United States: FinCEN Enforcement Stacks The Deck In AML Compliance For Casinos And Card Clubs

Introduction

Stephanie Booker, Associate Director for Enforcement, Financial Crimes Enforcement Network ("FinCEN"), recently gave a speech at the Nevada Bar Association's Bank Secrecy Act Conference in Las Vegas. Involved in the conference were the State Bar of Nevada's Gaming Law Section, the American Gaming Association, and the University of Nevada–Las Vegas' International Gaming Institute.

FinCEN is one of the Treasury Department's primary agencies to oversee and implement policies to prevent and detect money laundering, and the only federal agency to oversee anti-money laundering ("AML") compliance by casinos and card clubs. FinCEN polices for compliance with AML laws, including the Banking Secrecy Act ("BSA"), which requires certain reporting and recordkeeping by casinos and card clubs in an effort to prevent various financial and crimes. FinCEN works closely with the Internal Revenue Service ("IRS") Small Business/Self-Employed Division, which is FinCEN's delegated examiner for casinos and card clubs. The IRS refers significant violations of AML laws to FinCEN for enforcement action. FinCEN also receives referrals and coordinates its enforcement investigations with criminal law enforcement agencies, including the IRS-Criminal Investigations, the FBI, the Department of Justice's Asset Forfeiture and Money Laundering Section, and U.S. Attorney's Offices and state authorities, as well as other regulatory partners, including the Nevada Gaming Control Board.1

In her speech, Ms. Booker addressed BSA filing trends, the importance of BSA data, FinCEN's enforcement approach and recent enforcement developments, and the critical importance of a culture of compliance throughout the business and compliance functions at casinos and card clubs. Ms. Booker's speech made clear that casinos can no longer gamble on BSA compliance.

Impact of SARs

Suspicious activity reports ("SARs") form the cornerstone of the BSA reporting system, and are critical to FinCEN's ability to utilize financial information to combat money laundering and other criminal activity, including organized crime, drug trafficking, and terrorism. FinCEN regulations require the filing of a SAR in response to a transaction "if it is conducted or attempted by, at, or through a casino, and involves or aggregates at least $5,000 in funds or other assets, and the casino knows, suspects, or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part)": (a) involves funds derived from illegal activity, or is intended to hide or disguise funds derived from illegal activity as part of a crime; (b) is designed to evade the BSA or its implementing regulations; (c) has no business or apparent lawful purpose or is not the type of transaction that the particular customer would normally be expected to engage in, and the casino knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or (d) involves the use of the casino to facilitate a crime.2

FinCEN regulations contain certain protections to encourage prompt and candid reporting. First, the regulations protect the confidentiality of SARs.3 Second, the regulation provides protection from civil liability for all reports of suspicious transactions regardless of whether such reports are filed pursuant to the SAR instruction. Specifically, the law provides: "A casino, and any director, officer, employee, or agent of any casino, that makes a voluntary disclosure of any possible violation of law or regulation to a government agency or makes a disclosure pursuant to this section or any other authority, including a disclosure made jointly with another institution, shall be protected from liability to any person for any such disclosure, or for failure to provide notice of such disclosure to any person identified in the disclosure, or both, to the full extent provided by 31 U.S.C. 5318(g)(3)."4

SARs provide some of the most important information available to U.S. law enforcement. The data is used to confront serious threats, including terrorist organizations, rogue nations, foreign grand corruption, cyber threats and transnational criminal organizations. The reporting aids in expanding the scope of ongoing investigations by revealing the identities of previously unknown subjects, exposing accounts and hidden financial relationships, or revealing other information, such as common addresses or phone numbers that connect seemingly unrelated participants in a criminal or terrorist organization.

The filing of SARs has improved dramatically in the past year, increasing 69 percent from 2013 to 2014, and the trend has continued in 2015. These increases have occurred industry-wide, in casinos, tribal casinos and card clubs. The highest reported categories of suspicious activity in casinos are minimal gaming and alternating transactions to avoid currency transaction report filing. However, SARs have also exposed patrons using casinos and card clubs to conceal narcotics transactions, moving money in support of international fraud schemes, laundering real estate fraud money, and transferring money for other illicit purposes.

