Corruption in Mexico's casinos reaches across U.S. border

Corruption in Mexico's casinos reaches across U.S. border
By Tim Johnson
McClatchy Newspapers


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 that steady work is as unlikely as winning a jackpot.

So when a Mexico casino czar named Juan José Rojas-Cardona offered the tribe the chance 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 included 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 holds 60 permits to operate casinos in Mexico – even though gambling remains technically illegal there.

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 Calderón, 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 Calderón's, issued licenses allowing 867 gambling venues, permitting some bingo, sports betting and slot machine parlors to expand into poker, roulette and craps without explicit legalization.

Calderón's office declined to comment on whether the president knows 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 gambling companies could move in and dominate.


Rules ignored

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

"You visit any of these establishments, and most have games with dealers, card games, baccarat, and this is prohibited," said García Coronado, who's a member of the leftist Democratic Revolutionary Party.

The corruption and favoritism rampant in the Mexican gambling industry served as an incubator for the rise of 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.

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.


Permits granted freely

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.

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 gambling became legal in the United States, the Lac Vieux were not among them.

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.

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

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.

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 gambling 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 Richard J. Verri, an attorney from a Chandler, Ariz., law firm representing the Lac Vieux Desert Band in a lawsuit against the Rojas-Cardona brothers.

Today, the Rojas-Cardonas operate 22 casinos under the Palmas brand and an untold number of others, making them among Mexico's biggest operators.

Angry investors such as 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.

James Williams Jr., 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.