Gambling on Casinos - and losing

Nevada is essentially a one-industry state: gambling. Nearly 50 percent of its revenues come from taxes on gaming activity.

The state's gambling colossus began to take shape in 1931, when Gov. Fred B. Balzar signed a bill legalizing all forms of betting. As observers of the industry have since put it, casinos were drapped in a ''cloak of respectability.''

Eventually, the illegal, underground gaming establishments that had sprung up in the '20s along with Prohibition-era ''speak-easies'' matured into gleaming hotel-casinos. Millions of patrons -- and millions in tax dollars -- flowed into the state.

So while officials in New Jersey, the only other state with legal casinos, are still relatively new to the pressures the gambling industry can bring to bear on government, Nevada's politicians have coexisted -- and frequently cooperated - with casinos for decades.

As shown in part one of this series, New Jersey's casino regulators have often diluted or repealed regulations designed to protect the public interest and keep organized crime at bay. In Nevada, on the other hand, there has never really been a concerted legislative effort to clamp regulations on casinos, say long-time observers of the gambling industry.

Jerome B. Skolnick, director of the Center for the Study of Law and Society at the University of California at Berkeley and an expert on the gaming industry , says a politician who opposes casino interests in Nevada virtually signs away his political future in the state.

It's no secret, for instance, that gambling interests are some of the biggest contributors to the campaign war chests of Nevada politicians. A number of people interviewed -- including some state government and law enforcement officials -- agree that Nevada should enact strict political campaign financing and personal financial disclosure laws. They urged, too, that public officials use more discretion in soliciting and accepting campaign contributions from casinos and their employees.

As it stands, a kind of protective seal has grown up around the state's casinos. Nothing illustrates this better than the looseness of the regulations governing casinos' day-to-day operations. Some examples:

* Nevada's rules governing cash-counting procedures, security, and other activities inside casinos require none of the surveillance techniques that can help guard against such crimes as ''skimming'' -- the practice of executives or employees pocketing some of the gambling returns without reporting them. New Jersey's casinos, by contrast, must have televised monitoring of slot machines and cash movements by employees from one area of a casino to the next. Videotaping capabilities are also required, so that the tapes could later be used in court as evidence. Such measures have scarcely eliminated all ''skimming'' from New Jersey's casinos, caution experts, but they are at least a reasonable safeguard.

* Nevada has no stringent rules governing the granting of credit to gamblers. New Jersey requires a gambling firm's vice-president of casino operations to approve a credit request in writing, following an extensive examination of the gambler's credit file.

The agency charged with keeping a rein on the gambling industry here is the Nevada Gaming Commission. Over the years it has been criticized for bending to industry wishes and acting before it has adequate information, especially in the licensing of casino operators. Walter Tyminski, publisher of Rouge & Noir, a widely respected gaming newsletter, says the trend in Nevada regulatory appointments since 1931 has been toward ''figurehead'' commissioners -- people honest enough to discourage federal investigation but accommodating enough not to ruffle the industry's feathers.

One of the most controversial issues to come before the Gaming Commission in recent years concerned the proposed repeal of Regulation 11, a state law forbidding individuals from holding state or local office at the same time they held a casino license. Proponents of the regulation said it served as a clear safeguard against conflicts-of-interest.

But the commission supported changing the law. And in June 1981, Regulation 11 was amended by administrative fiat to permit city and county (but not state) officials to hold licenses. The commission concluded that barring local officials from casino jobs would be an economic hardship.

In an interview in Lake Tahoe, Nev., the current chairman of the Gaming Commission, Carl Dodge, said he plans to take several steps to strengthen the commission, steps which may surprise some in the industry. He said he will make sure that the commissioners have all the information they need to make licensing decisions. In the past, close observers say, the commission has acted before seeing the entire record.

These observers don't doubt that Mr. Dodge means well and will, in fact, take steps to strengthen the commission. But they argue that political pragmatism and compromise are likely to remain the dominant forces in a state where casino gambling will be the keystone of the economy for the foreseeable future.

