Should Casino Anti-Money Laundering Recordkeeping Requirements Be Strengthened to Combat Financial Crime?

Introduction

This article discusses current Bank Secrecy Act (BSA) requirements as they apply to casino-specific recordkeeping requirements, areas of concern with casino recordkeeping practices, and author-proposed casino rulemaking amendments for enhanced customer identification. The last two topics emphasize the need to strengthen and refresh casino regulatory requirements, which were last amended 10 years ago. ¹ The requirements should be reexamined considering the increasing number of Financial Crime Enforcement Network (FinCEN) casino and card club civil monetary penalties that have been issued during the last two years ² (including the extensive violations identified). Finally, to further assist readers, this article provides 33 references/Web links to specific documents or Web sites so that readers can do further research if they wish.

Casino-Specific Recordkeeping Requirements ³

The regulations implementing the BSA require a casino or card club to maintain and to retain the following source records (either the originals or microfilm version, or other copies or reproductions of the documents) that relate to its operation:

• Records of each deposit of funds, account opened, or line of credit extended, including a customer's identification and the verification of that identification as well as similar information for other persons having a financial interest in the account, regardless of residency; ⁴

Also, card clubs are required to maintain and to retain the original or a microfilm copy of records of all currency transactions by customers, including without limitation, records in the form of currency transaction logs and multiple currency transaction logs. ¹⁵ Thus, the BSA regulations stipulate for card clubs a requirement to maintain multiple transaction logs.

A casino or card club that inputs, stores, or retains, in whole or in part, for any period of time, any record required to be maintained by 31 C.F.R. §§ 1010.410 or 1021.410(a) and (b) on computer disk, tape, or other machine-readable media shall retain the records in such media. Also, a casino or card club is required to maintain the indexes, books, file descriptions, and programs that would enable a person readily to access and review these computer records. ¹⁶ These computerized records, source documentation, and related programs must be retained for a period of five years. ¹⁷ However, FinCEN does not require that computerized records be stored in online memory and on a computer past their normal business use; either will suffice. ¹⁸ Nonetheless, records must in all events be filed or stored in such a way as to be accessible within a reasonable period of time. ¹⁹

Areas of Concern With Casino Recordkeeping Practices

Having cited 13 specific casino recordkeeping requirements earlier in this article, one would think there should not be any need for maintaining and retaining of additional casino records. However, customers can gamble anonymously at U.S. casinos and card clubs unless they: (1) open a deposit, credit, check cashing, player rating, or slot club account; (2) conduct currency transactions, involving either “cash in” or “cash out,” in excess of $10,000 in a gaming day, including multiple transactions; ²⁰ or (3) fall under BSA customer identification requirements for deposit and credit accounts, checks with a face value of $3,000 or more, domestic money transfers in excess of $3,000, and international funds transfers at any value (emphasis added). ²¹

Also, there are certain longstanding casino recordkeeping practices that cause concerns in the areas of BSA examination, compliance, and enforcement, although they are fully acceptable for financial and tax accounting purposes. These concerns include:

• Lack of certain recordkeeping related to some types of common currency transactions, and

Many casinos and card clubs do not prepare or maintain internal records, in the ordinary course of business, with reliable customer identification information associated with certain common currency transactions of significant value (except in excess of $10,000 in a gaming day) such as the following:

• Chip and token purchases: Customer purchases of gaming chips, ²³ RFID chips, ²⁴ and tokens using currency of an equal amount at cage windows. ²⁵

Casinos do not require that customers provide identification for the redemption of chips, tickets, or tokens unless it triggers government reporting thresholds. For such a customer that has an established casino account number, ³³ a casino, which is not required by governmental regulations to record such transactions at the cage, nonetheless would need a method for identifying large redemptions ³⁴ at a reasonable threshold under $10,000 that were paid with currency ³⁵ (including any large cash outs without gambling for large denomination bills), or a check.

