests of participants in all languages in which the online service is provided, as well as to give assistance to the participant;
- to have available the means of monitoring and control established in the Regulations;
- to ensure the correct speed in carrying out site transactions, and be confident in performing the same;
- to comply with homologation processes established by the institute in relation to any format, server, support, hardware, software, website, digital mechanism, connection or bet online game mode;
- to ensure operational capacity and information security to guarantee data protection, as well as the confidentiality and integrity of communications;
- to ensure uninterrupted connection of any server, connection or online support with the computer server of the institute, allowing it to have control of the activities developed by the concessionaires and to monitor the same in real time, regardless of their original location;
- to ensure that each player has a single account and implement ways of communication or guidance by phone and online for the participant, as well as tests to verify its identity;
- to prevent players from betting or placing bets directly between them and implement the necessary controls so that payments of bets may only be made with credit or debit cards issued by financial institutions recognised by national authorities on the matter;
- without prejudice to the provisions of other laws, to preserve detailed information about the transactions performed electronically for at least 180 calendar days, in terms provided for in the Regulation;
- to refrain from transferring, leasing, assigning or delivering the permit to a third party to offer an online game for exploitation. Consequently, the permit shall be exploited directly by the concessionaire or, in the event of having the corresponding authorisation, by its operator;
- to refrain from installing physical modules for the uptake of betting;
- to refrain from offering or granting loans and credits to the participant, or otherwise increase the purchasing power of the same;
- the website must have the 'com.mx' ending;
- the concessionaire shall install a computer system on national territory to fully support the information provided for in the Regulation in real time; and
- operators shall not be allowed for online gambling. For this reason, the concessionaire shall directly operate and exploit it.
Mexico's former Secretary of the Interior has urged the senate to approve this new Federal Law. However, other reforms have taken priority in the legislative chamber.
1 Carlos F Portilla Robertson is managing partner and Ricardo Valdivia González is a senior associate at Portilla, Ruy-Díaz y Aguilar, SC.