Take Compliance Seriously:
A Gaming Company’s Future May Depend on It
By Anthony N. Cabot, Lewis and Roca

Casino companies should not consider regulatory compliance as a burden that takes time and effort, but as more of an insurance policy for the future. As gaming continues to expand, the success of certain companies to earn either licenses or franchises could be directly tied to the company’s regulatory history. Companies with substandard compliance records could find themselves disadvantaged when they attempt to secure rights in or licenses from new jurisdictions. After all, the best predictor of a company’s future compliance is its past. Moreover, a good compliance program can literally save the company from the industry’s version of the death penalty — the revocation of its gaming license after a disciplinary action.

A compliance program is simply an internal program adopted by a casino company to assure compliance with all laws and regulations. For casino companies, the program has a particular emphasis on gaming laws, regulations and general regulatory policies. These policies often focus on preventing circumstances where a gaming licensee knowingly or unintentionally associates with persons who could tarnish the image of the company or the gaming industry.

The basic idea behind a compliance plan is to prevent regulatory violations before they occur. (For example, a manufacturer preventing the sale of gaming devices to a prohibited jurisdiction, or a corporate officer receiving kickbacks from a contractor or turning a blind eye to players’ illegal activity.) Successful compliance plans keep the casino company out of the spotlight. They minimize the risk of being the subject of criminal or regulatory action, and they maintain the company’s reputation in public markets. In the unfortunate circumstance that a company does find itself faced with criminal or regulatory problems, demonstration of a compliance program and a commitment to it can serve as a mitigating circumstance.

My experience, however, is that many casino companies, senior staff members and boards of directors simply have little knowledge of the compliance function. Therefore, they lack a commitment to the compliance process. This commitment starts with the prioritization of compliance among company objectives. Management must properly fund the program, provide leadership in implementing and integrating the compliance plan, and be willing to evenly enforce the plan at all levels.

The company needs to first understand gaming laws and regulations, and the areas of its business where these laws apply. My experience suggests that upper managers at most gaming companies do not understand gaming regulations and how they apply. In fact, many do not even have a firm understanding of the basic objectives of the gaming laws. More often, they rely on persons under them to understand the laws and to not violate them. This is the most dangerous of circumstances — where decisions are made innocently and without regard to their possible inadvertent violation of gaming laws, or recklessly and based on what upper management may perceive as “acceptable” or “standard” in the industry. This becomes more pronounced at casino companies where basic ethics play a secondary role to maximizing sales or profits.

Yet a commitment to compliance and an understanding of gaming regulatory policies alone will not result in an effective compliance plan. The company must undertake an assessment of its infrastructure and organization to understand current capabilities. Where regulatory voids exist, they need to be addressed in the compliance structure. The company also needs to survey its current business activities and past compliance history to detect potential problem areas. Past compliance issues may require a special assessment of needs to be considered in investigation, monitoring or reporting. Often a good place to start is to consider past disciplinary proceedings or issues that may have arisen during the course of the licensing investigation.

The company also should survey compliance programs and successes within the industry. While much of the substance of a compliance plan may be derived from regulatory requirements or reviews, better compliance programs are proactive as opposed to reactive. A review of disciplinary issues faced by other casino companies may suggest the need for additional diligence in those areas. Moreover, a constant review of industry practices may assist in augmenting an existing compliance plan.

A good compliance program is not a cookie cutter — each plan should be custom designed for the company. Plans not only need to meet regulatory requirements, but should also take into account the strengths and weaknesses of the existing company infrastructure and specific compliance issues or problems.

The compliance program needs dedicated personnel, the most important of which is the compliance officer. The compliance officer should have a proper background. She should be familiar with the laws that govern the casino operation, with a particular emphasis on the gaming laws. She must understand the expectation of the gaming regulators regarding the proper conduct of a casino licensee. She should have knowledge of the company’s structure, including the functions of parent, affiliate and subsidiary companies, and the administrative skills to coordinate compliance across various departments.

Typically, the compliance officer conducts or coordinates mandatory background investigations in all areas that the compliance plan requires mandatory reviews of, such as prospective management and key employee hiring; review of suppliers and vendors; material litigation; and the like. She will intake and coordinate the review and investigation of extraordinary events, such as employee- reported violations, criminal investigations of, or involving, the company or management, and the like. She also will prepare all reports that are required by the compliance plan and be otherwise helpful in the compliance process.

While the compliance officer does most of the heavy lifting, the compliance committee does the tough decision-making. It needs to make specific and clear recommendations to management on how to handle particular circumstances, from hiring and firing decisions to the acceptability of entering certain gaming markets. The compliance committee needs to understand both the gaming business and regulatory processes and objectives. It needs to have the cognitive ability to access situations and proffer recommendations that meet regulatory objectives while having the least impact on business operations.

For all this to work properly, the company needs to create and delegate clear authority for each group within the compliance structure, including the compliance officer, the compliance committee, senior management, employees and the board of directors.

All of these groups benefit from establishing a working relationship with gaming regulators regarding the goals and methodology of the compliance program and the assistance regulators can provide in its success