Role of Sharing among Casinos

As another element of the casino compliance landscape, the USA PATRIOT Act provides financial institutions with the ability to share information with one another, under a safe harbor that offers protections from liability, in order to better identify and report potential money laundering or terrorist activities.5

In 2014, FinCEN saw an increase in information-sharing between casinos and card clubs through this program, which now includes 98 casinos and card clubs. Casinos and card clubs that participate in this program can communicate with other participants, even if those participants are not casinos or card clubs. Such information-sharing between institutions can play a critical role in achieving BSA and AML goals. Information-sharing is a powerful tool for providing casinos with a more comprehensive view of potential money laundering or terrorist financing that involves multiple institutions.

FinCEN Articulates Six Core Principals

FinCEN enumerated six core principles: transparency, giving credit when due, recidivism, individual accountability, remedial framework and accountability.

  • Transparency in Rationale: FinCEN desires its enforcement to be transparent, supported by plain facts rather than a "hide-the-ball" exercise. In support of this principle, FinCEN strives to ensure that its public enforcement assessments clearly explain the facts and violations underlying the enforcement action to ensure that the public will understand why FinCEN took action.
  • Credit Where Credit is Due: Another core principle is "giving credit where credit is due," meaning that FinCEN will take a casino's historical conduct into consideration in assessing whether to take an enforcement action or impose a penalty. While FinCEN will take historical conduct into consideration, FinCEN has made clear that an institution may not avoid penalty for remediating prior or existing violations, but that the respondent will generally be in a better position than one that had violations and never fixed the problem.
  • Recidivism: It is clear that institutions that have had repeat violations over multiple exams will receive heightened scrutiny from FinCEN. In addition, institutions obstructing the exam process, such as denying access to information or key personnel, and failing to address repeated violations, will be heavily weighted factors in considering whether to bring an enforcement action.
  • Individual Accountability: The BSA provides FinCEN with broad supervisory and enforcement authority, allowing FinCEN to impose civil penalties not only against casinos, but also against partners, directors, officers and employees of casinos who themselves participate in misconduct. FinCEN continuously evaluates whether to initiate an enforcement action against those individuals responsible for an institution's BSA/AML failures, including barring individuals from working in the industry.
  • Remedial Framework: Recent enforcement actions have begun to focus on correcting errors identified in investigations to prevent future issues from arising. FinCEN is now incorporating a remedial framework into settlements, including "undertakings," which aim to ensure that the institution rectifies identified problems. For example, FinCEN may insist on corporate monitor arrangements as part of enforcement settlements, or require a casino to have more stringent independent testing for a given period of time.
  • Accountability: Recently, FinCEN has expressed a willingness to consider departing from historical settlement practices to one that includes an admission to the facts and the violations of law. Previously, FinCEN regularly permitted financial institutions to "neither admit nor deny" allegations. FinCEN has implemented this practice in enforcement actions against all sizes and types of financial institutions and individuals, including casinos.

Reversing the historical practice of allowing casinos to "neither admit nor deny" raises some interesting issues and may result in unanticipated collateral effects. For example, financial institutions will be less likely to enter into settlements if they are required to publicly admit wrongdoing. This will result in more cases going to trial, putting further burden on an already strained prosecutorial system.

FinCEN is not the only regulator to have considered this approach. Daniel P. Stipano, Deputy Chief Counsel of the Office of the Comptroller of the Currency, testified on the issue of requiring admissions in settlements before the House Committee on Financial Services, and argued that "because consent orders are made available to the public, requiring an admission of wrongdoing would prolong settlement negotiations and increase the number of respondents who choose to litigate the merits of the action."6 In line with Mr. Stipano's statements, many defendants will likely be concerned that an admission will have non-mutual offensive collateral estoppel effects in subsequent private litigation, barring the defendant from taking a different position or re-litigating the issues surround the alleged wrongdoing. Defendants may also be concerned that an admission of wrongdoing could be admissible evidence in subsequent private litigation.

Recent Notable Enforcement Actions

FinCEN has taken enforcement actions against a wide range of financial institutions and individuals covered by the BSA, including casinos and casino employees.

