Abstract
Introduction
This article discusses the types of financial services that casinos and card clubs provide to their customers and considers in-depth the current Bank Secrecy Act (BSA) requirements as they apply to casinos, including: casino-specific BSA requirements, casino anti-money laundering (AML) compliance programs, filing currency transaction reports, filing suspicious activity reports (SARs), SAR—supporting documentation, filing Report of International Transportation of Currency and Monetary Instruments forms, filing reports of foreign bank and financial accounts, casino specific recordkeeping requirements, other BSA filing requirements, other BSA recordkeeping requirements, and geographic targeting orders. Next, the article provides a summary of the Financial Crimes Enforcement Network's (FinCEN's) casino guidance documents and administrative rulings. Also, IRS casino civil examinations are discussed. The article concludes with some suggested casino regulatory best practices. Finally, to further assist readers, this article provides 41 references/web links to specific documents or websites so that readers can do further research if they wish.
Casinos and Card Clubs Financial Services
Before discussing BSA requirements applicable to casinos and card clubs, one needs to understand the types of financial services that they provide. In the United States, casinos and card clubs with gross annual gaming revenue in excess of $1,000,000 are considered financial institutions under the Bank Secrecy Act. Casinos and card clubs are subject to the BSA because they are cash-intensive businesses that also offer a broad array of financial services. These services include providing customer deposit 1 or credit accounts, transmitting and receiving funds transfers directly from other financial institutions, check cashing, currency exchanging, 2 account access cards, and certain stored value services. Consequently, casinos offer services that are similar to and may serve as substitutes for services ordinarily provided by depository institutions and certain non-bank financial institutions. 3 As such, casinos are vulnerable to abuse by money launderers, terrorist financiers, and tax evaders. Additionally, criminals that gamble at casinos can blend in with legitimate customers, so that when illegal proceeds are bet and the bets are won, such funds have an appearance of legitimacy because they are gambling winnings. 4
Additionally, casinos organize and facilitate various types of gambling activities, provide table game and slot club rewards programs to customers, and host entertainment events. Also, casinos offer financial services that have no counterpart in the traditional financial services industry. Perhaps the most unique commodities that casinos provide to customers are the sale of chips and slot machine or video lottery terminal tokens. 5 These services are provided to enable the customer to engage in ongoing wagering activities on the casino floor. Ultimately, the casino's primary business after selling or exchanging these chips and tokens is to try to win them back from their customers. Casinos do this by offering customers a series of games of chance and skill where bets are accepted on the outcome of various games or contests. Also, some casinos sell wagering tickets to customers for race and sportsbook events, which are bearer gaming instruments that are converted to wagering credits.
For the most part, casinos earn their revenue by offering house-banked games and electronic gaming devices. Card clubs offer non-house banked card games to customers and earn revenue by receiving a fee from customers (e.g., when they deal each hand, rent a seat at a table, and/or take a fixed percentage of each “pot”).
Card clubs offer the same types of financial services to their customers as do traditional casinos (e.g., deposit accounts, credit accounts, check cashing accounts, money transfers, and currency exchange services). As with casinos, card clubs maintain cages where cashiers conduct financial transactions using a drawer that operates on an imprest basis or inventory. While the differences between casinos and card room cages are notable, the operational differences at the gaming floor are numerous and significant. Since these differences fall outside the purpose of this article, they will not be discussed further.
Additionally, many casinos know a great deal about their customers from information routinely obtained through deposit, credit, check cashing, and player rating accounts. These accounts generally require casinos to obtain basic identification information about the accountholders and to inquire into the kinds of wagering activities in which the customer is likely to engage. For example, deposit and credit accounts track customer deposits and casino extensions of credit. Casino customers can draw down 6 on either account to fund their gaming, purchase chips, and conduct other activities on casino properties. The “player rating” account tracks gaming activity and is designed primarily to award complimentary perquisites to higher volume players, and to serve as a marketing tool to identify frequent customers and encourage continued patronage. Thus, casinos are interested in knowing their customers both to market to them for future visits and to provide complimentary items 7 that are commensurate with their policies based on the level of customer play. Also, in certain instances, casinos use credit bureaus to verify information obtained from customers. These sources of information can help a casino to better understand its customer base.
Casino Specific BSA Requirements Summary
Casinos and card clubs must meet the following specific BSA casino requirements: (1) a written compliance program,
8
(2) reporting of each transaction in currency, involving either “cash in” or “cash out,” of more than $10,000 in a gaming day of which a casino has obtained knowledge;
9
(3) reporting of suspicious activity when a casino knows, suspects, or has reason to suspect that the transaction or pattern of transactions is both suspicious and involve $5,000 or more;
10
or (4) detailed recordkeeping on casinos.
11
Generally, card clubs are subject to the same rules as casinos, unless a different treatment is explicitly stated in 31 C.F.R. Parts 1010–1029.
12
The types of gaming establishments that are covered by FinCEN requirements are:
• State/territory-licensed casinos (both land-based and riverboat), • Tribally regulated casinos, • State/local-licensed card clubs, and • Tribal card clubs.
In addition, casinos and card clubs must comply with other BSA obligations that are required of all financial institutions. What follows discusses the specific BSA casino requirements as well as other general BSA obligations required of all financial institutions, including casinos and card clubs.
