Uneasy partnership

By Liz Benston

Monday, April 2, 2007 | 7:09 a.m.

When is a person's character so questionable that he can tarnish an entire industry? And how much control can a Nevada regulator exert over someone who lives and works outside the state?

The Nevada Gaming Commission ventured into uncharted waters at a hearing March 23 before approving a controversial business partnership between MGM Mirage and Pansy Ho, the daughter of Stanley Ho, a Macau casino boss with reputed links to Chinese organized crime.

The landmark decision, attorneys and regulators say, will have ramifications worldwide as it offers Nevada companies a clearer road map on how to introduce Las Vegas-style resorts to less-regulated parts of the world, such as Mexico and Russia, that have been red-flagged by regulators for corruptive influences.

At the hearing, Gaming Commissioner Sue Wagner asked MGM Mirage attorney Bob Faiss whether the commission's vote on the matter would be more momentous than, say, the well-publicized denial of a gaming license for mob associate Frank "Lefty" Rosenthal at the Stardust - the last of the major skimming operations on the Strip - and recent approvals of multibillion-dollar private equity firms as casino investors.

Faiss said the decision would probably be "one of the most important" ever made by the Gaming Commission because it will help spread Nevada's regulatory scheme worldwide.

As the casino market becomes more saturated in the United States, where gambling is still a highly regulated "sin" industry, casino companies are increasingly eyeing foreign markets. Several Asian and European countries are expected to open their borders to big casinos.

The last time the Gaming Commission considered whether actions by a casino owner would sully the gaming industry was nearly 20 years ago, when the owner of the Imperial Palace admitted displaying Nazi war memorabilia at the property and holding private parties on Adolf Hitler's birthday.

Ten days ago the Gaming Commission dusted off three-decade-old regulations aimed at upholding Nevada's image in the eyes of the world.

For the first time, the reputations being considered were those of foreigners and Chinese companies in a part of the world not subject to Nevada laws and long in the grip of organized crime.

Regulators' reach in Macau, a peninsula in the South China Sea, is limited to the conduct of MGM Mirage, which is licensed in Nevada.

Regulators said Pansy Ho's business dealings while running a ferry and tourism services company founded by her father were beyond reproach. Commissioners said they were comfortable that MGM Mirage had structured its partnership with her to avoid influence from her father.

Since the Nevada Gaming Control Board approved MGM Mirage's deal last month, state officials and reporters have been blitzed with e-mails containing news reports, Internet blogs and other correspondence about Stanley Ho's alleged misdeeds. Most of the e-mails originated from Family Focus, a Christian values lobbying group that opposes the spread of casinos.

The airing of dirty laundry, whether alleged or proved, about Ho and his decades-old casino monopoly put regulators in the uncomfortable position of publicly acknowledging Macau's image problem while being unable to do anything - at least directly - about it.

Commissioners said they needed hard evidence that Nevada's reputation had or would be harmed by the deal and that news articles and other public disclosures didn't cut it.

"There's no demonstrable evidence that would bring disrepute to the state," commission Chairman Peter Bernhard said.

Guiding commissioners' opinion was the hearing about the Imperial Palace 18 years ago in which the commission concluded that articles and other negative publicity about owner Ralph Engelstad's Nazi artifacts wouldn't be enough to show that Nevada's reputation was harmed.

Bad publicity without independent facts doesn't prove harm, said an attorney for MGM Mirage, Dan Reaser, who represented the Gaming Control Board in the Imperial Palace complaint. Reaser said regulators would have to show that tourists were not coming to Nevada or that there was loss of tax revenue for the state.

"Just because something appears in the newspaper doesn't mean it is automatically injurious," he said.

Regulators never needed to produce such evidence against the Imperial Palace because Engelstad agreed to settle the case, paying the state $1.5 million.

Looser standards for foreign partners, who don't need a license to do business with Nevada casinos, stand in marked contrast to rules governing Nevada applicants and operators.

Regulators can reject casino license applicants if they have lingering doubts or unanswered questions about an applicant's background. In addition, the Gaming Commission must determine that business owners and associates have funds stemming from a "suitable source."

But MGM Mirage and Pansy Ho weren't applying for a license, only requesting that the business deal be found suitable - a finding that MGM Mirage needed to stay in regulators' good favor. At the March 23 hearing the commission concluded that the regulation involving the source of funds - dating from 1975 when the mob was still involved in Nevada's casino industry - applied only to Nevada casino licenses and not to foreign operators such as Ho, who received most of her $80 million investment in the MGM Mirage partnership from her father.