Corruption in Mexico casinos takes a toll in the U.S., too

McClatchy NewspapersNovember 22, 2011 

WATERSMEET, Mich. — Hard times have been a constant for most members of the Chippewa Indian tribe known as the Lac Vieux Desert Band.

Nestled in a wooded corner of Michigan's Upper Peninsula, the tribe owns a modest casino, a hotel and a golf course. But the complex is far off the beaten path for tourists or gamblers, and many of the tribe's 600 or so members find steady work as unlikely as winning a jackpot.

So when a Mexico casino czar named Juan Jose Rojas-Cardona sent an offer to invest in Mexico's booming gambling industry, it seemed like a godsend.

But rather than a big payout, the disadvantaged Lac Vieux tribe got swindled. Its multimillion-dollar "investment" disappeared, adding the tribe to a list of victims that includes a mammoth hedge fund in London, an Australian manufacturer of gaming machines, an Arizona investor and two Mexican textile tycoons.

Rojas-Cardona, however, has gone on to build one of the biggest gambling empires in Mexico. Relying on a silky sales pitch and apparent close connections to Mexico's top politicians, perhaps including presidents, Rojas-Cardona now holds 60 permits to operate casinos in Mexico — even though gambling remains technically illegal in that country.

A horrendous act of violence on Aug. 25 first exposed the dark underside of Mexico's casino industry when gangsters firebombed the Casino Royale in Monterrey, Mexico's industrial northern hub, killing 52 people. Those arrested later confessed that they were pressuring the casino owners for payoffs on behalf of Los Zetas, one of Mexico's two biggest crime groups.

But a McClatchy probe in the months since has found evidence that the corruption in Mexico's gambling industry goes much deeper than a shakedown by drug gangs. Indeed, the entire industry appears to be deliberately opaque, designed by political barons as a way for them to hand out licenses as favors, tap casino coffers for cash, and let casino operators flout the law.

The Mexican system is so corrupt and unregulated that U.S. casino companies refuse to enter the Mexican market. That, however, has not kept Americans from being victims of the corruption.

It's unclear what, if anything, the U.S. government has done to warn investors of the risks or to help prosecute alleged scammers such as Rojas-Cardona, whose criminal record in the United States includes the dismissal of a drug charge in New Mexico.

Rojas-Cardona's life in Mexico includes a near assassination in 2007 that was laid to drug barons or rival casino operators.

Ironically, gambling in Mexico has thrived under the National Action Party, or PAN, which swept into power in 2000 promising an end to the corruption and cronyism that had flourished in Mexico during the long reign of the Institutional Revolutionary Party, or PRI. The PAN's candidate in 2000, Vicente Fox, was the country's first non-PRI president in more than 70 years, and his successor, current President Felipe Calderon, a fellow PAN member, won the post in 2006 in one of the most closely contested races in Mexico's history.

In a dizzying inconsistency, Fox's government in 2004 issued regulations that essentially ignored Mexico's 1947 law that bans gambling. Even though that law remains in effect, Mexico's Supreme Court allowed the new regulations to go forward. In the ensuing years, first Fox's administration, and then Calderon's, issued licenses allowing 867 gaming venues, permitting some bingo, sports betting and slot machine parlors to expand into poker, roulette and craps without explicit legalization.

Calderon's office declined to comment on whether the president knew Rojas-Cardona.

Hundreds of full-fledged casinos now dot Mexican cities, and scores, if not hundreds, more operate off the books or under court protection from friendly judges who provide legal relief. Politicians balk at enacting new laws legalizing the current situation for fear that under-the-table payments may dry up and that global gaming companies could move in and dominate.

Mexican political barons draw on the casinos as if they were "petty cash boxes," said Lizbeth Garcia Coronado, a member of Mexico's Chamber of Deputies and the coordinator of the chamber's working group on gambling. "But it's not 'petty.' The casinos generate a lot of money."

Mexican regulators couldn't seem to bend the rules fast enough once they were in place. For example, Mexico's assistant general director of gaming and lotteries, Roberto Correa Mendez, issued permits for 41 new casinos on the day he quit in 2009.

Like other regulators, Correa had a creative bent. He helped one gaming firm skirt the federal ban on betting: Gamblers could play Blackjack, Texas Hold 'em and other types of poker, but winners could collect only after passing a "trivia" test.

"You visit any of these establishments, and most have games with dealers, card games, baccarat, and this is prohibited," said Garcia Coronado, who's a member of the leftist Democratic Revolutionary Party. "There is no doubt that there is a lot of corruption in the games and raffles bureau," which is part of Mexico's Interior Ministry whose leader is appointed by the president.

The corruption and favoritism rampant in the Mexican gaming industry served as an incubator for the rise of Juan Jose Rojas-Cardona, 44, a man who spent much of his adolescence and early adulthood in Iowa, where his parents had immigrated from Hidalgo, a state in central Mexico.

From early on, Rojas-Cardona displayed a knack for winning friends. At the University of Iowa, Rojas-Cardona was elected president of the student senate.

