Slots Parlors in Peru: Organizing the House
By Carlos Fonseca Sarmiento

Argentina, Colombia and Peru have the largest number of slot machines and slots parlors in Latin America. Some differences exist in their legislation. Argentina has a federal/state structure like the United States. Consequently, each of its 23 provinces and the federal district are politically divided and have exclusive and excluding competence within their jurisdiction to regulate slot machines. In contrast, Colombia and Peru are Unitarian states, and the gaming authority for the control of slot machines is centralized in a national environment entity. In Colombia, the competent authority is the Empresa Territorial para la Salud (www.etesa.gov.co), and the public policy on slot machines is linked to the health sector. In Peru, control is in the hands of the Dirección General de Juegos de Casino y Máquinas Tragamonedas (DGJCMT; www.mincetur.gob.pe/turismo/DGJCMT/index.htm), and is linked to the tourism sector.

2008 is an important year for Peru, because DGJCMT is expected to finish the task of reordering the sector that it started on Dec. 24, 2006, with the issuance of Law 28945, "Law for the reordering and formalization for the exploitation activity of casino games and slot machines." The law has an adoption deadline of March 24, 2007. Pursuant to this law, 771 slot parlors that were operating without authorization requested that DGJCMT grant them a gambling license.

Surprisingly, before Law 28945, over 90 percent of the slot parlors operated with court orders that allowed them to carry out their activities without control from the gaming authority. Pursuant to a judicially questionable but politically useful March 25, 2007, sentence from the Constitutional Court House, all court orders were revoked. As such, the owners of the slot parlors who did not request a gambling license from DGJCMT, under the special provision of Law 28945, had to close; the Congress of the Republic in previous months had established that the operation of slot machines without a gambling license is a felony.

At present, over 800 slot parlors, with over 60,000 slot machines, are operating in Peru. More than 150 slot parlors have a gambling license issued by DGJCMT. These licenses are issued for a period of five years and are renewable. The other slot parlors are in the evaluation process before the DGJCMT.

Most of the 771 applications presented will not be approved because they do not meet the minimum legal requirements. The denied applicants also will not be able to resort to the Judicial Power to require new court orders; the sentence from the Constitutional Court House is final, as it is the highest entity. This means that fewer slot parlors will remain than the number that the market will sustain. Moreover, the remaining slot parlors will likely have slot machines of better quality. This is fostering great opportunities for three types of businesses. The first group is slot machine manufacturers, because the competition among slot parlors will call for the renovation of the gaming equipment with more appeal to keep their customers. The second group is new investors who wish to get a gambling license and will not be applied the special provision of Law 28945 (where setting up inside a hotel or in a five-star tourist restaurant is not necessary.) The third group is companies that wish to purchase slot parlors with a gambling license. Many current owners will be tempted to sell, as they will not be able to withstand competitive pressures, including new special taxes (described below) that are equivalent to 11.76 percent of the gross profit. On the other hand, having the certainty of a renewable five-year license, owners will be able to invest in the purchase of better machines or the extension of the establishment.

In Peru, two legal regimes exist: the special regime of Law 28945 and the general regime. The special regime is only applicable to the 771 slot parlors that submitted their request to DGJCMT on or before March 24, 2007. These slot parlors do not need to be set up in a three-, four- or five-star hotel or in a tourist restaurant branded with the five-star category. Likewise, these slot parlors are not subject to the restriction that commands they must be over 150 meters away from a church. The general regime applied to any company interested in getting a gaming license for slot machines in Peru these days is different. These slot parlors must be set up inside a hotel or a restaurant with the category mentioned before and the location must be farther than 150 meters away from a church, nursery or school.

In both regimes, the slots parlors must comply with, among other requirements, the following.

Their slot machines and game programs must be standardized. This means the slot machines must correspond to slot machine models or game programs that had been previously evaluated by an authorized laboratory and registered at DGJCMT. For example, the laboratories check that the game programs have a public return no less than 85 percent. For these parlors to operate, the owners must submit a bond letter to the state for about $1,250 U.S. for every slot machine they operate. They must pay monthly taxes equivalent to 11.76 percent of gross profit in addition to their 30 percent income tax, which applies to any company that carries out any economic activity.

Another obligation that exists since 2002, though it is not controlled by the authorities, is the implementation of a real-time computer system interconnected with the tax authority and the DGJCMT. Most operators objected to this online control system because they believed that paying special and complementary taxes and assuming the cost for the monitoring system that authorities pretend to use to control this activity was unfair. If the special taxes are justified in the monitoring of this new activity that did not exist before, then why pass on to the operator/taxpayer the additional cost of this new monitoring system? This will be one of the issues to work out in this new era of slot parlors in Peru. The problem is no longer the existence of slot parlors operating outside of the law and not paying taxes, but how to monitor the remaining slot parlors in a better way, after the formalization under the special regime of Law 28945 and the new atmosphere in Peru that has attracted investors to develop new slot parlors.

Finally, pursuant to Peruvian law, one can get a gambling license for slot machines or a gambling license for casino games (table games). If an establishment has slot machines and casino games, the operator must have two gambling licenses. At present, Peru only has eight casinos (that is, an establishment that has casino games). Three are located inside hotels and five inside restaurants that qualified as five-star tourist restaurants. All are within the department of Lima. Bearing in mind that Peru has over 28 million inhabitants divided into 24 departments and one constitutional province, and that tourism is going to boost because "Machu Picchu" in the department of Cusco has been recently selected as one of the seven wonders of the world, investment in casinos and slots parlors likely will increase.

Carlos Fonseca Sarmiento is President of Gaming Law S.A.C.