Casino Anti-Money Laundering (AML) Compliance Programs
Section 352 of the USA PATRIOT Act of 2001 13 requires financial institutions to establish anti-money laundering programs. 14 Specific compliance program requirements are found in 31 C.F.R. § 1021.210(b). These requirements apply to both casinos and card clubs. Each program must be commensurate with the risks posed by the products and financial services provided by the casino and card club. An effective program is one that is developed, implemented, maintained, and reasonably designed to prevent the casino and card club from being used to facilitate money laundering or terrorist financing. Therefore, the BSA regulations that apply to casinos are to a degree risk based.
At a minimum, each AML compliance program must be in writing and must have:
• System of internal controls (e.g., policies, procedures, and internal controls) reasonably designed to assure ongoing compliance with the BSA;
15
• Internal and/or external independent testing for compliance with a scope and frequency commensurate with the risks of:
– money laundering and terrorist financing and, – products and services provided;
16
• Training of personnel (e.g., providing education and/or training of appropriate personnel) in BSA requirements;
17
• Designation of an individual or individuals (e.g., a compliance officer) responsible for day-to-day compliance with the BSA and the compliance program;
18
• Procedures for using all available information to determine and verify, when required, the name, address, Social Security number or taxpayer identification number, and other identifying information for a person;
19
• Procedures for using all available information to determine the occurrence of any transactions or patterns of transactions required to be reported as suspicious;
20
• Procedures for using all available information to determine whether a record required under the BSA must be made and retained;
21
and • For casinos and card clubs with automated data processing systems, use of the programs to aid in assuring compliance.
22
File Currency Transaction Reports
A casino or card club must file a report of each currency transaction involving “cash in” or “cash out” of more than $10,000 conducted by, through, or to the casino or card club on any one gaming day by or on behalf of the same customer. Therefore, a FinCEN Form 112, Currency Transaction Reports (CTR),
23
is required to be filed when a transaction meets all the following conditions:
• In currency, • Greater than $10,000 in either “cash in” or “cash out,” • By, or on behalf of, the same customer, and • Occurs on one gaming day.
24
Also, casinos are required to aggregate transactions in currency (that is, treat the transactions as a single transaction) if the casino has knowledge that the transactions are conducted by or on behalf of the same person and result in cash in or cash out of more than $10,000 during any gaming day. 25 The rule requiring casinos to report transactions in currency also lists examples of transactions in currency involving cash in and cash out. 26
If a currency transaction exceeds $10,000, a casino files a CTR that has three parts.
• Part I, Person Involved in Transaction, is for the identification of the customer (i.e., name, permanent address, and Social Security number [or other required identification]) and verification of identity.
• Part II, Amount and Type of Transaction(s), is for the identification of the type of transaction(s) and amount(s) as well as the date of currency transaction(s). 27
• Part III, Financial Institution Where Transaction(s) Takes Place, is for the identification of a casino or card club and the preparer.
“Cash in” and “cash out” transactions for the same customer, in the same gaming day, are to be aggregated separately and must not be offset against one another. However, if there are both “cash in” and “cash out” transactions that individually exceed $10,000 for the same customer in a gaming day, a casino should enter the amounts separately on a single FinCEN CTR.
Typically, a casino or card club will stipulate that pit personnel and cage cashiers are responsible for preparing an internal CTR worksheet when they have knowledge that a currency transaction, or a series of currency transactions when aggregated, exceeds the $10,000 threshold in a gaming day in the same directional flow. These employees are instructed to obtain the required identification information from a customer. Typically, these internal worksheets are forwarded daily to accounting for the preparation of FinCEN CTR. In addition, a casino or card club is required to file a CTR for reportable multiple transactions identified through the aggregation of daily records.
It is important to note that a casino or card club is not required to file a CTR for a transaction between itself and a commercial bank. 28 Also, casinos and card clubs can exempt some transactions from the filing of a CTR. 29
File Suspicious Activity Reports
A casino or card club is required to file a FinCEN Form 111, Suspicious Activity Report (SAR),
30
when it knows, suspects, or has reason to suspect that the transaction or pattern of transactions is both:
• Suspicious, and • involves $5,000 or more (in the single event or when aggregated) in funds or other assets.
31
(Emphasis added.)
A transaction or pattern of transactions (conducted or attempted) is suspicious if one or more of the following occurs:
• Involves funds derived from illegal activity, or is intended or conducted to hide or disguise funds or assets derived from illegal activity or to disguise the ownership, nature, source, location, or control of the funds;
32
• Designed to evade BSA reporting or recordkeeping requirements, whether through structuring or other means;
33
• Has no business or apparent lawful purpose, or is not the sort in which the customer would normally be expected to engage, and the casino or card club knows of no reasonable explanation for the transaction after examining all available facts, including the background and possible purpose of the transaction;
34
or • Involves use of the casino or card club to facilitate criminal activity.
35
(Emphasis added.)
A casino or card club must file a mandatory Suspicious Activity Report form no later than 30 calendar days after initial detection of facts that may constitute a basis for filing a SAR. If no suspect is identified on the date of detection, a casino or card club may delay filing a SAR for an additional 30 calendar days to identify a suspect. 36 FinCEN requires casinos and card clubs to e-file FinCEN Form 111 (SAR) through the BSA's E-filing System.
