• The Star Staff

Gaming machine owners, operators sue over inspection rules

By The Star Staff

More than a dozen owners and operators of electronic gaming machines sued in U.S. District Court this week to challenge the constitutionality of gaming regulations because they do not impose limits on inspections of gaming machines.

The operators, headed by Electronic Games, said the regulations violate the Fourteenth Amendment to the U.S. Constitution because the defendants, the Puerto Rico Tourism Co. and the island Gaming Commission, cannot perform warrantless inspections.

The operators said they have operated adult entertainment machines, and later, electronic gaming machines, as defined by the Puerto Rico Internal Revenue Code, for more than 10 years. Presently, they all are operators of electronic gaming machines that are regulated by the Puerto Rico Treasury Department.

On Dec. 10, 2018, the government enacted Act No. 257 to amend the island’s Internal Revenue Code. Articles 132 to 165 of the Act amended the local Games of Chance Act of 1933 and authorized the operation of electronic gambling machines outside of the island’s casinos. As a result, all of the plaintiffs in the aforementioned case have made the transition and have converted their electronic gaming machines to electronic gambling machines in order to operate under the guidelines of Act No. 257.37.

The 2018 law delegated to the Tourism Co. the regulation and licensing of the aforemenioned devices and the industry that would be created around them (manufacturing, internet connection, transportation, etc.). Subsequently, on June 29, 2019, the commonwealth government created the “Gaming Commission of the Government of Puerto Rico) through Act No. 81.39 and transferred all of the matters related to games of chance and gambling on the island from the local Tourism Co. to the newly created commission.

Notwithstanding this, the plaintiffs point out in their filing, the Puerto Rico Tourism Co. continued with the preparation of the regulations required by Act No. 257 and needed to create the new gaming industry, going so far as to hold public hearings.

On May 5 of this year, in the middle of a total lockdown declared to deal with the COVID-19 emergency, the Tourism Co. filed two regulations related to Act No. 257 before the Puerto Rico Department of State.

The two filings were Regulation No. 9174, “Reglamento para la Fiscalización Operacional e Interconexión de Máquinas de Juegos de Azar,” and Regulation No. 9175, “Reglamento para la Expedición, Manejo y Fiscalización de Maquinas de Juegos de Azar en Ruta.” Even though the two documents were filed by the Tourism Co., the plaintiffs note that they were also signed by the executive director of the Gaming Commission, which according to Act No. 81 of 2019 is the entity that would be in charge of regulating and licensing all of the gambling machines operating on the island.

Around two months ago, all of the agents from the Games of Chance Division of the Puerto Rico Tourism Co. were permanently transferred to the Gaming Commission and they will be in charge of implementing Act No. 81, including the inspection and even the seizure of electronic devices, the plaintiffs said in their filing.

The inspection includes verifying the machines’ “identification,” and making sure that the agency’s sticker is attached, that the game that is installed is approved in the local jurisdiction, that the machine complies with the interconnection requirements of Act No. 257, that the micro processing unit (MPU) has the required sticker and that it has a warning that “Any malfunction voids all pays and plays.”

“Nowhere in Regulation No. 9174 does it state the scope of these inspections, how businesses would be chosen for these inspections and at what what time they would take place,” the lawsuit says. “According to Section 4(3)(B), anyone in violation of this regulation can be tried and sentenced to a term of prison of up to six months, plus a fine of $5,000, while Section 4(3)(C) punishes anyone who obstructs the free inspection of any business housing these devices with a prison term of up to a year and a fine of $10,000.”

The regulations allow the defendants to seize and confiscate any machine that they deem operates in contravention of Act No. 257 and Regulation 9174, the lawsuit points out.

“Nowhere in Regulation No. 9174 is there a delimitation of at what time these inspections would take place and how long they could last and which parts of a business establishment could be searched by these agents, which clearly violates the Fourth Amendment with regard to highly regulated industries,” the suit reads.