When a customer launders currency at a casino or card club, he/she physically places illegally obtained money into the establishment's financial system. Then the customer layers the illegally obtained money through a series of financial transactions and subsequently redeems chips, tokens, TITO tickets, or betting tickets at the cage for large denomination bills, monetary instruments, or funds transfers which makes it difficult to trace the money back to its original source. For example, casinos and card clubs do not always distinguish between chip transactions and currency transactions at the cage because chips and currency transactions are interchangeable with each other; therefore, the character of currency transactions at the cage easily can be misidentified, whether by accident or intent, as non-reportable chip transactions. Thus, a critical money laundering vulnerability in a casino cage exists when an “unknown customer” ³⁶ redeems gaming instruments for currency of $3,000 to $10,000, inclusive.

While BSA internal records are required to be created for casino monetary instruments of $3,000 or more or funds transfers in excess of $3,000, no specific BSA record is required to be created for chip, token, TITO ticket, or betting ticket redemptions ³⁷ in currency between $3,000 and $10,000, inclusive. U.S. casinos and card clubs that maintain multiple transaction logs (MTLs) for currency transactions usually at $2,500–$3,000 (pursuant to state or tribal law or regulation, or in the ordinary course of business) will log these transactions on the MTL if they are greater than the threshold amount, but the customer-identifying information recorded on the log is limited. ³⁸ For example, typical casinos record on the MTLs only a customer's name (if known) and do not request any other customer identification information (e.g., permanent address) before concluding a transaction. Although card clubs are required to maintain and retain records of all currency transactions by customers, including, without limitation, records in the form of currency transaction logs and multiple currency transaction logs, ³⁹ customer identification is limited also for chip redemptions. This casino vulnerability is discussed as far as suspicious activity reporting in FinCEN's Frequently Asked Questions—Casino Recordkeeping, Reporting and Compliance Program Requirements (FIN-2007-G005, November 14, 2007), in Question and Answer 16.

Although 31 C.F.R. §§ 1010.311, 1010.313(b), and 1021.311 do not state specifically that a casino or a card club must create a record of transactions that are less than $10,000, ⁴⁰ a casino or card club would need an effective internal control for customers (known or unknown), ⁴¹ to be able to identify large chip redemptions at a reasonable threshold under $10,000 that were paid with currency that may have been structured ⁴² to avoid reporting requirements or otherwise to obscure large cash out transactions. For example, for a customer that has an established casino account number, ⁴³ a casino, which: (1) is not required by state or tribal regulations to maintain multiple currency transaction logs at the casino cage, or (2) does not maintain such logs within the ordinary course of its business, nonetheless, would need a method to be able to identify large chip redemptions at a reasonable threshold under $10,000 that were paid with currency from the imprest drawer. If implementing this internal control requirement or any other casino policy or procedure creates a record, ⁴⁴ this would constitute knowledge as well as a BSA record which would be maintained for a period of five years. A casino or card club must aggregate customer currency transactions that occur on the floor ⁴⁵ or the cage, ⁴⁶ when it has obtained knowledge of such transactions either from examining records or actual knowledge (including large chip redemptions for currency). ⁴⁷ For similar reasons, a casino would need a method for identifying large redemptions at a reasonable threshold under $10,000 of a betting ticket, token, or TITO ticket that was paid with currency to a known customer. ⁴⁸

Therefore, all casinos and card clubs should consider enhancing the existing cage MTL for two types of currency transactions, namely, (1) chip, TITO ticket, betting ticket (including Nevada race book and sports pools), or token redemptions for currency, and (2) exchanges of currency (domestic or foreign), to require a customer's name, address, date of birth, and a government identification number unless the customer has a check cashing, credit, or deposit account, or is “a known customer” whose identity (i.e., name, date of birth, address, and government identification number) has been previously verified on a filed FinCEN Form 112, Currency Transaction Report (CTR), or any federal income tax form filed. As a corollary, for known customers, the cage MTL for chip, TITO ticket, wagering ticket or token redemptions for currency, and exchanges of currency (domestic or foreign), should contain a data element field to record the customer's account number. This would assist a casino or a card club in identifying customers for purposes of aggregating these types of transactions for currency transaction reporting as well as detecting “unknown” customers who are engaged in minimal or no gaming activity for purposes of suspicious activity reporting.