Once a casino or card club files a SAR, and a customer's suspicious activity continues over a time period, it should report continuing suspicious activity with a report being filed at least every 90 days. This will serve the purposes of notifying law enforcement of the continuing nature of the activity, as well as provide a reminder to the organization that it must continue to review the suspicious activity to determine if other actions may be appropriate. 37
A casino or card club is not required to report on a SAR form a robbery or burglary that it reports to an appropriate law enforcement authority. 38 However, a casino or card club may voluntarily file SARs for suspicious activity below the reporting threshold if it believes it is relevant to the possible violation of any law or regulation. 39
In situations requiring immediate attention (i.e., when a transaction is ongoing, like a money laundering scheme, or when a delay would hinder the government's ability to act), a casino or card club is required to immediately notify, by telephone, an appropriate law enforcement authority in addition to filing a SAR with FinCEN. In addition, if the casino or card club has reason to suspect that a customer's transaction may be linked to terrorist activity against the United States, the casino or card club should immediately call the Financial Institutions Hotline at 1-800-566-3974. 40
An element of a BSA compliance or anti-money laundering program is to have procedures for using all available information to determine the occurrence of any transactions or patterns of transactions that are required to be reported on as suspicious, including from automated systems. 41 Also, the extent and specific parameters under which a casino or card club must monitor customer accounts 42 and transactions for suspicious activity must be commensurate with the risks posed by the type of products and services it offers, the locations it serves, and the nature of its customers.
SAR—Supporting Documentation
SAR supporting documentation or business record equivalents must be maintained with a copy of the filed Suspicious Activity Report for five years from the date of filing the report. Such supporting documentation “is deemed filed with the SAR.” Upon request, the casino or card club must make all supporting documentation available to FinCEN and any other appropriate law enforcement or supervisory agencies (including the Internal Revenue Service [IRS] in its capacity as BSA examination authority). 43 Such documentation can include canceled checks, confessions, credit bureau reports, credit slips/vouchers, deposit/withdrawal slips, multiple transaction logs, player rating records, 44 slot club player records, 45 identification credentials, spreadsheets, photographs, surveillance audio and/or video recording media, and surveillance logs. For casinos that have hotels, and in the absence of any information other than a customer's name, other supporting documentation can include credit/debit cards, guest folios, and safe[ty] deposit box registrations. 46 All supporting documentation referenced above must be made available to appropriate authorities upon request. Supporting documentation should neither be filed with a SAR nor entered into the FinCEN database.
When requested to provide supporting documentation, a casino or card club should take special care to verify that the requestor of information is, in fact, a representative of FinCEN or an appropriate law enforcement or casino regulatory agency. A casino or card club should incorporate procedures for such verification into its BSA anti-money laundering compliance program. These procedures may include, for example, independent employment verification with the requestor's field office or face-to-face review of the requestor's credentials. 47
SAR—Non-Disclosure Provisions
No financial institution, or director, officer, employee, or agent of any financial institution, who reports a suspicious transaction, may notify any person involved in the transaction that the transaction has been reported, including any person identified in the Suspicious Activity Report. 48 Moreover, a filed FinCEN Form 111, Suspicious Activity Report, as well as information that would reveal the existence of a SAR (including any document, memorandum, record, log, or work papers that references a SAR) must be treated as confidential. 49
File Report of International Transportation of Currency and Monetary Instruments Forms
FinCEN Form 105, Report of International Transportation of Currency and Monetary Instruments (CMIR), 50 is required to be filed by individuals or businesses who transport, mail, or ship, or cause the transportation, mailing, or shipping of $10,000 or more in currency and/or other monetary instruments at one time into or out of the United States or its territorial jurisdiction. 51 The term monetary instrument includes: (1) coin or currency of any country, (2) traveler's checks in any form, (3) negotiable instruments (including checks, promissory notes, and money orders) in bearer form, endorsed without restriction, made out to a fictitious payee, or otherwise in such form that title thereto passes upon delivery, (4) incomplete instruments (including checks, promissory notes, and money orders) that are signed but on which the name of the payee has been omitted, and (5) securities or stock in bearer form or otherwise in such form that title passes upon delivery. 52
File Report of Foreign Bank and Financial Accounts
Treasury Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), is required to be filed by each U.S. person, who has a financial interest in, signature authority, or other authority over one or more financial accounts (including bank, securities, or other types of financial accounts) in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during a calendar year. 53 Such financial relationship must be reported each calendar year by, on or before June 30, of the succeeding year. When a casino has established financial accounts in a foreign country that exceed $10,000, it would be required to file this form annually. Casinos and card clubs are required to file Treasury Form TD F 90-22.1 when they conduct such transactions.
Casino Specific Recordkeeping Requirements 54
Specifically, the regulations implementing the BSA require a casino or card club to maintain and 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;
55
• Records of each receipt showing transactions for or through each customer's deposit or credit account, including a customer's identification and the verification of that identification, regardless of residency;
56
• Records of each bookkeeping entry comprising a debit or credit to a deposit or credit account;
57
• Statements, ledger cards or other records of each deposit or credit account, showing each transaction in or with respect to the deposit or credit account;
58
• Records of each extension of credit in excess of $2,500, including a customer's identification and the verification of that identification, regardless of residency;
59
• Records of each advice, request, or instruction with respect to a transaction of any monetary value involving persons, accounts, or places outside the United States, including a customer's identification, regardless of residency;
60
• Records prepared or received in the ordinary course of business that would be needed to reconstruct a customer's deposit or credit account;
61
• Records required by other governmental agencies, e.g., federal, state, local, or tribal;
62
• Records prepared or used to monitor a customer's gaming activity, e.g., player rating records, multiple transaction logs;
63
• A list of transactions involving various types of instruments, cashed or disbursed, in face amounts of $3,000 or more, regardless of whether currency is involved, including customer's name and address;
64
and • A copy of the written compliance program required by 31 C.F.R. § 1021.210(b).