One concern is the state's casino licensing procedures. In the middle '40s, casino licensing was strictly a pro forma matter. Investments were made, buildings were erected, and employees hired before casino operators gave any thought to getting a license. That done, the would-be operator simply picked up a license from the state tax commission.

Things have tightened up since those says. But critics still charge that Nevada's licensing procedures are less than thorough.

An example of the laxness of the Nevada licensing process, say knowledgeable sources in the gambling industry, was the 1981 application by entertainer Frank Sinatra to become a key employee of the Caesar's Palace casino in Las Vegas. These sources say Mr. Sinatra made it clear that if he was going to be interrogated harshly, he would withdraw his application. As a result, they say, Sinatra's hearing was a less-than-serious effort to check allegations that he had had ties to organized crime figures. He got his license.

Chairman Dodge, on the other hand, asserts that the investigation of Sinatra's alleged links to mobsters was ''the largest and most extensive investigation Nevada ever had . . . . It involved nine foreign countries and six states. The commission traced every allegation against Sinatra. To the best of its judgment, the man was entitled to a license.''

Mr. Sinatra denied that he had, or ever had had, any ties to organized criminals.

But critics point to what they consider a basic failing: The Sinatra hearing was conducted without rigorous cross-examination of witnesses. The absence of such public probing, they say, results in a process still reminiscent of the openly pro forma licensing procedures of the past.

Many experts, including some New Jersey casino regulatory officials, don't take the Nevada licensing process seriously because the state has licensed a number of people that New Jersey turned down because of close associations with organized crime figures.

''Not until 1949 did the Legislature specifically write into the law that the tax commission could investigate the antecedents, habits, and background of an individual seeking a license,'' writes Professor Skolnick. ''Starting then, the commission began to develop an administrative staff for gaming control. In 1953 the Legislature set out the state's power to license 'so as to better protect the public health, safety, morals, good order, and general welfare. . .' of the inhabitants of Nevada.''

But since the time Benjamin ''Bugsy'' Siegel, a reputed underworld figure, opened Las Vegas's Flamingo Hotel in 1945 up to the present, Nevada's commitment to protecting ''the public health, safety, morals'' has frequently been in question -- especially where questions of organized crime are involved.

Organized crime's involvement in Nevada gambling, while often alleged, is difficult to prove. John Dombrink of Berkeley's Center for the Study of Law and Society says that ''as it [organized crime's involvement] increases, it becomes less recognizable. You don't see the gangland slayings you did in the past, but more [political] influence . . . .'' He adds that ''organized crime becomes more subtle'' because ''these people [organized crime figures] become more legitimate'' members of the community.

One top state law enforcement official, who requested that his name not be used, said, ''We'd be fooling ourselves to say that organized crime does not have hidden interests'' in many Nevada casinos.

A 1976 federal report on organized crime activities by the US Law Enforcement Assistance Administration stated that one of organized crime's major activities in Nevada was ''political corruption and the infiltration of law enforcement agencies . . . . Political corruption is designed to negate the laws, thereby allowing special interests or cartels to gain a stranglehold in order at least to manipulate some aspects of community life and politics.''

In the last year federal law enforcement authorities have charged that there long have been hidden organized crime interests in a number of Nevada casino-hotels.

Recent years have seen the indictment and conviction of several public officials in Nevada, at least three of them for casino-related offenses.

Judge Gates, former Clark County (Las Vegas) business licensing commissioner, was indicted and convicted by the federal government in a casino-related bribery-kickback scheme. Three of his deputies were indicted along with him, and two of them were convicted.

Some local officials are starting to step up their investigations. ''There are a lot of allegations of official corruption and we are looking into them rather vigorously,'' says Washoe County (Reno) District Attorney Cal Dunlop. Mr. Dunlop has a reputation for following through. Several years ago, his investigation into local political corruption stemming from prostitution activities resulted in the indictment of four politicians, two of whom were convicted.

A new federal investigation also has been launched. Early in 1981, a new federal grand jury was impaneled to take a long-range look into organized crime in Nevada. Federal Judge Harry Claiborne ordered the formation of the grand jury in the wake of an urgent request from John Keener, then acting assistant attorney general in the US Justice Department's criminal division.