Furthermore, for “unknown” customers, as a best practice all casinos and card clubs should consider enhancing the existing cage MTLs for chip and token purchases using currency of an equal amount to require a surveillance photograph of each such customer. Similarly, for “unknown” customers, casinos that offer race book and sports pools should consider enhancing the existing cage MTL for wagering ticket purchases using currency of an equal amount to require a surveillance photograph of each such customer. This would assist a casino or card club in identifying customers for purposes of aggregating these types of transactions for currency transaction reporting.

Also, it is much easier to compare black and white surveillance photographs of “unknown” customers than it is to review many cage MTLs that only contain physical descriptions of customers (e.g., age, gender [male or female], eye color, hair color, height, weight) and name (if known) to identify customers conducting more than one large purchase transaction at the cage in the same gaming day. Nonetheless, the physical description on the cage MTLs has some value because it contains a customer's eye color and hair color, which cannot be ascertained from a black and white surveillance photograph for purpose of suspicious transaction reporting for unknown customers.

Proposed Casino Rulemaking Amendments for Enhanced Customer Identification

Currently, in the United States, casinos and card clubs are not subject to any Customer Identification Program (CIP) rules ⁴⁹ other than the three basic data elements required when a deposit or credit account is opened: name, permanent address, and social security number (see 31 C.F.R. § 1021.410(a)). Casinos are required to use and essentially leverage all information including customer information obtained from credit, fiduciary accounts (i.e., deposit), and marketing to aid in BSA compliance. Card clubs do offer deposit (i.e., so-called player's accounts), but typically do not extend credit. Thus, card clubs do not have an opportunity to identify as many of their customers as would happen if credit accounts were offered. Also, most card clubs are prohibited from offering marketing accounts to customers, thereby missing another opportunity to identify their customers. Without enhanced due diligence rules for customers applied equally to card clubs and casinos, these industries are vulnerable to being used to facilitate money laundering and other financial crimes.

MTLs are intended to assist casinos and card clubs in aggregating currency transactions for purposes of BSA reporting. As mentioned earlier, typically, casinos prepare MTLs to record large cash transactions, (e.g., generally in excess of $2,500 or $3,000). Casinos are not required under the BSA to create MTLs, but are required to retain them if they create them pursuant to state, tribal, or local laws or regulations (see 31 C.F.R. § 1021.410(b)(7)), prepared or used to monitor a customer's gaming activity (see 31 C.F.R. § 1021.410(b)(8)), or prepared in the ordinary course of business. Thus, the vast majority of casinos do maintain MTLs pursuant to state, tribal, or local laws, or as a common business record to assist them with aggregating currency transactions. While MTLs identify certain currency transactions, typically they do not identify the customer by name for the redemptions of chips, tokens, or tickets, as well as currency exchanges. Often only a vague physical description is recorded leaving no way to positively identify the transactor.

During the span of the author's 20-year tenure at FinCEN, many times Internal Revenue Sevice (IRS) examinations noted casino MTLs with 40 to 60 percent of customers listed as “unknown” for transactions involving the redemptions of chips, tokens, or tickets, as well as currency exchanges conducted below $10,000, thereby making the recording of these specific MTL entries almost useless. As an aside, also see the MTL violations cited in the Sparks Nugget's BSA Civil Money Penalty Consent Agreement discussed in the next section on FinCEN enforcement actions. Card clubs have a unique BSA requirement to maintain MTLs, but there is no specific requirement that a customer must be identified in these MTLs. Also, typically, IRS examinations noted card club MTLs with 90 percent of customers listed as “unknown” for transactions involving the redemptions of chips as well as currency exchanges conducted below $10,000 thereby making the these specific MTL entries almost useless. As a case in point, see suspicious activity report (SAR) and currency transaction report violations cited in the Hawaiian Gardens Casino's BSA Civil Money Penalty Consent Agreement also discussed in the next section on FinCEN enforcement actions.