After studying economics for five years, Rojas-Cardona left in mid-1990 without getting a degree, the university says. A small cloud followed him. The Iowa state auditor demanded that Rojas-Cardona and other senators return nearly $2,000 in "extravagant" spending on hotels, alcohol, rental of two Cadillacs and double-billing for meals. Rojas-Cardona, known to one and all as Pepe, ignored the demand.

Worse troubles awaited him.

In 1992, prosecutors in Iowa won a second-degree conviction against him for bouncing a $3,000 check to a Chinese graduate student who'd developed a telemarketing business plan for him.

Rojas-Cardona was charged with a far more serious crime two years later when Border Patrol agents staffing a checkpoint at Orogrande, a remote New Mexico outpost less than an hour from the southern border, saw a white Buick with no license plates approach, then turn south shy of the checkpoint. It was 12:50 a.m., Feb. 11, 1994.

Court records retrieved by McClatchy from a federal records facility in Denver tell what happened next: Agents gave chase and when they stopped the car, they found a "very nervous" Rojas-Cardona. A Border Patrol dog grew excited, and when agents searched the vehicle, they found 17 pounds of marijuana.

Rojas-Cardona signed a plea agreement on the felony trafficking charge in June of that year, but by September he'd skipped bail and vanished.

In late 1998, federal prosecutors asked a judge to quash the arrest warrant and lift the indictment, a practice that sometimes indicates a defendant has become a federal informant. McClatchy could not determine if that was the case with Rojas-Cardona.

Within a year or two, Rojas-Cardona had set up shop in Monterrey, where he created his first slot machine club, Bella Vista, in the San Nicholas de la Garza district, whose top official, a PAN politician, would later become mayor of Monterrey. Backed by a Louisiana investor, the club was soon swimming in profits, each slot earning as much as $300 a day.

Rojas-Cardona's criminal past was of no apparent concern to Mexican regulators, who gave enthusiastic endorsements to him and his brother Arturo and their Las Vegas-based partnership, Emex Holdings LLC, one of a web of companies they set up. Within a few years, Rojas-Cardona and his brother would hold a winning lottery ticket: federal permits to operate 60 casinos and gaming venues.

Just how Rojas-Cardona won the permits is far from clear. But he boasted of friendships with the highest-level politicians and even the primate of Mexico's Roman Catholic Church.

When courting investors, Rojas-Cardona would pull out a Bible signed by Catholic Cardinal Norberto Rivera Carrera. Indeed, Rivera was a friend. When Rojas-Cardona cut the ribbon in 2008 on his posh Monterrey restaurant, 40 West, the prelate brought a white rose as a gift and posed for photos.

He came despite a whiff of organized crime connections that had begun to swirl around Rojas-Cardona. Those ties were made apparent by events the morning of Nov. 9, 2007, when assailants in Monterrey cut off Rojas-Cardona's Dodge Charger and let loose with a volley of gunfire. Rojas-Cardona's driver, Ernesto de Jesus Martinez, died strapped into his seat. Rojas-Cardona hunkered down in a foot well and survived unhurt, even though 60 shells casings were found at the scene.

He told investors that either casino competitors or drug lords sent the gunmen.

Even before the assassination attempt, Rojas-Cardona had cast a wide net for foreign investors, sending a Louisiana intermediary to query U.S. Indian tribes if they wanted in on action south of the border.

His trump card: legal Mexican casino permits.

The Lac Vieux Desert Band of Lake Superior Chippewa was a perfect target. While some U.S. tribes had prospered since Indian gaming became legal in the United States, the Lac Vieux were not among them. The woods surrounding their native lands are rich in spruce, maple and birch but scarce of gamblers, and profits were small at the tribe's casino, which lies more than three hours north of Green Bay, Wis. Five other tribes operated competing casinos in the region. Most years, there was not enough casino revenue to offer members of the tribe Christmas payouts.

So when Rojas-Cardona's U.S. agent came calling in early 2006, the tribe's leaders liked what they heard and saw a chance to take a ride on a gambling juggernaut.

"Gaming in Mexico was just starting," recalled James Williams Jr., the tribe's chairman at the time. "We had big plans. It was going to put our future in a comfort zone."

Rojas-Cardona worked hard to impress the tribe and its lawyers, who made multiple trips to Mexico. Rojas-Cardona squired them around in his British Aerospace 125-700A corporate jet to iron out details of their planned $6.5 million investment.

The riches he promised awed some council members.

"The numbers they were throwing out, I thought, 'How can we not invest with these guys?' I was excited," recalled Tyrone McGeshick, a former council member.

Moreover, the Rojas-Cardona brothers insinuated that they had backing from the highest politicians in Mexico.

"Here's the flight jacket that the president wears when he flies on our jet," one of the brothers told the visitors during an October 2006 trip, according to Richard J. Verri, an attorney from a Chandler, Ariz., law firm that is now representing the Lac Vieux Desert Band in a lawsuit against the Rojas-Cardona brothers.

