Casino Money Laundering Reddit

4/13/2022

Second Part of a Two-Part Series

Casino Money Laundering Reddit Against
Laundering Money Definition

As we blogged yesterday, British Columbia’s (“B.C.”) Attorney General David Eby recently released an independent and very detailed report examining money laundering in B.C.’s gaming industry and providing 48 recommendations to combat the problem. See Peter M. German, QC, Dirty Money: An Independent Review of Money Laundering in Lower Mainland Casinos conducted for the Attorney General of British Columbia (Mar. 31, 2018) (“German Report”). As we noted yesterday, when discussing the U.S. regulatory system, the German Report favorably cites the Nevada Gaming Commission and Nevada Gaming Control Board, whose Enforcement Division “acts as a first line of defence against organized crime and bulk cash buy-ins[,]” and further observes that the federal Financial Crimes Enforcement Network, “[i]n partnership with Internal Revenue Service, acts as the enforcement arm for most money laundering issues.”

The U.S.’s more robust, streamlined AML regulatory regime, although hardly perfect, stands in stark contrast to the dysfunction alleged in the German Report that plagues B.C.’s current framework. In this post, we describe the U.S. AML regulatory regime for the gaming industry, and the recent enforcement actions which it has produced. Although the pace of AML enforcement has been somewhat sporadic, it appears to be increasing over time in regards to the gaming industry. Certainly, attention by regulators — as well as by the industry itself — to AML/BSA compliance has increased over the last several years.

In 2013, it established an anti-money-laundering unit and, by mid-2015, the Crown corporation was demanding players use casino accounts funded by bank drafts and submit to interviews about the. Like the physical casinos, the process of money laundering in the online casino happens during the transactions—money transfer, credit card transaction, or wire transfers. Sometimes, money laundering can also happen when the payments for the chips is made through digital currencies. The inquiry was called by the provincial government after reports outlined how money laundering in the province helped to fuel the real estate, luxury vehicle and gambling sectors.

The U.S. AML Regulatory Framework for the Gaming Industry

As a threshold matter, the Financial Crimes Enforcement Network (“FinCEN”) has authority to investigate casinos for compliance with and violations of the Bank Secrecy Act (“BSA”). FinCEN, in turn, has delegated to the Internal Revenue Service (“IRS”) its authority to examine casinos for compliance with the BSA. Under this framework, if the IRS identifies significant BSA violations during a casino examination, FinCEN initiates an investigation into that casino and, depending on the investigation’s outcome, may assess a civil penalty against the casino. As a result, the IRS and FinCEN work in conjunction while enjoying broad mandates that are not at odds with one another.

And, in contrast to the B.C. system described in the German Report, the U.S. has implemented more streamlined regulatory requirements for casinos pursuant to the Bank Secrecy Act (“BSA”), including:

Filing suspicious activity reports (“SARs’) for suspicious transactions of at least $5,000;
Filing currency transaction reports (“CTRs”) for cash ins or cash outs exceeding $10,000;
Complying with certain recordkeeping requirements for up to five years, including a casino’s receipt of funds for each customer, bookkeeping entries for debits or credits into a customer’s casino account, and credit extensions exceeding $10,000; and
Implementing AML compliance programs.

FinCEN issued guidance in 2010 regarding AML/BSA compliance programs in the gaming industry, stating that, “at a minimum,” such a program must include:

A system of internal controls to assure ongoing compliance with the BSA;
Internal or external independent testing for compliance with a scope and frequency commensurate with the risks of money laundering and terrorist financing posed by the products and services provided;
Training of casino personnel, including training in the identification of unusual or suspicious transactions;
An individual or individuals to assure day-to-day compliance with the BSA;
Procedures for using all available information to determine and verify, when required, the name, address, social security or taxpayer identification number, and other identifying information for a person;
Procedures for using all available information to determine the occurrence of any transactions or patterns of transactions required to be reported as suspicious;
Procedures for using all available information to determine whether a record required under the BSA must be made and retained; and
For casinos and card clubs with automated data processing systems, use of the programs to aid in assuring compliance.

Arguably, the gaming industry remains one of the last bastions of a major business that still often deals significantly in cash — in a world increasingly driven by technology and credit. To that end, some gaming businesses may attract a disproportionate share of customers seeking to avoid ensconced BSA reporting and record-keeping requirements, including the CTR filing requirement. Similar to some of the allegations in the German Report, some casinos also may attract certain individuals from across the globe who potentially are attempting to undermine certain laws in their home country, including tax reporting obligations.

AML Enforcement and the Gaming Industry

In recent years, FinCEN has shown an increased focus on AML compliance in the gaming industry. It assessed only three civil penalties against casinos, for a total of $1.6 million, from 2003 to 2014. In contrast, it imposed approximately $110 million against casinos from 2015 through 2016 and has pursued four significant enforcement actions since 2016.

As we have blogged, FinCEN announced on May 3, 2018 that it imposed a $5 million civil monetary penalty against Artichoke Joe’s for the casino’s alleged deficiencies in its BSA compliance. FinCEN asserted that Artichoke Joe’s AML program failed to implement sufficient procedures to identify loan-sharking operations. It found that: (1) the club’s senior management admitted loan-sharking operations were commonplace and observed by employees; (2) the club failed to file SARs and CTRs in compliance with the BSA; and (3) the club failed to undertake an independent audit after illegal loan sharking was initially detected.