As a corollary, chips, tokens, or tickets, and currency exchange transactions that only list “unknown” for customer identity purposes have affected casino suspicious activity reports filed. During 2005 through 2011, casino suspicious activity reports filed that lacked any customer identification information ranged from 7.3 percent to 9.7 percent. Typically, about 70 percent of these casino suspicious activity reports that lack any customer identification information involve redemption of casino chips or large currency exchanges. Moreover, typically 70 percent to 75 percent of these involved transactions recorded on MTLs of $3,000 to $10,000, inclusive. This means that casinos were detecting suspicious activities, but typically did not know the identity of many customers conducting these two specific transaction types. ⁵⁰ Unfortunately, when a customer was “unknown,” typically, a casino did not use whatever other internal sources that were available to obtain a customer's identification (hotel registrations, show reservations, credit card numbers, river boat casino reservation records, etc.).

This article asserts that five distinct records would have a positive impact and would help to remedy this customer identification gap. Four of these five records involve the MTLs. First, a MTL requirement for both card clubs and casinos that has specific customer identification (ID) requirements for chip, ticket, and token redemptions for currency at cages of $3,000 to $10,000 for currency, inclusive. Second, a MTL requirement for both card clubs and casinos that has specific customer ID requirements for currency exchanges, domestic or foreign, at cages of $3,000 to $10,000, inclusive. Third, a MTL requirement for both card clubs and casinos that has specific ID requirements for non-banked card games, such as poker or any of its variations, for chip buy-ins with currency of $3,000 to $10,000, inclusive. Fourth, a MTL requirement for card clubs that has specific customer ID requirements for chip purchases or exchanges with currency at cages and floors of $3,000 to $10,000, inclusive. ⁵¹

While recommending that four existing MTL records should be enhanced, MTL records for three other types of transactions are not needed, namely, for deposit, credit, or negotiable instrument transactions because of other BSA casino recordkeeping requirements that already exist. ⁵² The net effect would be to limit MTLs to these four recommended transaction types, ⁵³ while providing relief by eliminating creation of partially duplicative casino records for three other types of currency transactions just discussed. For those state or tribal gaming regulations that require MTLs, such regulations should be amended to remove MTL requirements for transactions that pertain to deposit, credit, or negotiable instruments since BSA casino recordkeeping requirements apply. When such MTLs are maintained by state-licensed casinos as ordinary business records, such casinos should revise their BSA compliance procedures to remove MTL requirements that pertain to deposit, credit, or negotiable instrument transactions.

Records pertaining to the four proposed MTL requirements should include the following information: the date and time of, and amount of currency (in U.S. dollar equivalent) involved in, the transaction; the customer's name and permanent address; the name of a verified internal record when such record was used to obtain the customer's name and address; casino or player account number (if any); the type of transaction(s); the cage window number or table number; and the name or license number of the employee who conducted the transaction. Also, the four proposed requirements need not include social security number, which would lessen the customer's concern about the potential for identity theft. While the purpose of this record is to combat money laundering, nonetheless, it provides useful business information for a casino, namely, a customer's name and address, which they would find useful for marketing purposes. Thus, governmental authorities and casino operators would both benefit from the creation of such records.

A fifth important record to help remedy this customer identification gap would be a source of funds requirement for both casinos and card clubs to check for the source of a customer's assets/occupation and/or income for either large deposits and/or repayments of credit transactions. A threshold somewhere in the $30,000 ⁵⁴ to $50,000 ⁵⁵ range during a gaming day, or $100,000 or more on a multi-day casino trip, would be helpful. Also, such a deposit and credit transaction record should encompass the following six types of instruments: advices, requests, or instructions for international funds transfers received; currency; intercompany transfers among affiliated casinos; and third-party checks. The preceding would be a due diligence check on a customer's occupation/source of funds for these six instruments when used to conduct large deposit and/or credit transactions. It is recommended that the due diligence check would use an independent and reliable source (e.g., main source of funds is derived from a well-known source such as salary, pension, governmental benefits, and/or occupation). The purpose of this due diligence check would be to determine whether the instruments used for deposit and credit transactions are commensurate with the funding source. It is suggested that in the event that a casino or card club is unable to secure an independent and reliable source to determine whether any of these types of transactions are commensurate with the funding sources for a customer, that a casino or card club should make an entry in a record that it has made a reasonable effort to secure the information, and back up this entry with maintaining a surveillance photograph of such a customer.

