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NMI government accused of breaching IPI’s exclusive rights to gaming

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IMPERIAL Pacific International has accused the CNMI government of breaching IPI’s exclusive rights to gaming activities as required in the casino license agreement by allowing electronic gaming and poker arcade operations on Saipan.

In his letter to Gov. Ralph DLG Torres, Attorney General Edward Manibusan, Casino Commonwealth Commission acting Executive Director Andrew Yeom, CNMI Lottery Commission Chairman Mark Rabauliman and the presiding officers of the Legislature, IPI Chief Executive Officer Donald Browne said that in previous years, the CNMI government charged IPI  an annual $15 million for an exclusive casino license that actually never gave IPI exclusive rights to gaming.

Browne wrote the letter in response to the governor’s notice of intent to suspend or revoke the exclusive casino license following IPI’s failure to pay the $15.5 million annual license fee on Aug. 12.

Brown said he would like to bring to the CNMI government’s attention the casino license agreement or CLA created by Public Law 18-56 that allowed casino operation on Saipan.

On Aug. 12, 2014, he said, IPI entered into an agreement with the Lottery Commission to "exclusively operate casino gaming activity on the island of Saipan” under the authority established in P.L. 18-56.

“However, IPI was never provided the exclusivity agreed to in the CLA. The unusually high annual license fee of $15,000,000 was only agreed to by IPI in return for ensuring the exclusive rights provided for in the CLA,” Browne said.

He reminded the governor and other CNMI officials of the meaning of casino gaming as defined in P.L. 18-56:  “Any and all table and casino-style games played with cards, dice or equipment, for money, credit, or any representative of value; including, but not limited to roulette, blackjack, big six, craps, poker, baccarat, any banking or percentage game, of any other game or device included within the definition of Class III gaming.”

He said electronic gambling devices as described in the federal law, poker machines, slot machines and e-gaming machines are gambling devices that are also casino games played for money.

“The CNMI has not only allowed casino games to operate outside of the exclusive license holder, but has allowed casino gambling to proliferate causing irreparable harm to the exclusive licensee through loss of revenue. There is no exclusion anywhere in the CLA that allows for other parties to operate casino games. IPI did not expect the exclusive rights to casino gaming activity to be so easily breached,” Browne said.

“Allowing poker machines and e-gaming to operate outside of the casino is a violation of the exclusive license IPI holds. Not only has IPI never received an exclusive license to casino gaming on Saipan as was promised, IPI has suffered through multiple catastrophes,” he added.

Signed by then-Gov. Eloy Inos in Dec. 2013, Public Law 18-30 allowed electronic gaming on Saipan.  Inos, in his transmittal letter to the Legislature, said he approved the measure “as it will assist the Commonwealth to meet its obligations to the Settlement Fund and NMI Retirement Fund.”

Asked for comment, Rep. Joseph Leepan T. Guerrero said everyone was given an opportunity to comment on the e-gaming bill at the time, but nobody from the casino licensee came out to contest it. “Why only now are they complaining about it and making it an excuse for their failure to meet their obligation?” he asked.

Guerrero said the officials of IPI knew about the legislation to allow electronic gaming and everyone was given the chance to come to the session to oppose it, but they never did.

Guerrero, who chairs the House Committee on Commerce and Tourism, said instead of “picking” on e-gaming on island, IPI should focus on reviving the casino industry so it could meet its obligations to the Commonwealth.

Devastated

Also in the letter, Browne reminded CNMI government officials about the struggles that IPI went through over the years.

He said only seven days after IPI, then known as Best Sunshine,  opened in 2015, Saipan was struck by the devastating Super Typhoon Soudelor. Immediately after this disaster, IPI shut down its business and jumped right into recovery work assisting the community in its efforts to recuperate and return to a life of normalcy.

In the years after Soudelor, IPI said it overcame numerous major challenges such as a severe shortage of skilled labor, an economic slowdown in China, discontinued flights from Japan, unrest in Hong Kong, unfavorable immigration policy changes, and emerging competing destinations in Asia.

In 2018, Browne said another super typhoon hit Saipan and IPI, along with the entire business sector, had to suspend operations temporarily while the tourism industry and the community began the recovery efforts.

In 2019 the CNMI felt a loss of roughly 14% of Chinese arrivals, which were exacerbated by unrest in Hong Kong and trade tensions between the U.S. and China, Browne said.

“Today, the new coronavirus outbreak is impacting the world, the CNMI tourism industry, and our community at a speed which has already outpaced the SARS epidemic of 2003. Impact to travel demands throughout all of Asia began weeks ago and although our company is faced with the difficult decision to mitigate these challenges, IPI still holds true to the CNMI and its people,” Browne said.

“IPI has been operating in the CNMI for only six years and the company has shared the same adversities that all other businesses have faced in this period of time. Our company has struggled, our employees have struggled, and our ability to create a steady stream of income has suffered. Throughout all of these unexpected adversities, IPI did its best to honor the commitments that it made to the CNMI back in 2014,” he added.

He said since the award of the casino license, IPI has created thousands of jobs and generated countless business opportunities for hundreds of local businesses.

To date, he said, IPI has invested approximately $1 billion in the CNMI and paid over $300 million in taxes and fees to the government.

The $1 billion investment in the initial gaming facility to date is well over the $300 million promised originally, he added.

“IPI has lost over $500 million cumulatively. IPI paid $14.3 million in community benefit funds [or CBF]. We’d like to go back to the original schedule of paying CBF after the Phase 1 land is secured. The intent of Amendments 1 through 8 of the CLA [was] to allow additional time for construction. It was never IPI’s intention to pay CBF early. We’d like to rectify this by the proposed amendment 9,” he said.

“Given the aforementioned circumstances, as a reasonable remedy IPI requests that the annual license fee due Aug. 12, 2020 be postponed and paid in the 15th year of the casino license agreement. Furthermore, due to the government-mandated shutdown, Imperial Pacific may be required to remain closed for the majority of this year. Therefore, we are requesting a reduction of the CCC management fee to $1 million as the cessation of gaming requires less oversight. If the CNMI governing bodies are open to this plan, IPI is amenable to [a] reasonable annual license fee and [a] reasonable CCC management fee as soon as the plan is approved. Once again, Imperial Pacific International would like to take the opportunity to remind the CNMI of our unwavering commitment to establishing CNMI as a first-class destination for gaming and recreation,” Browne said.

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