65
Also, card clubs are required to maintain and 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. 66 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 to readily access and review these computer records. 67 These computerized records, source documentation and related programs must be retained for a period of five years. 68 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. 69 Nonetheless, records must in all events be filed or stored in such a way as to be accessible within a reasonable period of time. 70
Other BSA Filing Requirements
Besides rules specific to casinos, there are reporting, recordkeeping, and other requirements under the BSA that apply to all financial institutions, including casinos and card clubs, such as:
• Filing of complete currency transaction reports within 15 days;
71
• Identifying persons involved in currency transactions;
72
• Prohibiting any person, for evading the requirement to report currency transactions or evading FinCEN recordkeeping requirements, from causing or attempting to cause a casino not: to file a currency transaction report, to file a currency transaction report with material misstatements or omissions, to maintain FinCEN required records, or to maintain these records in a form that is incomplete or inaccurate;
73
• Reports of the transportation of currency or monetary instruments into or out of the United States;
74
• Reports of foreign financial accounts;
75
and • Whenever an amount is stated in dollars in 31 C.F.R. Parts 1010–1029, it is deemed to mean also the equivalent amount in any foreign currency.
76
The BSA implementing regulations require the retention for five years 77 of the source records (either the originals or microfilm version, or other copies or reproductions of the documents) of all records required to be retained by 31 C.F.R. Parts 1010–1029. These records must be filed or stored in such a way as to be accessible within a reasonable period of time.
Other BSA Recordkeeping Requirements
Section 31 C.F.R. § 1010.410 lists certain records that must be made and retained by all financial institutions including casinos and card clubs. These records include the original, microfilm, or other copy or reproduction of each of the following:
• Records by persons having financial interests in foreign financial accounts;
78
• A record of each extension of credit of more than $10,000, except for those secured by real property, including the person's name and address;
79
• A record of each transaction involving the transfer of more than $10,000 in funds to or from a person, account or place outside the United States;
80
• A record of each transaction involving more than $10,000 with another financial institution or person inside or outside the United States intended to result in a transfer of the funds to a person, account, or place outside the United States;
81
• A record of each funds transmittal over $3,000 requiring the verification of identity, and the recording, retrievability, and reporting of information to other financial institutions in the payment chain, regardless of the method of payment;
82
and • The nature of records and retention period for records.
83
Rules implementing the BSA also include certain recordkeeping requirements specifically for casinos or card clubs. These are set forth in 31 C.F.R. § 1021.410. Where the dollar threshold differs between the two provisions, a casino or card club must keep records based on the lower threshold.
For example, 31 C.F.R. § 1021.410(b)(4) requires casinos and card clubs to maintain and to retain a record of each extension of credit in excess of $2,500, including a customer's identification and the verification of that identification (regardless of residency), 84 although the requirement regarding extensions of credit in 31 C.F.R. § 1010.410(a) is tied to a threshold of more than $10,000. Therefore, when a casino or card club complies with 31 C.F.R. § 1021.410(b)(4), it has satisfied the requirement for 31 C.F.R. § 1010.410(a) for maintaining records in excess of $10,000.
As a corollary, 31 C.F.R. § 1021.410(b)(5) requires casinos and card clubs to maintain and retain a record of each advice, request, or instruction with respect to a transaction involving persons, accounts or places outside the United States, including customer identification (regardless of residency), without a monetary threshold, 85 although the requirement regarding “domestic” and cross-border wire transfers in 31 C.F.R. § 1010.410(f) for non-bank financial institutions is tied to a threshold of $3,000 or more. Therefore, when a casino or card club complies with 31 C.F.R. § 1021.410(b)(5), it has satisfied the requirement for 31 C.F.R. § 1010.410(f) for maintaining records in excess of $3,000 for cross-border wire transfers.
Geographic Targeting Order Provisions
The Secretary of the Treasury can issue a Geographic Targeting Order (GTO) requiring any domestic financial institution that is subject to the BSA and operates within an U.S. geographic area to report on currency transactions greater than a specified dollar value in the order. GTOs only last for a limited time period. Originally each order lasted 60 days. However, the USA PATRIOT Act of 2001 lengthened the effective period of such orders from 60 days to 180 days. 86
A GTO allows the Treasury Department, either on its own initiative or upon a request from an appropriate federal or state law enforcement agency, to require a financial institution or group of financial institutions in a geographic area to comply with special reporting or recordkeeping requirements contained in the order. The special requirements are put in place upon a finding that there is a reason to believe that such reporting or recordkeeping is necessary to ensure compliance with, or prevent evasions of, the BSA. Additionally, 31 U.S.C. § 5321(a)(1) authorizes civil money penalties for willful violations of “orders issued” under the BSA which would include geographic targeting orders issued under 31 U.S.C. § 5326.
USA Patriot Act of 2001—Information Sharing, §§ 314(a) and (b)
Federal law enforcement may request, via FinCEN, information from financial institutions (under 31 U.S.C. § 5312(a)(2)) to support terrorist and money laundering investigations, which are known as Section “314(a) requests.” Casinos and card clubs must comply with 314(a) requests. 87
Section 314(b) established a safe harbor from liability for a financial institution or associations of financial institutions that voluntarily choose to share information with other financial institutions for identifying and, where appropriate, reporting money laundering or terrorist financing activity (if required notification, verification, and information security is in place). 88 Thus, § 314(b) promotes voluntary information sharing among financial institutions. Casinos are authorized to share information under 314(b).