The source of funds record should include the following information: the time, date, amount, and type of the transaction; the name, permanent address, and date of birth of the customer; the type of instrument (if applicable); the name and address of the issuer of the record used for confirmation or substantiation of the main source of the funds; the date of the record; the name of the drawee or issuer of any instrument; all reference numbers (e.g., casino account number, check number, intercompany transfer number); the cage window number or branch office; and the name or casino license number of the casino employee who conducted the transaction.

Since such entries could very well be considered suspicious in nature, the author suggests that this record and surveillance photograph be made available to FinCEN or any federal, state, or local law enforcement agency, or any federal, state or tribal casino regulatory authority, upon request. Given the nature of the instruments, types of transactions, and large dollar amounts, it is suggested for this record that a subpoena or due process should not be required.

Additionally, based on 20 years of regulatory experience, three existing BSA casino recordkeeping requirements should be amended to enhance the recording of information for both CIP and BSA examination purposes as well as to eliminate two other existing coverage loopholes. These records are for opening credit and deposit accounts, conducting credit and deposit account transaction, and recording monetary instruments of $3,000 or more.

The first existing record is for opening credit and deposit accounts (see 31 C.F.R. § 1021.410 (a)), and FinCEN should require the recording of an individual's date of birth and country of issuance for an alien identification, as well as the date the account was opened. Also, clarify that a deposit account includes off-track betting, which is called a “wagering” account. In addition, delete the existing provision related to the opening deposit and credit accounts whereby a casino will not be in violation of failing to obtain an individual's social security number, pursuant to 31 C.F.R. § 1021.410(a), if it “… has made a reasonable effort to secure such number and it maintains a list containing the names and permanent addresses of those persons. … ” Given the significant customer account requirements for customer identification programs of: (1) depository institutions, (2) brokers or dealers in securities, (3) mutual funds, and (4) futures commission merchants and introducing brokers, a customer's taxpayer identification number should be required to be recorded by casinos for the opening credit and deposit accounts as well as the deletion of language permitting omission of a social security number, which is no longer appropriate for the opening of casino deposit and credit accounts.

The second existing record is for credit and deposit account transaction receipts (see § 1021.410 (b)(1)), and FinCEN should require the recording of a country of issuance for alien identification, as well as the account number, the type of transaction, and the amount of currency received or disbursed. ⁵⁶

The third existing record is for recording monetary instruments of $3,000 or more on a list (see 31 C.F.R. § 1021.410(b)(9)), and the following data elements should be added to it: amount of currency disbursed of $500 or more, ⁵⁷ and some additional identification for non-accountholders. ⁵⁸ Also, to hinder structuring, expand coverage for the negotiable instrument list from a face value of $3,000 or more, to multiple negotiable instruments from a customer totaling $3,000 or more during a single visit. ⁵⁹ This suggested change should include contemporaneous receipt of the same or different types of instruments totaling $3,000 or more, or issuance of multiple casino checks totaling $3,000 or more in a gaming day to combat structuring. These three existing casino recordkeeping gaps limit the types, and thus the number of transactions requiring customer identification, which are problematic since casinos and card clubs are not subject to CIP.

Fourth, existing casino currency aggregation requirements should be amended for customer due diligence purposes to require aggregation for multiple currency transactions that have occurred from searching any and all electronic records by customer account number(s), and name(s). Currently, the BSA casino requirement in 31 C.F.R. § 1021.313, for aggregation for multiple transactions, includes knowledge only from examining the books, records, logs, and computer files that contain information that the currency transactions have occurred. Thus, § 1021.313 does not require searching any and all casino electronic records by customer account number(s) and/or customer name for purposes of aggregating currency transactions for CTR filings. The current requirement limits casino CTR aggregation, as well as limits the number of reportable currency transactions that should be filed, which in turn hinders the effectiveness of customer due diligence. ⁶⁰ Thus, the regulatory text needs to be expanded by adding the following phrase, “or searching any and all electronic records by customer name(s) or account number(s),” after the phrase “and similar documents and information.” Please note that name and number are pluralized to account for customers who maintain accounts under multiple names and numbers for the purposes of trying to evade 31 C.F.R. Chapter X requirements.

Additionally, since the casino and card club industries lack a federal government functional regulator, one clarification of casino compliance program requirements is needed, namely, streamlining and expanding the 31 C.F.R. § 1021.210(b)(2)(iii) regulatory text for training of personnel to specify the following:

The streamlining suggestion pertains to deleting the following text as unnecessary: “to the extent that the reporting of such transactions is required by this chapter, by other applicable law or regulation, or by the casino's own administrative and compliance policies.” As an aside, the lack of casino compliance program training is noted as a violation in four of the seven FinCEN enforcement actions discussed in the next section, namely, the Tinian Dynasty Hotel & Casino Civil Money Penalty Assessment, as well as the Caesars Palace, Oaks Card Club, and Cantor Gaming BSA Civil Money Penalty Consent Agreements.

Moreover, since the casino and card club industries lack a federal government functional regulator, the casino program requirements for 31 C.F.R. § 1021.210(b)(2)(v) should expand the regulatory text for “procedures for using all available information to determine:” by adding a new subsection to specify the following: “The occurrence of any or all customer currency transactions contained on machine-readable media required to be reported pursuant to §§ 1021.311 and 1021.313.” As an aside, the lack of using all machine-readable media is noted as violations in two of the seven FinCEN enforcement actions discussed in the next section, namely, the Trump Taj Mahal and Sparks Nugget BSA Civil Money Penalty Consent Agreements. This second compliance program expansion dovetails with the earlier suggestion that FinCEN should amend existing casino currency aggregation requirements for customer due diligence purposes to require aggregation for multiple currency transactions that have occurred from searching any and all electronic records by customer account number(s), and name(s).

Lastly, please be aware that BSA beneficial ownership rules would be difficult to apply to casinos and card clubs. Currently, a Geographic Targeting Order (GTO) is needed to require that a casino ask a customer if they are the owner of funds used, for example, in an off-track betting transaction. A way to correct this quickly, short of rulemaking, is to modify the CTR instructions to require a casino, when accepting an off-track betting or wagering transaction, to request whether a customer is conducting a transaction on behalf of another person when a CTR filing requirement is triggered. If customer indicates a yes, then record any identifying information provided by a customer in the appropriate data element field.

All the above proposed nine amendments to casino rules and the one modification to the CTR instructions would make a significant difference in designing a regulatory program with enhanced customer due diligence, which eliminates regulatory gaps, while avoiding a CIP rule which has several provisions that pertain to operational characteristics that do not exist in a casino or card club gambling operation and thus would have no relevance. As explained, these suggested regulatory changes to the BSA's casino requirements would have minimal regulatory burden on the casino and card club industries. ⁶¹ Additionally, to construct a limited CIP rule for casinos and card clubs would be a difficult challenge and would introduce confusion when compared with the comprehensive nature of the CIP rules applicable to: (1) brokers or dealers in securities, (2) mutual funds, (3) insurance companies that offer an individual annuity contracts and/or individual whole life insurance policies, (4) futures commission merchants and introducing brokers, and (5) banks, savings associations, credit unions, and certain non-federally regulated banks.

Recent Casino and Card Club BSA and Anti-Money Laundering Enforcement Actions

This section will discuss important FinCEN enforcement actions that occurred from 2015 through June 2016, against five casinos and two card clubs for violating BSA casino civil regulatory requirements and, in some instances, federal anti-money laundering laws. This discussion is a summary of those actions intended to provide gaming regulators, United States attorneys, special agents, and IRS civil examiners with an understanding of these BSA and anti-money laundering (AML) regulatory actions to alert them to the challenges and problems the casino and card club industries face, as well as the lack of compliance programs reasonably designed to combat money laundering and terrorist financing.

Conclusion

In conclusion, the author wrote this article to spur thinking and discussion among the casino and card club industries as well as FinCEN on how better to work together to combat money laundering and terrorist financing in these two gambling sectors. Time will tell how they separately and collectively deal with the regulatory gaps and operational challenges identified. In the near term, the author hopes that subjects covered in the section on areas of concern should assist U.S. casino operators to mitigate some of the risks of money laundering and illegal activity connected with their gambling businesses. Additionally, it is hoped that the proposed improvements in the federal BSA casino requirements will be considered in FinCEN's future rulemaking proceedings during 2018–2019.