Global Gaming Compliance, by John K. Maloney

GLOBAL GAMING COMPLIANCE
By John K. Maloney

INTRODUCTION

Regulation of the gaming industry by the various gaming jurisdictions, while reportably trying to strive for and ultimately accomplish the same goal, varies widely in how the regulatory oversight is carried out.  For many year Nevada was the sole jurisdiction in the United States to have casino gaming as we know it today.  Regulation of gaming in Nevada has continued to evolve, change, and adapt over the decades in order to keep up with the demands of an industry that continues and will continue to challenge the regulatory infrastructure.  The emergence of new gaming jurisdictions worldwide has placed added burdens not only on gaming regulators but also gaming companies.  Competition is intense in this industry yet many gaming companies respect that there must be a balance between commerce and compliance.

In the 1980’s, other jurisdictions around the United States introduced casino style gaming. These new gaming jurisdictions adopted their own set of gaming regulations and statutes, some looking to Nevada in order to learn from the decades of mistakes and successes.  Those jurisdictions looking to Nevada would come to understand the only reason gaming in Nevada survived was because the regulatory infrastructure continued to change and adapt to the challenges of the industry.  Still, other jurisdictions looked
else-where resulting in the gaming industry consisting of a full spectrum of regulatory oversight, ranging from excellent to practically non existent.

Generally speaking, there is one consistent theme throughout the regulation of gaming:  that is there must be a gaming license/suitability application process and a recognition that those applying for entry into the gaming industry will either be allowed to participate in the gaming industry or will not be allowed to participate in the gaming industry.  The application format varies widely from jurisdiction to jurisdiction but the underlying theme is the same.  However, what is not the same is the stigma a denial from a well respected jurisdiction will mean to a gaming applicant.  Gaming companies that wish to enter the prestigious, well regulated gaming markets today understand that reckless behavior and lack of respect for the regulatory process will destroy their future in the gaming industry.  Foreign multinational gaming companies especially need to study and understand the precarious position they put themselves in when they apply for gaming approvals in jurisdictions like Nevada.

The gaming approval process varies from a very intense, thorough, costly review of the gaming applicant to a form approval based on paying high applications fees, in essence a rubber stamp of approval once the check has cleared the bank.  The variances of the regulatory oversight, or lack thereof, are alarming and discouraging but discussion of this is not the purpose of this article.  Instead it is important to understand that the growth of gaming has outpaced quality regulatory oversight and those jurisdictions with adequate resources and a commitment to excellence in this industry continue to evolve and adopt to an ever changing, challenging, and demanding environment.  Those jurisdictions that do not have the commitment to excellence have created a double standard in an industry that can ill afford such a thing.

However gaming regulators and gaming companies understand what gaming jurisdictions set the trend for the rest of the gaming industry to follow.  If a gaming company desires to become a long term, respected player in the gaming industry, passage through certain gaming jurisdictions is mandatory.  The short double standard will one day give way to a more level playing field and this will happen because survival will in this industry will not otherwise be possible.

REVIEW OF THE LICENSING PROCESS

Nevada is one of the only licensing jurisdictions that will grant a gaming license or finding of suitability for an unrestricted period of time.  For example, if the Nevada Gaming Commission issues a non-restricted gaming license, without a limitation on the license, that licensee is entitled to maintain that license so long as it remains in good standing with the regulators and maintains that license for the specific purpose for which it was issued.  It is not necessary to file renewal applications on a periodic basis so long as the license is maintained in good standing.  This is in contrast to most other gaming jurisdictions that require applications and renewal fees based on a defined statutory or other time table.  For example, in California, the Tribal State Gaming Compact requires yearly renewals for gaming resource suppliers.  Gaming resource suppliers must file renewal applications and submit renewal fees with each applicable Tribal Gaming Commission.  In Mississippi, state law requires gaming manufacturers to file applications and submit renewal fees every three (3) years.  In Illinois, the Illinois Gaming Board has discretion as to the duration of the license, ranging from one (1) to four (4) years.¹

What is unclear in the renewal process is the extent to which some of the gaming jurisdictions conduct an updated investigation.  This begs the questions whether the motive for the renewal requirement is to conduct updated investigations or to merely place the updated applications on the shelf to collect dust and to collect the renewal fees.  With budget deficits, lack of resources and the commitment to maintaining the integrity of the gaming industry, I fear it is the latter.