Fincen Casino Guidance and Administrative Rulings
FinCEN has issued many casino guidance documents and several casino administrative rulings which provide useful insight into FinCEN's view of the application of the BSA and its implementing regulations at the time that the guidance was issued. For example, in December 2003, FinCEN issued Suspicious Activity Reporting Guidance for Casinos, which should be used as a supplement to the original Suspicious Activity Report by Casino form instructions. 89 Also, FinCEN issued three casino administrative rulings and eleven other guidance documents, which are listed below. 90
• FIN-2017-G001, Sharing Suspicious Activity Reports with U.S. Parents and Affiliates of Casinos (January 4, 2017). 91
• FIN-2012-G004, Frequently Asked Questions—Casino Recordkeeping, Reporting and Compliance Program Requirements (August 13, 2012) 92
• Suspicious Activity Reporting in the Gaming Industry: January 1, 2004–June 20, 2011 (March 2012) 93
• FIN-2010-G002, Suggested Best Practices—Casino or Card Club Risk-Based Compliance Indicators (June 30, 2010). 94
• FIN-2010-G003, Suggested Best Practices—Casino or Card Club Compliance Assessment (June 30, 2010). 95
• The SAR Activity Review—Trends, Tips & Issues, Issue 17 (May 2010), focused on the casino and gaming industry. 96
• FIN-2009-G004, Frequently Asked Questions—Casino Recordkeeping, Reporting and Compliance Program Requirements (September 30, 2009). 97
• FIN-2009-A003, Structuring by Casino Patrons and Personnel (July 1, 2009). 98
• FinCEN Educational Pamphlet on the Currency Transaction Reporting Requirement - Notice to Customers: A CTR Reference Guide (May 2009). 99
• FIN-2008-G007, Recognizing Suspicious Activity - Red Flags for Casinos and Card Clubs (August 1, 2008). 100
• FIN-2007-G005, Frequently Asked Questions—Casino Recordkeeping, Reporting and Compliance Program Requirements (November 14, 2007). 101
• FinCEN Ruling FIN-2006-R002, A Cash Wager on Table Game Play Represents a “Bet of Currency” (March 24, 2006). 102
• FinCEN Ruling 2005-5, Definition of Money Services Business (Casinos as Money Services Businesses) (July 6, 2005). 103
• FinCEN Ruling 2005-1, Currency Transaction Reporting: Aggregation by Casinos at Slot Machines (February 7, 2005). 104
IRS Casino Civil Examinations
Casinos in the United States are subject to a decentralized regulatory structure and are primarily regulated by the states and by tribal regulatory authorities. Also, card clubs are subject to a decentralized regulatory structure and primarily are regulated by the states and, in some cases, local or tribal regulatory authorities. Under the BSA and its implementing regulations, a gaming operation is defined as a financial institution subject to the requirements of the BSA if it has annual gaming revenue of more than $1,000,000 and is duly licensed or authorized as a casino, gambling casino, or card club under state or local law to do business in the United States, or is an Indian gaming operation conducted under or pursuant to the Indian Gaming Regulatory Act (IGRA).
FinCEN, as administrator of the BSA, is responsible for measuring and enforcing compliance with the BSA, but does not itself examine financial institutions for compliance. FinCEN has delegated authority to the IRS to examine all financial institutions, other than banks, federally insured credit unions, brokers and dealers in securities, introducing brokers for commodities and futures, and futures commission merchants, for compliance with BSA requirements. 105 This delegation is memorialized in Treasury Directive 15-41 that delegates to the commissioner of the IRS the authority to conduct BSA examinations of certain non-bank financial institutions to assure compliance. This currently involves the following non-bank financial sectors: all money services businesses (MSBs) (e.g., check cashers and money transmitters throughout the United States), insurance companies, non-federally insured banks or credit unions, and credit card operators, all duly licensed or authorized casinos and card clubs having gross annual gaming revenue in excess of $1,000,000, and dealers in precious metals, stones, and jewels. IRS Small Business/Self-Employed (SB/SE) Division examiners conduct these examinations. IRS examinations are funded under a separate budget from the U.S. Congress.
While SB/SE is charged with examining casinos and card clubs for compliance with the BSA requirements, there is no federal functioning regulator for these industries, except to some extent the National Indian Gaming Commission which has some regulatory oversight for tribal casinos. Also, SB/SE has issued some federal BSA examination techniques for the casino and card club industries for its examiners to follow in Internal Revenue Manual (IRM) 4.26.9 in June 2006, which numbers approximately 25 pages. 106
As part of its responsibilities, IRS personnel may conduct an informational visit to a gaming establishment to explain the BSA requirements, including: reporting of suspicious and currency transactions, identification of customers, recordkeeping and record retention obligations, the need to establish a written anti-money laundering compliance program, and the potential for civil and criminal penalties for violations of the Act. Also, IRS personnel may provide a copy of BSA regulations 107 along with the applicable reporting forms and other informational documents. In addition, IRS personnel may participate in employee training programs at the gaming establishment, upon request and availability.
