United States: Upping The Ante For Casinos And Cardrooms

Last Updated: February 17 2017
Article by Jonathan E. Lopez and Daniel Streim

The Financial Crimes Enforcement Network (FinCEN) — a bureau within the U.S. Department of Treasury tasked with safeguarding the financial system from illicit use and combating money laundering — has recently fired multiple shots across the bow of the gaming industry, signaling increased attention to casino and cardroom compliance with the anti-money laundering (AML) provisions of the federal Bank Secrecy Act (BSA).

In 2016, three of FinCEN's six enforcement actions were brought against companies in the gaming industry. In 2015, four of 12 enforcement actions were against such companies. In stark contrast, between 2002 and 2014, just four of FinCEN's 57 enforcement actions were against gaming industry players.

Minimal Guidance Before 2015

This seemingly low enforcement priority before 2015 was commensurate with a more general lack of attention regulators afforded to the gaming industry.
Unlike depository institutions, casinos and card rooms were given minimal industry-specific guidance on BSA requirements and enforcement.

FinCEN delegates responsibility for BSA compliance examinations and outreach for casinos and cardrooms to the Internal Revenue Service (IRS). The Government Accountability Office (GAO), however, noted in a 2006 report that neither FinCEN nor the IRS provided the gaming industry "with a comprehensive source of information that can be used to guide efforts to develop a program that meets BSA requirements."

The IRS did not have consistently-implemented BSA examination policies and procedures until late 2004. Once it did establish standards for casino and cardroom compliance examiners, it did not effectively communicate those standards to the gaming community (and was slow to include them in the publicly available Internal Revenue Manual).

In 2005, the Federal Financial Institutions Examination Council issued a BSA/AML examination manual with respect to banking institutions, which, at 300 pages exclusive of appendices, dwarfed the approximately 20 pages of the Internal Revenue Manual dedicated to casino examinations.

In 2008 the IRS and FinCEN developed an examination manual for "money services businesses" that focuses on AML risks and programs. No such manual was produced for casinos and cardrooms.

Although FinCEN periodically published guidance documents specific to the gaming industry — for example, in 2003 it published instructions for preparing Suspicious Activity Reports (SARs) and in 2007 issued the first of several "Frequently Asked Questions" on casino recordkeeping, reporting, and compliance program requirements — casinos and cardrooms historically were provided little guidance or oversight from BSA regulators and examiners.

Enforcement Suggests New Focus

It appears, however, that casinos and cardrooms are no longer being overlooked. A wave of enforcement actions against the gaming industry over the past two years has produced civil penalties ranging from $650,000 to $75 million.

FinCEN got the ball rolling in March 2015 with the assessment of a $10 million civil money penalty against the now-closed Trump Taj Mahal hotel and casino in Atlantic City, New Jersey, nearly 20 years after it assessed a $477,000 penalty against the casino for BSA violations.

The Taj Mahal admitted in the 2015 action to failing to file approximately 100 SARs over a two-year period; repeatedly violating the requirement to properly file Currency Transaction Reports (CTRs); and failing to adhere to the BSA's special recordkeeping requirements for casinos.

These failures largely stemmed from the failure to implement policies and procedures "to use all available data" to aid in the monitoring and recording of gaming activities and cage marker and front money transactions. Three months later, FinCEN assessed a record-breaking $75 million penalty against the Tinian Dynasty Hotel & Casino in the Northern Mariana Islands for "egregious" BSA violations.

Then-director of FinCEN Jennifer Shasky Calvery noted that "the casino operated for years without an AML program in place" and "failed to file thousands of CTRs," and "management willfully facilitated suspicious transactions and even provided helpful hints for skirting and avoiding the laws."

Penalties For Big And Small Casinos

But FinCEN is clearly scrutinizing both big fish and small fish alike. In a three-month span, it assessed civil money penalties for BSA violations against both the 141-table Caesars Palace hotel and casino in Las Vegas, and the 35-table Oaks Card Club in Emeryville, California.

It appears that FinCEN has brought at least some of these enforcement actions not only to address prior misconduct, but also to warn casinos and cardrooms that regulators are scrutinizing BSA compliance in the gaming industry with heightened focus. Acting director of FinCEN Jamal El-Hindi recently stated that financial institution leaders would "benefit from reading" two recent penalty assessments: a $12 million penalty assessed in October 2016 against CG Technology, a Las Vegas-based company that operates race and sports books and provides gaming technology to casinos, and a $2.8 million penalty assessed against Hawaiian Gardens Casino, a 225-table card club in California in July 2016.

El-Hindi said that "FinCEN will continue to work with the casino sector on its compliance efforts, in order to ensure each casino is taking the appropriate actions to protect the gaming industry — and the greater U.S. financial system — from abuse."

Casinos Should Shore Up Compliance

In this new BSA enforcement environment, casinos and card rooms should carefully review their AML programs and ensure that they are effectively implemented. This includes ensuring that (1) written compliance policies and procedures are in place; (2) someone is delegated responsibility for ensuring BSA compliance; (3) company personnel receive compliance training on an ongoing basis; and (4) independent testing of the AML program is conducted.

Additionally, FinCEN issued a 2014 advisory to financial institutions on promoting "a culture of compliance." And although the BSA does not expressly require one, FinCEN recently found fault with gaming institutions, such as Hawaiian Gardens, for lacking such a culture of compliance. Casinos and cardrooms should thus encourage management to take an active role in facilitating BSA compliance efforts.

With the new administration, federal enforcement priorities may change again, and only time will tell whether FinCEN continues to scrutinize the gaming industry to an enhanced degree. But for now, demonstrating an effective AML program and a companywide commitment to BSA compliance may help keep a casino or cardroom out of FinCEN's crosshairs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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