Claims of bulletproof political connections were stock in trade for Rojas-Cardona. William A. Graven, an Arizona investor, said in an interview in Phoenix that Rojas-Cardona claimed to need foreign funds because he was using his own profits to fill the campaign coffers of powerful politicians in national elections in 2006.

"He said, 'We're sending all these planeloads of money down to Mexico City,'" Graven said. "It was all quite hush-hush."

After Graven arranged a deal with Rojas-Cardona, the Lac Vieux Desert Band asked to piggyback, wanting more exposure beyond the $6.5 million they spent to equip a small casino in the Monterrey district of Guadalupe. Graven threw in $1 million and the tribe added $2 million more, funds they now claim Rojas-Cardona simply pocketed, bringing the tribe's total loss to $8.5 million.

Rojas-Cardona also was deploying emissaries to troll for huge sums of money elsewhere.

Europe's third-largest hedge fund, Bluecrest Capital Management Ltd., loaned Emex some $75 million, only to see the money vanish. Bluecrest won a judgment in Mexico in July this year against the Mexican partnership, but Bluecrest spokesman Ed Orlebar declined to offer details or say whether the fund had recovered any money.

While some foreign investors claimed they were getting stiffed, Rojas-Cardona larded politicians, giving a small helicopter in 2007 to the mayor of San Nicolas, site of his first gaming club, Bella Vista. To angry investors, Rojas Cardona pointed to his high-level political connections and told them to forget about their money.

"He gave the impression that he was Teflon," said Verri, the Arizona attorney.

Several U.S. lawsuits now entangle Emex and the Rojas-Cardona brothers.

The U.S. branch of an Australian gaming machine manufacturer, Aristocrat Technologies, claims in a lawsuit that Rojas-Cardona, a Louisiana investor and Emex owe it $2.8 million.

Two Lebanese-Mexican brothers who made a fortune in specialty fabrics say in a lawsuit filed in Texas that Rojas-Cardona and Emex owe them at least $7.2 million after breaking an agreement to share in profits from the Palmas Ajusco casino built on their property in Mexico City. They sued in Texas because they said the agreement had been struck and signed in Texas, benefiting from the good faith of the U.S. legal system.

Not all foreigners have had bad experiences with the Rojas-Cardonas.

Some earlier Louisiana investors, including John Georges, a Greek-American marine services and arcade tycoon, apparently did well. Georges, who lost a bid for Louisiana governor in 2007, did not respond to repeated requests for comment.

A U.S. corporate icon, Playboy Enterprises, found Rojas-Cardona to be a worthy partner. Last December, scantily clad Playboy Bunnies inaugurated the Playboy Club Cancun, a $7.5 million casino complex operated under license from Emex. A spokeswoman for Playboy Enterprises, Theresa Hennessey, said she knew of no complaints against Emex.

Yet red flags went up at the U.S. Consulate in Monterrey, according to U.S. diplomatic cables made public by WikiLeaks. U.S. diplomats told the State Department in July 2009 of possible links between Rojas-Cardona and the Beltran-Leyva drug cartel. They also said he'd paid $5 million in illegal campaign donations to local politicians.

"The traffickers, the casino operators, and corrupt politicians form a self-protective triangle, which makes it difficult for honest law enforcement officers to get at organized crime," said a July 2, 2009, cable signed by Bruce Williamson, the U.S. consul general in Monterrey at the time.

The same cable noted that hours after a hit man gunned down and killed a rival of Rojas-Cardona in the casino business, Rogelio "El Diablo" Garza Cantu, police arrested the alleged triggerman emerging from a meeting with Pepe Rojas-Cardona.

Today, the Rojas-Cardonas operate 22 casinos under the Palmas brand and an untold number of others, making them among Mexico's biggest operators alongside Play City, a subsidiary of Mexico's vast Televisa communications conglomerate; Grupo Caliente, which is controlled by a former mayor of Tijuana, Jorge Hank Rhon; and Codere, a Spanish group that runs the Mexico City racetrack and scores of bingo halls.

Angry investors like the Michigan Indian tribe say they are frightened to come to Mexico to file a criminal complaint. The Rojas-Cardona brothers are "powerful, dangerous men, connected to the highest levels of the Mexican political establishment," Verri, their attorney, wrote in an email.

Williams, the former tribal leader, still ponders what went wrong, and why both the Mexican and U.S. governments refuse to take action against Rojas-Cardona.

U.S. federal law treats stealing from Indians harshly, requiring that non-Indians guilty of the theft repay twice the value of what was taken.

"What do we do? Do we just say, well, it's over? I can't accept that, especially when you've taken from 600 tribal members," Williams said.

ON THE WEB

U.S. diplomatic cable about Monterrey casino owners and corruption

Arizona legal complaint filed by Lac Vieux Desert Band against 'casino czar'

Iowa auditor's report on 'extravagant' spending by 1990 student senate

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McClatchy Newspapers 2011

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