Furthermore, the IRS SB/SE Division will conduct BSA compliance examinations during which audit teams will examine duly licensed or authorized casinos and card clubs to determine compliance with the BSA's suspicious activity and currency transaction reporting, identification, recordkeeping, record retention, and compliance program requirements. Included would be an examination of the adequacy of compliance programs' policies, procedures, and internal controls; internal and/or external testing for compliance; training of personnel; personnel designated to assure compliance; using all available information to determine and verify, when required, the name, address, Social Security number or taxpayer identification number of a person; using all available information to determine the occurrence of any transactions or patterns of transactions required to be reported as suspicious, and use of computer systems and programs to aid in assuring compliance with the BSA.
108
Also, IRS examinations include a three-month testing of (1) related currency and suspicious transactions to ensure forms have been correctly filed, (2) recording of checks on the $3,000 negotiable instrument log, (3) recording of $3,000 domestic wire transfers of funds, (4) recording of international wire transfers, (5) recording of deposit and credit account transactions, (6) currency exchanges, (7) establishment of a written and effective BSA anti-money laundering compliance program, (8) following of FinCEN regulatory guidance and administrative rulings, etc. In this regard, FinCEN's casino guidance document states that the IRS's
… compliance examinations will look at whether a casino's written program is designed to address the money laundering risks of your particular business, whether the casino and its employees are following the program, whether employees are being properly trained, whether the program is being audited and the results of that audit, and whether the casino responds to red flags and other indicia that the compliance program is deficient.
109
If a non-bank financial institution refuses to provide IRS examiners during a civil examination with all books, papers, records, or other data required under the BSA, the IRS can issue a summons to that non-bank financial institution for such documents. Specifically, for any investigation for the purpose of civil enforcement of violations of the BSA, the IRS may issue a summons (which is not predicated upon a court order) to a non-bank institution or an officer or employee of a non-bank financial institution (including a former officer or employee), or any person having possession, custody, or care of any of the records and reports required under the BSA to produce such books, papers, records, or other data as may be relevant or material to such investigation, or to appear at a time and place named in the summons, and to give testimony, under oath, and be examined, and to produce such books, papers, records, or other data as may be relevant or material to such investigation. 110
The IRS casino examinations are not meant to be checklist examinations, but instead are intended to be risk based. Therefore, individual examinations of casino properties will not have the exact same scope and depth from examination to examination. Nonetheless, the broad overall process should be the same. In addition, in 2005 the IRS changed some of its casino examination processes to be more risk based, top down, and compliance process oriented.
Unlike the federal banking and securities regulators, the IRS is not obligated to undertake examinations on any specific cycle. Its program is largely determined on a risk basis and by the relative size of the institutions for which it is responsible. If the IRS discovers significant alleged BSA violations and deficiencies at the financial institution, the matter will be referred to FinCEN for disposition, including consideration of civil money penalties or other sanctions. 111
Some Suggested Casino Regulatory Best Practices
In this last section of the article, the author provides some suggested casino regulatory best practices that hopefully both the casino and card club industries, as well as FinCEN, would consider useful. This section covers seven distinct areas.
1. Chip redemptions
As part of a casino's risk-based program, and based on common industry business practice, when a customer presents at a cage a chip redemption (typically in amounts with a face value of $3,000–$5,000 inclusive), and/or a plaque redemption (in amounts above $5,000), a cage cashier is trained to confirm the circumstances associated with them by placing a telephone call to a pit boss, floor person, table game room supervisor, card room supervisor, or other casino employee to determine if the chips and/or plaques were: (1) put at risk, or won at a table game as “verified winnings,” or (2) purchased at a table (e.g., when a customer is “walking with” chips and/or plaques at the end of table game play). 112 A cage cashier does this to identify: (1) any temporary advance of chips and/or plaques to a customer who is well known to a casino until a marker is prepared (i.e., rim credit), (2) whether a customer is on a state or tribal casino[’s] exclusion list for problem gamblers, (3) potential counterfeit chips and/or plaques, and (4) stolen chips and/or plaques. Additionally, a cage cashier will query a casino's credit management system to determine if any funds are owed to a casino. To effectively search its casino management system, a casino would request an identification credential from a customer. 113 Thus, in the author's opinion when an identification credential is presented, since a customer's name is known, as well as often a customer's address (except for a passport), a casino would have to consider how to use such information for purposes of aggregation to ascertain potentially reportable currency transactions.
2. Due diligence checks
When a potential suspicious activity involves a customer making a large deposit in an access, front money, wagering, and/or safekeeping accounts, or repayment of a marker (i.e., an IOU) 114 a casino should perform appropriate due diligence checks on a customer. In general, if a casino suspects that the customer's transactions are unlawful, not characteristic for that customer, or lack reasonable explanation, the following are some actions a casino may consider taking for purposes of filing a complete suspicious activity report.
• Confirm an individual's occupation or business background by reviewing, if available, a casino credit application and/or previously filed currency transaction report;
• Review previous research into the financial background of a customer through contacts made with depository institutions and/or central credit agencies 115 that were undertaken to determine whether credit would be extended, and the amount of the credit line that would be extended, as well as any new research conducted pertaining to changes in credit;
• Review its risk prevention programs for appropriate customer assessments to protect themselves from being defrauded or used as conduits to launder funds, and apply them to these efforts; and
• Consult independent and reliable sources to obtain a more comprehensive understanding of a customer, possibly including a customer's source of funds, and the reasonableness of a customer's activity. 116
3. Casino hotel accounts
When a casino redirects a customer's casino funds through its casino hotel account to send a funds transfer to that customer, it must comply with the funds transfer requirements. Accordingly, a casino that accepts a customer's instruction to send a funds transfer of $3,000 or more to himself/herself via a casino hotel account must verify the identity of the sending customer and create and maintain a record of a funds transfer. In addition, certain information must “travel,” that is, a casino must send on certain information to the next financial institution processing the transfer by providing it to staff in its casino hotel that will be sending the transfer. Also, a casino should consider for what business or apparent lawful purpose a customer would request his/her casino funds be transferred through a casino hotel account, versus the traditional method which is through a casino's business/operating account at its commercial bank.