''Much of this [organized crime] activity is related to the illegal acquisition, financing, management of, and skimming from, major Nevada casinos, '' Mr. Keener wrote in his request for the grand jury probe.

Over the years, it has only been in the face of federal investigatory pressure that hidden interests began to be uncovered. During the mid '60s, US Attorney General Robert Kennedy took aim at Las Vegas as one of the chief ''nerve centers,'' or bases of operations, for organized crime. But problems developed with the investigation. Primarily, it turned out later, the FBI had illegally placed electronic ''bugs'' in the offices and homes of top casino executives and state officials. Therefore much of the government's evidence could not be used in court. And leaks to the media indicated that a great deal had in fact been learned about organized crime's hidden casino interests.

Also a factor in cooling the Kennedy investigation was strong opposition to it at the highest level of state government. Nevada's governor at the time, Grant Sawyer, called it ''a shocking story of espionage and harrassment against the state . . . determined to destroy the major business of this state.''

In 1966, Nevada's Gaming Commission issued its own report on organized crime's hidden interests in casinos, which categorically rejected the federal government's claims that there were such interests.

In his unpublished doctoral dissertation on the links between organized gambling and the spread of legalized gambling, John Dombrink observes: ''The threat of federal intervention had the result of driving the state and the gambling operators -- even those who were suspected of organized crime ties -- together, as a protective measure. This coalescence around the federal threat meant that the state was forced to emphasize its preservative tendency toward gamblers . . . . ''

This same ''preservative tendency'' can be seen in protests about the new federal investigation. Some Nevada politicians have been outraged. US Sen. Howard Cannon (D) of Nevada went so far as to call for a congressional review of the operations of the US Justice Department's Organized Crime Strike Force.

Many observers of the industry feel that prominent politicians should be taking a lead in proposing reforms. However, Mr. Cannon's Republican counterpart , US Sen. Paul Laxalt of Nevada, told the Monitor that ''Nevada's image'' with regard to organized crime and corruption ''has improved substantially in recent years.''

Lack of backing from political leaders has at times been a brake on investigations. But the main impediment, according to experts, remains the inherent difficulty of coming up with hard evidence to prove organized crime involvement in casinos. As Professor Skolnick puts it, officials often ''can't find the 'smoking gun' '' needed for conviction.

The key tool for finding such evidence, according to a number of Nevada law enforcement officials contacted, is wiretap authority. For years, they've lobbied hard for legislation permitting ''third-party intrusions (wiretaps)'' where ''probable cause'' of criminal wrongdoing exists in the judgment of a magistrate. In other words, they say, they want a strong wiretap law with adequate safeguards against unwarranted invasions of privacy. But such proposals always have run into concerted opposition from the casinos and pro-casino legislators.

Gaming industry spokesmen raise the traditional civil liberties arguments concerning invasions of privacy. But they also claim that state wiretap authority is unnecessary. William Campbell, executive director of the Nevada Resorts Association, points out that the federal government is free to step into any case, and it has wiretap authority.

Washoe County District Attorney Dunlop is one of those concerned that people's civil liberities could be jeopardized by the wiretap law, even though it would ostensibly be used to combat organized crime. Nevertheless, he adds, ''I think the only way to ferret out organized crime in this state or any state is that tool [a wiretap law]. There certainly is evidence historically, and recently -- as a result of federal activities -- of organized crime existing in Nevada.''

Proponents of wiretap bills have tried several different tacks in their push for passage. In 1979, a bill specifically aimed at uncovering criminal elements in the gaming industry never got out of the Nevada Senate's Judiciary Committee. Two years later, a bill dealing with organized crime in general was soundly defeated.

Clearly, there's a growing consensus that corrective action is needed in Nevada. Dozens of state officials, past and present, as well as knowledgeable gambling industry experts, agree that organized crime still holds a big stake in many Nevada casinos. Their views would seem to indicate that the casinos' cloak of respectability may by wearing thin.

Next: Will other states follow suit?