Political Contribution Prohibition Results in Supplier License Denial

19 February 2003

By David Waddell

Two suppliers whose principal owners made the mistake of making political contributions to Michigan candidates after filing an initial application for a suppliers license were denied full supplier licenses by the Michigan Gaming Control Board on February 11th. In both cases, the companies that initially filed applications withdrew the applications after discovering that the prohibition existed. By doing so, they avoided a technical violation of the statute and any type of prosecution. Thereafter, both gentlemen formed new companies which submitted new applications to the Board and did not make any contributions from this date forward.

In both cases, the owners involved in the mistake were very open and honest with the Board and its staff. In one of the cases, the owner had checked with legal counsel who told the owner that contributions are banned from the date of licensing forward rather than the date the application was filed. Despite these mitigating factors, and the lack of any technical violation, the Board unanimously denied licenses to the two new companies.

The Board's action illustrates the need for companies involved with the Detroit casinos to be properly educated on all aspects of the supplier licensing process and the unique regulatory issues involved. In Michigan, the State Gaming Control Board is statutorily required to conduct a background investigation and license all gaming related suppliers and non-gaming suppliers that exceed certain dollar thresholds. The standards for licensing primarily pertain to the applicant's financial, criminal and personal history. However, the state law that governs Detroit casino suppliers also includes a restriction that prohibits suppliers (and related parties) from making contributions to a candidate or certain political committees who are involved with an elected office in the State of Michigan. The prohibition begins at the point when a supplier licensee submits its application to the Michigan Gaming Control Board and continues until three years after the supplier license expires.

The penalties for violating the political contribution restrictions are severe. A violation of this prohibition is a felony, punishable by 10 years in prison and/or a fine of up to $100,000. Additionally, violations of the provision could lead to revocation of a gaming license.

The details of Michigan's prohibition are as follows:

The Michigan Gaming Control and Revenue Act prohibits the following persons from making contributions to a state or local elective office holder, candidate, candidate committee, political party committee, independent committee (as defined by the Michigan Campaign Finance Act), or committee organized by a state legislative caucus: 1) a person who holds a Casino License issued by the Michigan Gaming Control Board; 2) a person who holds a supplier license issued by the Michigan Gaming Control Board; 3) a person who holds one percent interest in either a supplier or operators license; 4) a person who holds a one percent interest in the buildings, facilities or rooms connected to a casino, or a one percent interest in any other facility in the city that is under the control of a casino licensee or affiliated company ("casino enterprise"); 5) an officer or managerial employee of a licensee or casino enterprise; 6) an officer of any entity that holds a one percent interest in a licensee or casino enterprise; or 7) an independent committee of a licensee or casino enterprise. A person subject to this prohibition is also prohibited from making contributions through a legal entity established, directed or controlled by that person.

For casino licensees, political contributions may not be made for one year prior to applying to the Michigan Gaming Control Board for a Casino License, and continuing until three years after the license expires. The prohibited period includes all time in between these dates, including the period when the Board is still considering a license application.

For suppliers, political contributions may not be made from the date an application is submitted to the Michigan Gaming Control Board for a Supplier License, and continuing until three years after the license expires.

The Michigan Campaign Finance Act similarly prohibits a committee from knowingly maintaining receipt of a contribution that is prohibited under the Michigan Gaming Control and Revenue Act, as amended. A committee knowingly maintains the receipt of a contribution only if it fails to return the contribution within 30 business days after receiving notice from the Department of State that the committee has received a prohibited contribution.

Michigan's broad ban on political contributions has been problematic in the past. Portions of the law as originally written by the legislature have been declared unconstitutional by the Attorney General. There have been three Attorney General Opinions issued on the statutory prohibition (which is contained in Section 7b of the Gaming Control and Revenue Act): 1) Opinion Number 7002, December 17, 1998; 2) Opinion Number 7086, August 10, 2001; and 3) Opinion Number 7099, January 9, 2002. A copy of the Michigan Gaming Control and Revenue Act and the three Attorney General Opinions can be obtained under the Key Documents section of http://www.michigangaming.com.

For more information, suppliers can consult the Gaming Control Board's Frequently Asked Questions Section, which can be reviewed at http://www.michigan.gov/mgcb.