4. Risk-based compliance indicators and compliance assessments
Although 31 C.F.R. § 1021.210 does not specifically state that a casino must develop risk-based compliance indicators and a compliance program assessment to comply with the regulations, a casino should find that these indicators and assessments would be helpful satisfying the requirements of 31 U.S.C. § 5318(h)(1) to guard against money laundering. For additional guidance on these subjects, casinos should consult FIN-2010-G002, Suggested Best Practices—Casino or Card Club Risk-Based Compliance Indicators (June 30, 2010) and FIN-2010-G003, Suggested Best Practices—Casino or Card Club Compliance Assessment (June 30, 2010).
5. Foreign-affiliated casinos
To the extent a U.S. casino makes use of the relationships with a foreign-affiliated casino to facilitate the movement of funds into or out of the United States (including through general accounting ledgers), a casino must take reasonable steps to guard against the flow of illicit funds through such relationships. This obligation is an essential part of each casino's existing obligation under 31 CFR § 1021.210 to develop and implement an effective anti-money laundering compliance program. Thus, a casino should establish adequate and appropriate policies, procedures, and internal controls to monitor the relationship with a foreign-affiliated casino when it conducts financial transactions with customers which affect a U.S. casino's cage operation. Pursuant to the compliance program requirement to have “[a] system of internal controls to assure ongoing compliance,” such monitoring should entail identifying material changes in a foreign-affiliated casino's risk profile, such as a change in the types of financial services offered, the volume and amount of business conducted through customers' deposit and/or credit accounts at a U.S. casino, and/or the number of types of customers as well as higher risk customers conducting transactions through a U.S. casino.
There are certain areas/activities that deserve the focus of a domestic affiliate casino compliance staff pertaining to monitoring a foreign-affiliated casino, for example: (1) use of affiliate transfer advices, and (2) possible structuring and/or moving transactions through multiple jurisdictions. A U.S. casino should note that failure to develop and implement an effective anti-money laundering compliance program pertaining to conducting financial transactions with customers involving a foreign-affiliated casino or failure to monitor for transactions that have no business or apparent lawful purpose could result in enforcement action under the BSA, 117 as well as lead to reputational damage. The goal is to have a comprehensive approach to combating any potential money laundering and terrorist financing that may occur between a U.S. casino and a foreign-affiliated casino.
• Affiliate Transfer Advice. 118 An affiliate transfer advice is a form that a multi-property casino corporation completes to permit a customer or agent to deposit funds into a front money account at an originating casino for use at an affiliated receiving casino for an upcoming gambling trip or to pay a credit balance. Funds are not physically transferred through the international banking system or any money transmitter. No “courier” is needed to bring a customer's funds in (e.g., from a Macau casino to an affiliated U.S. casino). Rather, inter-company accounting entries are made in payable/receivable casino accounts at an originating casino and a receiving casino, which a multi-property casino corporation owns, or partially owns, including in foreign jurisdictions. Thus, funds are accounted for and recorded as an inter-company transaction on a casino's general accounting ledger. A casino would need to determine any risks of money laundering and terrorist financing a foreign-affiliated casino may pose with accepting customers' funds for front money deposits and/or the repayments of credit for casino accounts in the United States using affiliate transfer advices. For example, a casino compliance staff should monitor these forms to identify occurrences when: (1) another individual redeems the value stated on these forms (e.g., an “associate” or “friend”) other than the individual listed as the owner of these funds, (2) a customer ends a gambling trip with a net loss in funds, and requests that remaining funds be paid out with a casino check versus a second affiliate transfer advice being sent to a foreign-affiliated casino listing the value of customer funds remaining to be paid out by such an affiliated casino, and/or (3) remaining funds are forwarded through a domestic casino's hotel account for wire transfer through a U.S. depository institution.
• Structuring Through Multiple Jurisdictions. Similarly, a U.S. casino should have procedures in place to enable it to manage the risk of money laundering and terrorist financing by reviewing a foreign-affiliated casino's activity for signs of structuring or unnecessarily complex transmissions through multiple jurisdictions that may be indicative of layering. Also, such procedures should enable a U.S. casino to discern attempts to evade customer identification or other requirements, whether imposed by applicable law or by a U.S. casino's own internal policies, procedures and internal controls. Thus, a U.S. casino's anti-money laundering policies, procedures, and internal controls must be integrated with its operations to detect and prevent customers' transactions and activities conducted with a foreign-affiliated casino that are or may be suspicious. A casino compliance staff should monitor such customer transactions for potential structuring. For example, it is the author's understanding that some U.S. casinos are aware of the makeup of customers' transactions with foreign-affiliated casinos such as: (1) the nature of funds 119 used, (2) whether two or more types of funds were used for specific transactions, and (3) whether a customer makes large deposits or pays off large markers with multiple instruments (e.g., cashier's checks, money orders, traveler's checks, or foreign drafts) that appear to have been purchased in a structured manner or issued by several different financial institutions, etc.
