Raleigh issues licenses for an industry banned by NC lawmakers

tmcdonald@newsobserver.comJune 2, 2014 

— Arken El Hicheri and Waheeda Ammeri of Raleigh were indicted by a Wake County grand jury in January on charges that they illegally operated an Internet sweepstakes parlor on Louisburg Road.

The indictment followed a nearly decadelong effort by North Carolina legislators and the state’s top prosecutor to ban sweepstakes gambling and the industry’s attempts to keep Internet cafes open.

El Hicheri’s defense will include three privilege licenses that he purchased for $20,000 each from the city of Raleigh’s revenue department that allowed him to operate the business, Lucky 22.

“They sent me a renewal of the license on June 13,” El Hicheri said. “It doesn’t make sense. How does someone commit a crime by running a business that’s licensed by the city?”

The city of Raleigh requires any person doing business within the city to pay a business license fee, unless the business is exempted by state law or local ordinances. Among the businesses that are not exempt include those that have electronic video games and the electronic gaming machines that have been banned by state statues.

Raleigh is not alone. At least three dozen other cities and towns collect taxes from the operators of gaming machines, said Christopher B. McLaughlin, an assistant professor of public law and government at the UNC-Chapel Hill School of Government. It’s a source of revenue that will dry up next year when the state eliminates all privilege taxes, McLaughlin notes.

State legislators have described sweepstakes casinos as a blight on North Carolina that takes money away from people when they are at their most desperate. State Attorney General Roy Cooper likened sweepstakes parlors to the payday lenders that state lawmakers outlawed in 2001 and shut down by 2006.

But for manufacturers of the software used in the gaming machines, there’s a lot of money at stake. In Raleigh, electronic gaming machine operators can pay up to a $20,000 tax to the city.

“It’s a private industry, so we have no way of knowing their earnings,” McLaughlin said. “But if they don’t mind paying $20,000, they are obviously making more money than that.”

Raleigh passed a new ordinance in June 2010 requiring owners of gaming machines to pay a license fee. The ordinance went into effect while members of the General Assembly were reconsidering the 2006 ban. Legislators upheld the law, making it illegal for “any person to operate ... an electronic machine or device to ... conduct a sweepstakes through the use of an entertaining display.”

City reaps $1.76 million

Since 2007, Raleigh has collected $1.76 million in electronic gaming fees and sweepstakes parlor licenses. Licensing fees for electronic video games are modest: $5 per machine, while fees for electronic gaming machines are $3,500 for the first machine and $1,000 for each additional machine with a cap of $20,000. Since the state’s ban on sweepstakes parlors in 2006, Raleigh has collected license fees from 54 businesses that operate electronic sweepstakes cafes and video games throughout the city, according to the city revenue department.

The city license doesn’t mean Raleigh is licensing an illegal activity, said City Attorney Dottie Leapley.

“Raleigh would not issue a privilege license to a business when the evidence shows that the business is an illegal one,” she said.

Leapley declined to comment when asked whether the city’s willingness to issue a license to a sweepstakes parlor contradicts the General Assembly’s ban, which has been upheld twice – in 2010 and 2012 – by the state Supreme Court.

“That’s something the (Wake County) district attorney will have to determine,” she said. “The laws are complex, and we count on the the prosecution and the evidence to determine what is legal and what is not legal.”

Observers of the industry say that each time the General Assembly comes up with new regulations to shut down the parlors, software manufacturers modify the machines to try to stay in compliance with state law.

“Some have compared regulating Sweepstakes to a game of Whack-A-Mole, where each time the General Assembly bans certain conduct, similar yet arguably distinguishable conduct pops up in its place,” said Jeff Welty, an assistant professor of public law at the UNC-Chapel Hill School of Government.

Supreme Court acts

In December 2012, the state’s high court tried to address that issue when it upheld the electronic gaming machine ban and overturned a state Court of Appeals ruling that said regulating the games violated the constitutional right to free speech.

The Supreme Court opinion, written by Associate Justice Robin Hudson, cited a 1915 case, the State v. Lipkin, to show how the software manufacturer’s claims of operating legally is a decadesold scheme.

“(N)o sooner is a lottery defined, and the definition applied to any given state of facts, than ingenuity is at work to evolve some scheme of evasion which is within the mischief, but not quite within the letter of definition,” Hudson wrote.

In Raleigh, arrests over the sweepstakes ban and prosecution of the cases are rare.

Between 2009 and 2013, three people were charged with using electronic machines and devices for gambling. All three men were cited on Aug. 1, 2011, by state Alcohol Law Enforcement agents at the Korner Pocket sports bar on Capital Boulevard for possessing illegal slot machines, according to records at the Wake County Clerk of Courts Office.

The Raleigh men all pleaded guilty in Wake County District Court and had to pay fines that ranged from $979 to more than $3,700, court records show. ALE agents destroyed the devices.

El Hicheri and Ammeri are set to have their day in court this summer.

El Hicheri has paid $60,000 in fees to operate the 20 machines at Lucky 22 since 2012, according to the city revenue department. The fees are renewable each year at $20,000.

But business has apparently been good at El Hicheri’s Lucky 22 in North Raleigh. Court date this summer notwithstanding, he’s looking forward to continuing the enterprise when it’s time to pay the annual $20,00 on June 30 to the city.

“I hope to pay it again,” he said. “I want to renew my license.”

News researcher Peggy Neal contributed to this report.

McDonald: 919-829-4533

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