For example, in March 2015, FinCEN imposed a $10 million penalty on Trump Taj Mahal in Atlantic City, N.J., for willful and repeated violations of the BSA.7 In addition to the civil penalty, the casino was required to conduct periodic external audits to examine its anti-money laundering BSA compliance program, and provide those reports to FinCEN and the casino's board of directors. In the investigation, Trump Taj Mahal admitted to several willful BSA violations, including failure to implement and maintain an effective AML program, failure to report suspicious transactions, failure to properly file currency transaction reports, and failure to keep appropriate records as required by the BSA. Notably, Trump Taj Mahal had ample notice of these deficiencies as many of these violations were discovered in previous examinations. Trump Taj Mahal has a history of BSA violations dating back to 1998, when FinCEN assessed a $477,700 civil money penalty against Trump Taj Mahal for currency reporting violations.

More recently, in June 2015, FinCEN assessed a $75 million penalty against Hong Kong Entertainment Investments, Ltd., d/b/a Tinian Dynasty Hotel & Casino, in the Northern Mariana Islands for willful and egregious violations of the BSA.8 Specifically, Tinian Dynasty failed to develop and implement an AML program, and no member of Tinian Dynasty staff was delegated responsibility for day-to-day compliance with the BSA. The casino failed to develop and implement policies and procedures designed to ensure AML compliance, or to detect suspicious transactions; it also never conducted an independent test of its systems to ensure compliance. Further, casino personnel were not trained in BSA recordkeeping or in identifying, monitoring and reporting suspicious activity. The casino operated for years without AML programs in place, and accommodated patrons who desired to conduct financial transactions with large amounts of cash, without the casino reporting the transaction. In some instances, casino employees provided detailed instructions on how patrons could conduct transactions without being reported or without attracting law enforcement scrutiny.

Fostering a Culture of Compliance

In her closing remarks, Ms. Booker focused on FinCEN's expectation that institutions, including casinos and card clubs, develop a "culture of compliance." For decades, other types of financial institutions, particularly banks, have heard their regulators consistently focus on this idea that compliance must be engrained in an institution's culture. FinCEN's comments at this conference reflect FinCEN's expectation that casinos and card clubs will be held to the same high compliance standards as their much more pervasively regulated bank counterparts. Fundamental to the creation and development of a strong culture of compliance, regulated entities must develop a risk management framework that is engrained into the day-to-day culture of the entity. The entity's board and management must exercise oversight of the risk management plan to ensure the establishment of effective communication channels, culture change, discipline, and accountability. A telltale sign of effective risk management is that minor deficiencies are identified before they become major compliance problems; the deficiencies are corrected; and the entity incorporates corrective measures going-forward to ensure that the same deficiency is unlikely to reemerge in the future. In other words, the entity learns from its mistakes. Repeated instances of the same deficiencies is a sign of a failed compliance culture.

In order to design and implement a culture of compliance, it is crucial that casinos and card clubs seek legal counsel that is familiar with the nuisances of the legal, compliance, and reputational risks that are implicated by AML laws and regulations. Focusing on these risks as part of designing a comprehensive compliance program will help regulated entities, such as casinos and card clubs, to avoid potentially damaging enforcement actions in the future.

Footnotes

1. http://www.fincen.gov/about_fincen/wwd/faqs.html#org

2. 31 U.S.C. § 1021.320(a).

3. 31 U.S.C. § 1021.320 (e).

4. 31 U.S.C. § 1021.320 (f).

5. USA PATRIOT Act § 314(b).

6. Testimony of Daniel P. Stipano, Deputy Chief Counsel, Office of the Comptroller of the Currency, Before the Committee on Financial Services of the U.S. House of Representatives, May 17, 2012.

7. "FinCEN Fines Trump Taj Mahal Casino Resort $10 Million of Significant and Long Standing Anti-Money Laundering Violations," (March 6, 2015), available at: http://www.fincen.gov/news_room/nr/html/20150306.html (last visited June 23, 2015).

8. "FinCEN Fines Tinian Dynasty Hotel & Casino $75 Million for Egregious Anti-Money Laundering Violations," (June 3, 2015), available at: http://www.fincen.gov/news_room/nr/html/20150603.html (last visited June 23, 2015).

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions