Blocked at every turn

By Liz Benston

Monday, Jan. 22, 2007 | 7:12 a.m.

By Liz Benston

Las Vegas Sun

Three years ago Tomaz Zvipelj sat in a law office with a dramatic Strip view, contemplating the kind of business success unimaginable to his friends and family back in Slovenia.

Zvipelj (pronounced ZEE-pel) is chief executive of Elektroncek, the first Eastern European company to undergo the expensive, lengthy and often frustrating process of applying for a Nevada gaming license. That makes him a pioneer. Unknown to him at the time, he was about to undergo the business equivalent of a strip search.

Three years later the 28-year-old and his business partner, Joze Pececnik (pronounced pu-CHECH-nik), 37, have been humbled by Nevada regulators combing through old tax returns, questioning Pececnik's educational background and reading private e-mail correspondence. Hundreds of thousands of dollars later, the prized Nevada license - a gold standard that opens doors to other gaming licenses across the globe and the ticket to operate in one of the world's most profitable industries - remains elusive.

The Nevada licensing process - which regulators say is more thorough than the review for a CIA security clearance - requires disclosure of tax records, deeds, credit card receipts and financial minutiae accumulated during a person's adult life.

Such intensive background checks can be downright offensive or even impossible for foreigners unaccustomed to baring all. Investigations run up against cultural differences that result in incomplete or inconclusive information, some of it lost - literally and figuratively - in translation.

"No one, no matter how experienced or sophisticated, is prepared to undergo the scope and intensity of a Nevada gaming license investigation," said Bob Faiss, a Las Vegas attorney and former regulator who has shepherded several foreign clients through the Byzantine process. "No information can be withheld and no secret can be guarded. This experience can be difficult for a native of a foreign country where custom as well as laws protect privacy."

Pececnik, a computer systems developer, began designing gambling games in the late 1990s. The machines, which go by such names as "Megastar" and "Supernova," are electronic versions of table games such as roulette and craps and are popular in Europe, Australia and Macau, China. In the United States, where table-game players usually prefer dealers, other companies that make similar devices are hoping the games will catch on with players who are intimidated by dealers or in states where live dealer games are forbidden.

Elektroncek's games caught the eye of Las Vegas slot machine giant Aristocrat Technologies, which hoped to purchase a 50 percent interest in the Slovenian company and distribute the games in Las Vegas and beyond.

It would be a coup for the small company, which began in a garage and now operates a manufacturing plant near Slovenia's capital, Ljubljana, churning out hundreds of devices a year.

But the Slovenians would need to be licensed in Nevada as well.

Gaming Control Board investigators spent more than two years interviewing distributors of Elektroncek's games across Europe and collecting a mind-numbing array of financial documents.

Then the Gaming Control Board investigation boiled down to a final two hours in a downtown Las Vegas hearing room.

Pececnik stood like a soldier bravely facing crossfire, answering questions in heavily accented though competent English. Off to the side was Zvipelj, fluent in English, a one-time basketball player now confined to a wheelchair after an auto accident.

The three board members sounded alternatively bemused, frustrated and angry.

"I believe there's been an intentional lack of candor right from the start," then-Gaming Control Board Member Bobby Siller said in his closing remarks. "I am just livid at people who are less than candid. There's been a complete lack of cooperation with staff throughout the application process."

But this was new territory for the Slovenians.

"The learning curve has been steep," Las Vegas gaming attorney John Maloney, who is representing the two men, would say later. "These gentlemen are dead serious about this business. They're here, they have learned and I'm absolutely convinced they will be good licensees in the state of Nevada.

"These are good guys. But this is a case of first impressions. We have to give regulators the comfort level they're seeking."

To understand the chasm between the two sides requires some knowledge of Eastern European and Nevada history.

Slightly smaller than the state of New Jersey, Slovenia declared its independence in 1991 from the former socialist republic of Yugoslavia. While Americans associate former communist countries with poverty, industrial pollution and political corruption, Slovenia - bordered by Italy, Austria and Croatia - is a country of stunning beauty, with pristine forests, Alpine peaks and a picturesque coastline.

Like other countries that have sloughed off communism, Slovenia is a nation of bright-eyed, successful entrepreneurs.

The country's first casino opened before World War I and gambling spread in the 1980s under communism.

When it comes to licensing gaming companies, Nevada attorneys say many foreign countries put more focus on reviewing slot systems and other gambling technology than on an applicant's personal and business relationships.

Nevada's regulatory system, on the other hand, is driven by the memory of the mob's control of casinos. So it requires that investigators - many of them former cops - sniff around to determine the applicant's trustworthiness. So agents look for tax returns that don't add up, discrepancies on sales invoices and personal information that isn't revealed on the board's 80-page disclosure application.

In the case of the Slovenians' application, "it was very difficult for staff to get information," Gaming Control Board Chairman Dennis Neilander said in an interview. "We'd get pieces of it here and there. It never seemed to be fully disclosed.

"Other countries view full and complete disclosure differently than we do in America. The burden of proof is on the applicant in our system. It's not the state's burden to prove the applicant is not suitable."

The men also stumbled in how they answered questions at the hearing - including whether they had sold their slot machines in Russia, a country known for its mobsters and black-market gambling operations. The men said they had not.

But investigators already had learned that Elektroncek's machines had been sold by a middleman to customers in Russia and that the company had scouted sales opportunities there.

So they were grilled.

Siller: "Did your company design a product that was, for lack of better words, stripped down in its complexity so it could be sold in Russia? You said, a simpler product."

Zvipelj: "If you are referring to our lower price product, yes, we did design it. If you are asking whether we designed it for Russia, the answer is no. We did design it for cheaper markets (which) not only could not afford but also did not need our fully equipped product. That product was not designed having Russia in mind."

Siller: "Was it your belief and knowledge that these products � would go to Russia?

Zvipelj: "At the time we were designing them?"

Siller: "No, at the time you started the transaction and were dealing with various people. Did you realize the outcome and the sale, the ultimate location of this product, would be in Russia?"

Zvipelj: "For those two or three products, yes, we were aware they will go to Russia."

Siller: "And you were aware of that at the time of the transaction?"

Zvipelj: "Yes."

Siller: "And our staff asked the question, are you doing business in Russia after that transaction had happened. Is that correct?"

Zvipelj: "Yes, that's correct."

Siller: "So you were less than candid with the staff in saying you did not do business in Russia."

Zvipelj: "First of all, I was not asked that question."

Siller: "Were you candid in your comment to the staff, when the question was presented to you, were you doing business in Russia?"

Zvipelj: "Mr. Siller, if I may just finish my answer."

Siller: "No. Just answer my question first, then I'll allow you to elaborate."

And then there was the matter of Pececnik's college education.

Zvipelj said he bought an honorary diploma for Pececnik as a birthday gift. Pececnik said that even though he did not attend college, he decided to claim he did because the diploma would show up in his records.

But agents sniffing around in Slovenia discovered that Pececnik's diploma was phony.

In a defense that didn't impress the board, Maloney said such degrees are common in Slovenia and would not have helped his client's career in any case.

There were other issues clouding Elektroncek's reputation , including shoddy accounting practices.

Zvipelj and Pececnik left the hearing without a Nevada license. And although the men may submit additional information for consideration, their case is effectively closed.

"They could try to muster up additional evidence, but some of the records that were missing we're never going to find again," Neilander said. "It's an irreparable situation."

But at least the men were not personally impugned, Maloney noted. Like other gaming lawyers in Las Vegas, Maloney - a former regulator who tracked down mob figures in Nevada and beyond - conducts his own background checks on clients to make sure they have no major skeletons. These men were clean, he said; they had refused opportunities to make money on the black market in Europe.

Maloney said his clients feel somewhat bruised by the experience.

"No matter how many times you explain the process beforehand, when you actually go through it, it can be frustrating," he said. "These kinds of things beat you up. And after a year or so, people will say, 'When's this going to end?' "

Back in Slovenia, Zvipelj said the Nevada licensing process is "quite new to anybody in Europe."

"You have to tell to complete strangers more information than even your parents, your best friends, or your spouse know about you."

The Slovenians, meanwhile, are preparing to show off their machines at an upcoming gaming industry conference - in London.