¹ See, Ill. Admin Code tit. 86, §§ 3000.240 – 241.

INTORDUCTION TO GAMING COMPLIANCE

How does Nevada continue to monitor and oversee the activities of its gaming licensees?  Was it a mistake to create a system, wherein once a non-restricted license was granted, a calendared renewal process was not possible?  The argument can be made this system is flawed because of the lack of a renewal mechanism.  However, the rebuttal to this argument may be found in the introduction of the regulatory gaming compliance system in Nevada.

In 1987, Mr. Ginji Yasuda, a Japanese national, appeared before the Nevada Gaming Control Board.  Mr. Yasuda and the company he headed, Ginji Corporation were seeking a recommendation for approval from the Gaming Control Board to acquire the Alladin Hotel and Casino in Las Vegas.  The Gaming Control Board recommended approval for a limited license but also formally required that a compliance committee be formed.  Board member Mike Rumbolz placed numerous conditions on the license including a requirement that a compliance committee be formed and that the compliance committee be made up of at least three (3) individuals, one of whom was required to be independent of Ginji Corporation with a background and knowledge of Nevada gaming laws. 

The imposition of the compliance committee requirement was intended to increase the Gaming Control Board’s comfort level in granting Mr. Yasuda a limited gaming license.  The investigative staff of the Nevada Gaming Control Board was constantly being challenged by the special nature of international investigations.  Lack of cooperation from law enforcement agencies regarding “regulatory investigations”, culture, customs, legal and language barriers all taxed gaming regulatory investigators conducting international investigations.

On March 28, 1991 the Nevada Gaming Commission formally adopted Regulation 5.045 that allowed the Commission to require implementation of a compliance review and reporting system.  This merely formalized what was already being required, through conditions on the licenses of many licensees in Nevada.

The gaming compliance scheme was introduced to meet the continued challenges and demands of the gaming industry.  With a compliance structure in place, the gaming regulators in Nevada are able to monitor the daily activities of many gaming licensees.    It affords the gaming regulators an opportunity to review the compliance files maintained by gaming licensees whenever they wish.  With the globalization of gaming today and the fast pace by which many gaming companies operate, the gaming regulators are better able to review files on a real time basis.  Instead of a snapshot every year or three (3) years or six (6) years, there is continuous oversight.  While the strict requirements imposed on gaming licensees through a gaming compliance program are costly and time consuming to the licensee, in a strict sense, it is a self-policing plan that allows the gaming licensee in many ways to become transparent.   

The term gaming compliance is a great “buzz” word but how many gaming regulators and gaming attorneys understand the complexities of such an undertaking, especially for those global gaming companies that wish to enter gaming markets like Nevada, or maintain their licenses in gaming markets like Nevada, where a compliance program will become a requirement.  Those companies with a dedicated staff to compliance overview understand the issues but few others do. 

Are jurisdictions like Nevada running so far ahead of other gaming jurisdictions as far as regulatory oversight, that due to the disparities, there will come a time when the price of access to the Nevada market will no longer be worth with the ticket?  Or, in order to prevent this from happening, should other gaming jurisdictions start to step up and help create a more level regulatory playing field.  While expensive to the licensee, ongoing regulatory oversight through a compliance plan is a necessary and effective tool for the gaming industry.  Why then, is it so difficult, for gaming regulators to grasp this idea?

OVERVIEW OF A GAMING COMPLIANCE PROGRAM

A gaming compliance plan first needs to be explored and examined in order to understand the challenges facing global gaming companies.  The type of compliance plan that will be examined is for manufacturers, vendors, and suppliers of gaming equipment.    The following type of plan was chosen for review because most gaming licensees involved in the global gaming business are manufacturers, suppliers, or vendors of gaming equipment.  There are suppliers of gaming equipment making sales to hundreds of gaming jurisdictions around the world.

Each licensee required to have a compliance plan will have a compliance officer.  The compliance officer will conduct due diligence investigations, maintain open lines of communication with regulators and meet the ongoing regulatory demands of the gaming regulators.  The compliance officer will submit reports to and communicate with a compliance committee.   The objectives of the compliance committee will be to assist the licensee in avoiding associations with non-reputable entities, identify areas of concern that might adversely effect the good reputation of the licensee and provide additional oversight of the licensee’s compliance with the laws and regulations of gaming jurisdictions.  Normally, the Board of Directors will oversee the compliance committee. Reports generated by the compliance committee through the compliance officer, are submitted to the Board of Directors.

The Compliance Committee is normally comprised of the Chief Executive Officer, the President and at least one outside person experienced in the gaming regulatory process and familiar with the laws governing gaming activities.  The Gaming Compliance Committee is comprised of between three (3) and five (5) members.

The Compliance Committee usually will meet at least quarterly to review reports and information provided to it by the Compliance officer.  Copies of the minutes of the Compliance Committee meetings, after ratification by the Compliance Committee, along with the reports, are submitted within a short period of time to the Board of Directors, or an equivalent body designated by the Compliance Plan to receive such reports.  At the same time, minutes and any reports are submitted to the Chairman of the gaming regulatory body.

The reports to the Compliance Committee and minutes of the meetings will contain the necessary details in order to permit the Compliance Committee to formulate an opinion on the matter.  The Compliance Committee will be able to reasonably rely on reports generated by a governmental agency such as the Securities and Exchange Commission, a financial institution that falls under federal regulation or information generated from a respected gaming authority and will not require independent investigation of such information.

The reports to the Compliance Committee will normally discuss the flowing matters: 

• Sales/leases of gaming equipment to all geographic areas.  The report will include the name of purchaser/lessor, jurisdiction where shipped to, copy of gaming license of purchaser and end user, if purchaser is not the end user, and an opinion from legal counsel of the purchaser as to the legality of gaming in the jurisdiction.  The compliance officer shall at all times maintain a current list of those jurisdictions permitting importation of gaming devices and will ensure strict compliance with this list.
• Material transactions which can be defined as commercial transactions involving unsuitable persons, long term business relationships such as partnerships or joint ventures and acquisitions or disposition of assets that meet a certain threshold, depending on the overall impact on the business of the licensee.  The report will contain details on:

1. The directors, officers and major shareholders;
2.  Geographic areas involved;
3. Company’s reasons for the transaction;
4. Specific laws which permit the business operation; and
5. Compensation to brokers and/or payment of any finders fee.

• Transactions with supplier of goods and services to demonstrate business is not being transacted with unsuitable persons and to avoid unsuitable situations.  An unsuitable situation would involve transactions with an unsuitable person, violation of the regulations and statutes of a gaming authority or non-compliance with the terms of the Compliance Plan.  The Compliance Plan will set a threshold for aggregate annual purchases and when the Compliance Officer anticipates thresholds will be met, a due diligence review of the licensee’s vendor will commence.  The goal is to capture the top percentage of suppliers of goods and services and at the same time not unduly burden the licensee with a review of all transactions.  However, the Compliance Officer has the flexibility to look at any suppliers if the Compliance Officer is able to determine the licensee is conducting business with or will conduct business with an unsuitable person.  The results of any investigation are reported to the Compliance Committee for review.  
  Please note the thresholds for suppliers to non-gaming subsidiaries will be higher.  The gaming industry is beginning to see more applications from companies with diverse non-gaming product lines.  The challenge this creates for those companies is discussed further in later sections of this review.
• The Compliance Officer will ensure all prospective officers, directors and key employees are not unsuitable persons.  Each individual will be required to complete a questionnaire which will assist the Compliance Officer in conducting a due diligence investigation.  The results of such investigation are reported to the Compliance Committee for review.
• The Compliance Officer will ensure prospective distributors are not unsuitable persons.  The distributor will be required to submit a copy of its gaming license or the equivalent, the name of the casino where the gaming device is being shipped, a copy of the casino license and an opinion from legal counsel of the distributor as to the legality of the transactions.  Receipt of this information will also be mandated outside of the Compliance Plan through a Distributors Agreement.  Such provisions of the Distributors Agreement spell out very clearly that the distributor is to conduct business in a licensed, recognized gaming jurisdiction and any end users of the gaming products are to be gaming licensees in that gaming jurisdiction.  Failure to comply with the terms of the Distributors Agreement are normally cause for termination of the Agreement, to the extent termination is permissible under the laws of the respective jurisdiction.
  Prior to entry into a contractual relationship with the distributor, the distributor will be required to complete a due diligence questionnaire that will assist the Compliance Officer in conducting a due diligence investigation.  The results of such investigation are reported to the Compliance Committee for review.  For a global gaming company, the due diligence review is critical because in some jurisdictions outside of the United States, a distributors agreement is very difficult to terminate because of the protection afforded distributors under the laws of the jurisdiction.
• Material financings will be reviewed by the Compliance Officer with special focus on the source of funds and any third party who will receive compensation from the financing transaction.  Material financing means any debt or equity financing which exceeds a certain threshold amount as determined by the gaming regulatory body.  The threshold amount is determined by the size of the licensee; large public company versus small private company.  The Compliance Officer will prepare a report to the Compliance Committee and the Board of Directors regarding material financings.

Note: An unsuitable person is a person who has been denied a gaming license or has had a license revoked or a person unqualified to be associated with a gaming enterprise as determined by a Gaming Authority.

The Compliance Committee will prepare and submit to the Chairman or the equivalent of the Gaming Regulatory Body an annual report summarizing the activities and decisions of the Compliance Committee.  The annual report which discusses the  activities of the preceding year is normally submitted to the gaming regulators within 60 days after the end of the calendar year. 

All investigative files, not to be confused with the compliance minutes and reports, generated by the Compliance Officer and the Compliance Committee, are maintained by the Compliance Officer at the licensee’s premises on a confidential basis.  Only members of the Compliance Committee, appointed executives of the licensee, gaming regulatory authorities and courts of competent jurisdiction have access to the investigative files.

It is especially important for global gaming companies to inform and educate those entities with which they are, or will, be conducting business that a Compliance Plan is in place and they might fall under its review.  While the term “compliance plan” is becoming a common term in the United States, not only as it relates to gaming but also other industries, it may not be as popular in other areas of the world. 

Those foreign entities that do not understand the complex regulatory requirements of a gaming jurisdiction like Nevada not only must be informed and educated, but also must receive assurances that any sensitive information will be kept confidential, subject to the  aforementioned disclosures only.  As will be noted in the next section, disclosure of sensitive and/or confidential information by individuals and entities located outside of North America is met more often with suspicion and resistance.  This might be due to language barriers, lack of understanding of laws, culture and customs and this poses a very difficult challenge for global gaming companies that want to remain in compliance.

CHALLENGES TO MEETNG THE REQUIREMENTS OF THE COMPLIANCE PLAN

This section will provide a realistic view on the challenges and the difficulties encountered by those gaming companies operating on a global basis.  The following discussion will range from challenges faced by small domestic companies and contrasted with challenges encountered by global gaming companies.

• Start up U. S. based company with domestic gaming sales only

The challenge with implementing a compliance plan under this scenario is attracting a qualified, experienced compliance officer and an outside compliance member with experience necessary to sit on the compliance committee.  As a start up company, the issue of setting aside financing for a compliance officer can also be problematic.

An advantage of the start up company is that the concern of having to go back and review prior transactions and business relationships is not applicable.  As a domestic based company, a qualified compliance officer will have access to public information including transcripts from gaming regulatory meetings and where information might not seem readily available, for a qualified compliance officer the market is always efficient.

Additionally, the challenge of understanding North American gaming jurisdictions is not overbearing.  For instance, any sale of gaming machines to gray or black market areas in the North America is simply not excusable.  Public information regarding information on the respective gaming jurisdictions is readily accessible.  The major black market area in the United States for many years was the tribal gaming market in California.  Licensees in Nevada and other major gaming jurisdictions would not make sales to tribes in California out of fear of losing their privileged gaming licenses. 

How many gaming companies that sold gaming devices to tribes in California during that period were licensees in Nevada or licensees in other major gaming jurisdictions; or how many of those companies making such sales have applied for and received gaming licenses in state regulated gaming jurisdictions like Nevada.

• Existing U. S. multinational company with global gaming sales

On going educational compliance programs are just one of the efforts that large U. S. based companies operating in literally hundreds of gaming jurisdictions make in order to continue to remain compliant.  With new gaming jurisdictions opening up all over the world, including Eastern Europe and Russia, the necessity to not only hire qualified employees but also the necessity to train employees on compliance matters, is essential. 

Those employees who operate in the sales and marketing areas are taught and therefore motivated to make bring dollars to the bottom line.  However the salesperson’s profit motive may well be in direct conflict with the requirements for strict adherence to compliance issues.  For example, time is of the essence and a big sale is pending in an Eastern block country.  The distributor (not end user) is not willing to complete due diligence forms and submit documents which demonstrate the distributor is licensed to carry on the business activities; does the sale go away?  Or information was submitted but the wrong information was submitted by the distributor; for example an incorrect company name is disclosed to the compliance officer that is very similar but because of language difficulties the language subtlety is not picked up.  Are the employees making the sale more interested in seeing the sale be completed or ensuring the compliance issues are first resolved?  The focus of the sales person is to create sales and this often conflicts with what the compliance officer is trying to accomplish. 

Another area that has historically been problematic is the illegal process of shipping  gaming machines in foreign jurisdictions in order to try and evade customs duties at the port of entry.  Falsifying invoices to show a lower value of the shipped product and payments outside of the invoice are very common practices outside of the United States.  Potential sales are lost by gaming companies that refuse to engage in such practices.  This practice is so prevalent outside of the United States that it often creates a competitive advantage for the many companies not under the scrutiny of a compliance plan or subject to a strict probity licensing review that are willing to engage in such behavior.  This area of review has become automatic for well established gaming regulatory jurisdictions.
   
Comprehensive educational programs set up by the proactive compliance officer will help ensure compliance from all employees.  The sales and marketing department will learn to avoid the short term gratification of making sales that contradict the terms of the compliance plan will be very short lived.

The ongoing maintenance of overseeing sales in gaming jurisdictions around the world is staggering.  The process is costly and manpower intensive.  Understanding the gaming regulatory laws of each respective jurisdiction is not always easy.  For example, trying to understand the law in Belgium for many years was difficult.  Gaming machines were in locations all over the country and the government levied taxes on those machines.  Yet there was no gaming regulatory structure in place to oversee the gaming operations.  Was this a gray market?  It should be noted the licensed manufacturers in Nevada were not selling in Belgium at the time.

The ability to obtain real time information on international distributors and end users is difficult.  Many licensed gaming jurisdictions around the world are focused on technical machine compliance but probity investigations are not the norm.  Often times gaming vendors in foreign jurisdictions are not familiar with such requests for sensitive information.  How does the gaming licensee acquire information on gaming vendors when it is not forthcoming?  Credit checks are often a place to start, but in Japan and Russia for example this is not possible.  It is always possible to hire a private investigative firm or a local lawyer in the jurisdictions, but when time is of the essence this is not always practical.  Additionally this can become a very costly procedure and frequently not worth the sale at the end of the day.

Can the compliance officer always rely on the fact that gaming machines are being shipped to licensed jurisdictions?  The gaming industry in Russia is booming.  Casinos in Russia are licensed by the government, but movement by Nevada licensees into Russia has been slow.

There are no easy answers and for the compliance officer it is a combination of hard work, creativity, experience, knowledge, luck and often times looking at situations on a case- by- case basis.

• Existing foreign multinational company which begins worldwide gaming operations as a new segment/division of its business

The biggest challenge under this scenario is to educate employees on the importance of the compliance plan and how to effectively implement the plan.  Compliance classes should be given to management and employees who will be directly involved in carrying out the compliance plan.  Care should be taken to ensure that management and employees of subsidiary companies are also involved in such classes.    

The second biggest challenge is the reevaluation of existing business relationships.  A compliance plan will mandate a complete overview of the entire business enterprise and is not limited to reviewing only gaming operations of the business enterprise.

From an internal point of view, when the compliance officer begins a review of executives of the non-gaming segments of the business, there will be resistance ranging from large egos to those individuals who actually have something to hide.  Further, when the compliance officer begins the review of outside, existing,
non-gaming relationships and requires, based on thresholds amounts as outlined in the compliance plan, due diligence forms be completed, there will also be resistance.  This can be especially challenging if this process strains existing business relationships and jeopardizes future sales.  For the manager whose job is measured on product turnover, the compliance officer can quickly become a very unpopular person.

