Is Mexico Feeling Lucky?

A move to bring back casinos brings back bad memories, too

Mexico's pristine beaches, colonial towns, and pre-Hispanic archeology draw more than 6 1/2 million visitors a year. To attract still more, tourism officials propose to bring back casino gambling, which President Lazaro Cardenas banned in 1938. With legal gambling spreading in the U.S. and Las Vegas trying to become family-friendly, they aim to cash in on the trend. Indeed, advocates say, Mexico needs casinos to avoid losing ground to such rivals as Jamaica and Puerto Rico, which offer casino gambling.

A proposal to legalize casinos that has been circulating in government ministries could be introduced in Mexico's congress this fall. It would allow casinos at major beach resorts and perhaps along the U.S. border, where some 60 million day-trippers cross each year. Studies estimate that 10 casinos in such prime tourist spots as Cancun, Acapulco, and Cabo San Lucas would bring up to $1.5 billion in investments in hotels and gambling facilities, plus $1 billion in added yearly tourism revenue. Major U.S. operators are eyeing the prospects. "We would certainly be interested" in developing Mexican casino resorts, says Ralph Berry, vice-president of Memphis-based Harrah's Entertainment Inc.

The proposal is such a political hot potato, though, that few in government want to discuss it openly. Even President Ernesto Zedillo Ponce de Leon tiptoes around it. "It has to be studied very carefully from the tax, legal, and crime angles," he told BUSINESS WEEK in a recent interview. "If we believe it is positive for the economy and we can avoid any negative aspects that people suspect casinos have, we'll say yes."

Those are big ifs. Without tough regulation and enforcement--not Mexico's strong suits--opponents fear casinos will usher in ills from money-laundering and organized crime to community degradation. "Strict control [of casinos] would depend on the honesty and efficiency of our government's institutions and businesses, whose moral bankruptcy has unfortunately kept growing," Mexico's Catholic bishops noted recently.

Nor are business groups united behind the scheme. In Ciudad Juarez, a city of 1 million across the border from El Paso, Tex., a boom is being fueled not by tourism but by manufacturing. "Juarez had casinos from 1908 to 1938, and it was a time of gangsters, criminality, and incredible excesses--a real Sodom and Gomorrah," says Miguel Angel Calderon, president of the Ciudad Juarez Manufacturing Industries Chamber. "I don't think we want to go through that again."

In the 1920s and 1930s, Tijuana casinos drew prominent Americans, from Charlie Chaplin to Jack Dempsey, but also stirred the interest of gangsters such as Al Capone and "Bugsy" Siegel. That's why revered nationalist Cardenas shut them down.

SEC CLOUT. Rodolfo Elizondo Torres, a legislator from the center-right National Action Party who heads the Mexican congress' tourism committee, says the problems of casinos are overstated: "People here have always associated gambling with vices, such as prostitution and drugs, money-laundering, and Mafia. That's a distorted view."

Local casinos would keep at home some of the estimated $700 million a year that Mexicans gamble away abroad, especially in Las Vegas. And potential U.S. investors would be champions of a clean Mexican gambling industry, proponents add, because their publicly traded companies are scrutinized by the Securities & Exchange Commission and state gaming boards, which are empowered to inspect their operations abroad. In Mexico, a federal regulatory commission would guard against money-laundering and other financial crimes.

Charles Intriago, publisher of Miami-based Money Laundering Alert, is skeptical. "The money involved is so astronomical, the temptation is so great, and the history of rampant corruption in Mexico is so big, I'm sure that money-launderers relish the prospect of casinos in Mexico," he says. And as revelations mount about high-level business corruption, U.S. investors could have trouble finding local partners with air-tight credentials.

Concerns about casino-linked money-laundering and corruption won't help Mexico's image, already tarnished by guerrilla violence and rising crime. Congress might decide there are better ways than casino gambling to enhance the country's tourist charms.

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