Nonetheless, since this subsection on foreign affiliated casinos may pose a challenge at first for some U.S. casinos to monitor when transactions are conducted between them, the author has provided several illustrative red flag examples.
• A foreign-affiliated casino's activity appears to be aimed at evading a U.S. affiliate casino's own compliance procedures and internal controls relating to transactions with its cage operation involving fund transfers, deposits and withdrawals, and/or repayments of credit.
• Foreign-affiliated casino's records transmitted to a U.S. affiliated casino contain illegible and/or missing foreign customer identification information.
• A customer, from a foreign-affiliated casino, is a resident of a high-risk country (e.g., sanctioned country).
• A customer, from a foreign-affiliated casino, is a resident of a tax haven country.
• A foreign customer from a high-risk country uses a casino's foreign holding account to move funds through multiple jurisdictions and affiliated casinos, making it difficult for a casino to track and establish the amount of funds being credited on a customer's behalf at a casino in another country, as well as the amount of funds gambled. 120
• A foreign junket operator wire transfers large amounts of funds across national borders to a foreign casino's depository institution, with instructions to retransmit funds to an affiliated U.S. casino to obscure: (1) that players are from a high-risk country, (2) the source and ownership of players' funds, and/or (3) the players' true identities by using variations of their first, middle, and last names.
6. Senior foreign political figures 121
A U.S. casino needs to be aware that certain foreign Politically Exposed Persons (PEPs) and international organization PEPs are high-risk customers and would be subject to suspicious activity reporting. Thus, a casino's risk analysis process for suspicious activity monitoring and reporting needs to include foreign and international organization PEPs. However, not all foreign PEPs and international organization PEPs present the same risk for money laundering. Hence, a casino should open deposit and credit accounts based on perceived risk and, as part of that process, would gain an understanding of which foreign PEPs and international organization PEPs present more risk and why. For example, a casino's compliance staff needs to be aware of and monitor customers whom are residents of a high-risk country (e.g., sanctioned country), 122 a tax haven country, 123 or a major illegal narcotics country 124 to comply with anti-money laundering requirements. 125
7. High-risk countries
In determining the levels of risks associated with a specific country or cross border activity, a casino can draw from a wide-range of publicly available information sources, which include reports and studies that detail: (1) adherence to international codes and standards, (2) levels of international cooperation among countries, (3) specific risk ratings associated with illegal activity, and (4) corruption surveys of countries. These various sources of information may help a casino in its development of a risk-based approach in assessing countries and cross-border activities when conducting customer transactions. 126
Some public sources issued by the U.S. government include:
• Jurisdictions of concern or jurisdictions of primary concern in the U.S. Department of State's annual International Narcotics Control Strategy Report (INCSR);
127
• Jurisdictions designated of primary money laundering concern or subject to special measures through regulations issued by FinCEN, pursuant to Section 311 of the USA PATRIOT Act; and
128
• Office of Foreign Assets Control's (OFAC) “Specially Designated Nationals and Blocked Persons List” (i.e., SDN List), with whom any kind of transaction is forbidden.
129
Some public sources issued by supra-national or international bodies include:
• Financial Action Task Force (FATF) and FATF-style regional bodies 40 Recommendations and mutual evaluation reports;
130
• United Nations, Office on Drugs and Crime (UNODC);
131
• International Monetary Fund (IMF) staff country assessment reports;
132
• European Union's Fourth European Money Laundering Directive;
133
• World Bank's reports on Political Exposed Persons, Stolen Assets Recovery;
134
• Organisation for Economic Co-operation and Development (OECD) efforts to identify tax haven countries,
135
and • Transparency International.
136
The information provided by these international credible sources does not have the effect of domestic law and/or regulation and should not be viewed as an automatic determination that something is of higher risk. Nonetheless, such public sources of information can help assist a casino in their risk assessment of countries and cross-border activities when conducting financial transactions with customers from other countries.
Conclusion
In conclusion, an effective BSA AML compliance program manages potential money laundering and terrorist financing risks arising from a casino's or card club's products, services, customer base, and geographical location. Once a casino or card club has identified the specific risk factors unique to its operation, it should conduct a detailed analysis of its level of vulnerability. The level and sophistication of the analysis will depend on the comprehensiveness of the casino's or card club's risk assessment process and the risk factors that apply. Also, the results may differ pursuant to its business risk model and governmental gambling regulations. By understanding its risk profile, a casino or card club can apply appropriate risk management processes to its BSA compliance program to identify and mitigate its operational risk. Thus, casinos or card clubs should update their risk indicators to reflect changes in operational risk profiles, as needed (e.g., revised products and services, new products and services, changes with the opening and closing or closer monitoring of specific types of accounts because of the nature of customer relationships, new categories of accounts, or changes resulting from acquisitions or mergers). If there are no changes in a casino's operational risk profile, the author suggests it is a sound practice for a casino or card club to review its BSA risk-based indicators or factors to assure sufficiency and effectiveness, at least once every two years. 137 By doing all of this, casinos will reduce their exposure to either attract, or be used by individuals, attempting to conduct significant illegal money laundering activity. Also, on a personal note, the author hopes that the section on some casino best practices will assist U.S. casino operators to mitigate some of the risks of money laundering and illegal activity connected with their gambling businesses.
Footnotes
Author Disclosure Statement
The opinions in this article are those of the author alone, and do not reflect necessarily the opinion or policies of any governmental agency or business organization. The author has made every reasonable effort to ensure that the data and information contained in this article reflect the most accurate and timely information publicly available at the time of publication.