Most often those non-gaming entities/individuals required to complete due diligence forms simply do not understand how a gaming jurisdiction like Nevada can suddenly mandate that the compliance officer of the gaming licensee collect litigation summaries and criminal history information on them; what can be very troubling is the reality that refusing to comply with such requests can lead to dismissal from the company or termination of the business relationship.

Not only can there be language, culture, customs, and legal barriers but also the perception that the laws of Nevada can not and do not have jurisdiction over them.  Responses back from vendors (who have never heard of Nevada) asked to complete due diligence forms are often polite, yet very firm refusals to comply with such requests.  The underlying reason is a lack of understanding of the purpose for such a request.  This may be overcome by taking the time to explain the issues in a manner that can be understood; the U. S. sludge hammer approach is usually the least effective. 

What happens when the due diligence questionnaire is completed, or partially completed?  The information needs to be independently verified.  If the entity or individual is located in North America, some or most all of the information can be verified through public sources or informal networks.  However, when the information needs to be independently verified by the compliance officer in international jurisdictions difficulties can arise.  Not only might there be language, culture and customs barriers but as importantly, there might be laws that prohibit access to this information.  Attempts to gather such information would be in violation of such laws in the foreign jurisdiction. 

Often times gaming regulators, while peace officers, have difficulty acquiring criminal histories or criminal intelligence information in foreign jurisdictions.  The reason is that law enforcement agencies and Interpol do not officially recognize and acknowledge “regulatory investigations”.  If gaming regulators cannot access the information, should the licensee be held accountable for accessing the same information?

The gaming regulators in Nevada have historically taken the view that the licensee should use its best efforts in its compliance review.  If there is any public information available the licensee is expected to access this information; after all the market is always efficient.   

What does the gaming licensee do when a business relationship is placed in jeopardy by the compliance plan and maintaining that business relationship is crucial to the survival of the non-gaming segment of the business enterprise?  Those companies that have multiple business segments must proactively determine the viability of seeking licensure in gaming jurisdictions that require strict adherence to a gaming compliance plan.  This may become a barrier to entry that cannot be overcome. 

As discussed in the compliance review section of this report, the compliance plan will set certain thresholds for due diligence review.  No-where in the prior sections did it state only the gaming operations are subject to a compliance review.  The main difference between review of non-gaming segments and gaming segments is the thresholds amounts for non-gaming segments are higher.

Once a proactive determination is made based on a thorough review of the applicants operations and a qualified compliance officer and outside member are brought on board, the challenges discussed under this section are difficult but not impossible to overcome. 

The other challenge to an existing business operation that adds a gaming segment is changing the corporate culture to one of complete acceptance of the requirements of the compliance plan.  After all, if this plan creates a transparency of the company, does this not foster long term goodwill and lend credibility to the company.

• Existing foreign based multinational gaming company which desires to enter U. S. market

A company with existing gaming operations in international jurisdictions must first proactively determine if entry into gaming a market like Nevada which is compliance driven is feasible.  From a cash flow and business survival point of view, a decision will have to be made as to whether it is economically feasible to possibly terminate existing relationships and therefore decrease sales of the company. 

As already discussed, the multinational with non-gaming segments can expect, as part of the licensing investigation, review of existing non-gaming operations by gaming regulators.  The level of review will not focus on each transaction, but will instead look at the company more from a macro point of view.

However, the level of scrutiny for the foreign based gaming company will take on a micro viewpoint.  The fact there are existing gaming sales will trigger a high level of review and it can be expected that each transaction will be closely reviewed.  Review of distributors, end users of the products, vendors supplying parts, shipping records, copies of casino licenses where the gaming devices have been shipped will all encompass the investigative process. 

