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The U.S. Casino and Gaming Industry: AML/BSA Regulation and Enforcement

This is the second part of a two-part series. Read the first part, "British Columbia’s Gaming Industry Reportedly Faces Serious Money Laundering Vulnerabilities​​.

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.

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.

FinCEN also pursued three large enforcement actions in 2016, about which we have also blogged:

  • Cantor Gaming: FinCEN assessed a $12 million civil penalty against Cantor Gaming for purportedly “egregious and systemic” AML compliance failures on October 3, 2016. It found that Cantor Gaming failed to (1) provide adequate AML training for its officers and employees; (2) use all available information to identify and report suspicious transactions; and (3) maintain adequate internal controls to detect money laundering.

  • Hawaiian Gardens Casino: On July 15, 2016, FinCEN imposed a $2.8 million civil penalty against the casino for allegedly repeatedly violating its BSA requirements. FinCEN attributed these failures to the club’s lack of a compliance culture, emphasizing that: (1) its leadership failed to meet as required by its charter; (2) its leadership failed to review and approve its risk assessment; and (3) its management failed to implement policies and procedures for customer identification.

  • Sparks Nugget: On April 5, 2016, FinCEN imposed a $1 million civil penalty against the company for purportedly engaging in willful and repeated AML violations. FinCEN alleged that: (1) the company’s committee for deciding whether to file SARs never actually met and it included members that did not know that they were on the committee; (2) the company prohibited its compliance managers from interacting with BSA examiners; and (3) the casino used customer information only to further its business interests and not to comply with the BSA.

Copyright © by Ballard Spahr LLPNational Law Review, Volume VIII, Number 197


About this Author

Mary Treanor Lawyer Ballard Spahr

Mary Treanor focuses her practice on representing energy and commodity companies, financial institutions and trade associations in a variety of regulatory, compliance, litigation, and transactional matters. Her work includes representing clients in enforcement matters before the Commodity Futures Trading Commission, Federal Energy Regulatory Commission and Chicago Mercantile Exchange, as well as advising on regulatory matters and assisting with transactions.

202 862 2392
 Peter D. Hardy, Ballard Spahr, Philadelphia lawyer, White Collar Defense lawyer, Internal Investigations, Consumer Financial Services, Privacy and Data Security, Tax

Peter Hardy advises corporations and individuals in a range of industries against allegations of misconduct—including tax fraud, money laundering, Bank Secrecy Act, mortgage fraud and lending law violations, securities fraud, health care fraud, public corruption, Foreign Corrupt Practices Act violations, and identity theft and data breach.

Mr. Hardy has extensive trial and appellate court experience. He oversees internal investigations, advises in potential disclosures to the Internal Revenue Service, and has litigated complex criminal matters at the trial and appellate levels. He also counsels clients through every stage of a tax controversy – from audit through administrative appeal to litigation and collection.

Before entering private practice, Mr. Hardy spent more than a decade as a federal prosecutor. He served as an Assistant U.S. Attorney in Philadelphia, where he focused on fraud and tax cases. He also served as a trial attorney for the Department of Justice’s Tax Division in Washington, D.C., where he tried cases in a number of federal districts and helped write the Department's Criminal Tax Manual.

A national thought leader on the subject of criminal tax and money laundering law, Mr. Hardy is the author of  Criminal Tax, Money Laundering, and Bank Secrecy Act Litigation, a well-reviewed and comprehensive legal treatise on the litigation of criminal tax, money laundering, and Bank Secrecy Act cases, published by Bloomberg BNA. He also serves as an adjunct professor at Villanova University School of Law, where he teaches a class on criminal and civil tax penalties in the graduate law program.

Terence Grugan, Attorney, Ballard

Terence M. Grugan is an associate in the firm's White Collar Defense/Internal Investigations and Commercial Litigation Practice Groups. In his white collar practice, Terence represents individuals and entities who are targets, subjects, or witnesses in criminal, regulatory, or administrative government investigations, including investigations conducted by the Department of Justice, Internal Revenue Service, Securities and Exchange Commission, state attorneys general, local, state, or federal inspectors general, and local law enforcement. Terence has defended clients from...