A decision should be made early on to impose a voluntary compliance plan and set up a compliance committee.  In order to successfully pass through the strict licensing process it will be necessary to go back and create a due diligence review for the gaming regulators to follow.  It can be a painful process, but nothing short of this will be acceptable to the gaming regulators.  A very methodical process of recreating the past is essential and should include:

• Tracking each machine sale to include shipping records and bank documents;
• Obtaining copies of all casino licenses where machines were sold;
• Obtaining information on all distributors of gaming devices; and
• Obtaining information on the gaming regulatory oversight in each jurisdiction where gaming devices were sold.

In moving forward, the applicant must be diligent in following the compliance plan requirements and instill this in its employees as part of the corporate culture.  It must become second nature, in moving forward, to require due diligence forms, distributor contracts, casino licenses and information on new gaming jurisdictions.  

This type of gaming company is in a tough situation because sales have already been made and going back to vendors and requesting information can be difficult.  Unlike the existing gaming company with a compliance program in place where, as part of the sales transaction, information is (or should be) requested and received prior to the sale, the gaming company with no compliance plan or overview in place has already made the sale without the review process.  In this situation, acquiring information on prior transactions is essential and the reality of possibly having to sever longstanding, profitable relationships becomes a reality. 

Reoccurring mistakes such as not following through on the requirements of the voluntary compliance plan will be dealt with harshly by gaming jurisdictions like Nevada.  Once an application is filed in a jurisdiction like Nevada and a voluntary compliance plan is put in place, while not yet a licensee, the applicant is expected to start conducting itself like a licensee.  

An educational program should be immediately put in place that will review the strict requirements of a compliance driven jurisdiction like Nevada.  For a gaming company with existing sales in international jurisdictions, time is of the essence to come into complete compliance.  The tolerance levels for gaming mishaps prior to the filing of an application might be tolerated but the tolerance levels after that point become very low.  At a point in time “a stumble will become a fall”.

A foreign gaming company is at another disadvantage because of language barriers.  Compliance plans, due diligences forms and other documentation will have to be translated so employees can understand what is required of them.  Only at that point in time can employees being to understand the complexities of what is expected of them.  The possibilities of misunderstanding and miscommunication are obviously at a much higher level in this situation.

The gaming market in Australia is an exception to the aforementioned discussion.  The Australian gaming market is highly regulated, both from a probity licensing viewpoint and machine testing standards.  The licensing investigations are similar to those of advanced gaming jurisdictions in North America, with law enforcement officers and accountants conducting investigations and traveling to locations of the gaming applicant. 

The New South Wales gaming machine market is one of the largest in the world and Sydney is home to a large, modern casino.  Victoria has one of the largest casinos in the world located in Melbourne, Queensland has casinos up and down its cost and there are casinos located in South Australia, the Northern Territory and Tasmania.  Virtually every jurisdiction in Australia has gaming with a gaming regulatory body in place. 

Queensland is focusing its efforts on gaming compliance and requiring gaming companies to become more transparent.

The initial challenges facing a gaming company under this section are the most difficult.  The decision to move forward in a highly regulated gaming jurisdiction will come only after an analysis that the outcome will be a successful one.
 
CONCLUSION

The gaming industry is growing so quickly that it is difficult to find experienced regulators in each respective jurisdiction.  History tells us the demands and challenges in the gaming industry will continue to grow.  Effective, real time, oversight is mandatory and the compliance system appears to meet many of the challenges facing regulators today. 

There are huge regulatory gaps today and reliance on just a few dedicated jurisdictions will have to change and I believe will change over time.  Market forces will not allow a few jurisdictions to keep the rest of the industry afloat.

While there are many barriers to effective regulatory oversight, the idea of a sovereign nation or state should not be used as an excuse for lack of an efficient, transparent system.  The world tells us today that when sovereign nations are not able to effectively police themselves or they become a danger to other sovereign nations, some action needs to be taken.  If sovereign nations want to take on the responsibilities of gaming regulatory oversight, those responsibilities should be taken very seriously.  Ensuring transparency in an industry of this type helps ensure sovereign nations and states are not harboring criminal conduct, either intentionally or unintentionally.

Finally, while transparency is desirable and essential in the gaming industry, does the burden of the gaming laws and regulations in some way violate the commerce clause and the due process clause of the Constitution?  Secondly, do the laws and regulations pose restrictions on international trade that violate the commerce clause and are inconsistent with the ideas promulgated and enforced by the World Trade Organization?