On April 4, 2014, Bloomberg reported that the Las Vegas Sands Corp. (“Sands”) has increased its scrutiny of casino junket operators in Macau. The decision comes as casinos seek to meet the increased demands of federal regulators to prevent money laundering.
Macau’s casino industry relies heavily on junket operators to connect wealthy Chinese mainland gamblers with the casinos. However, as the U.S.-China Economic Security Review Commission notes, “[t]he main channel for money laundering [in Macau] is in the gaming sector through underregulated junket operators and their affiliates, which include the underground banking system, that supports their operations.” As described in 2013 Annual Report of the Congressional-Executive Commission On China, the “movement of money through Macau is fueled by a ‘junket’ system, which reportedly aids mainland VIP patrons in bypassing China’s limits on how much money can be taken out of China.” The 2013 Annual Report estimated that $202 billion in ill-gotten funds are laundered through Macau each year.
Although Sands has not disclosed how, exactly, it plans on conducting enhanced due diligence on junket operators, the measure no doubt comes as part of a designed series of steps that Sands has taken to increase its AML Compliance program. In January 2013, the Wall Street Journal reported that the Sands was bolstering its anti-money laundering compliance program, and ceased executing international money transfers for its high-rolling customers. Sands also reportedly limits the use of checks and money transfers from business accounts and restricts the amount of cash a customer can withdraw from their casino account on a given day.
Like banks and money services businesses (“MSBs”), federal law defines casinos as financial institutions. See 31 U.S.C. § 5312 (X). As financial institutions, casinos are required to maintain robust anti-money laundering compliance programs designed to protect against the unique money laundering and terrorist financing risks posed by each individual casino.
The minimum elements which must be included within any casino’s AML plan can be found at 31 C.F.R. § 1021.210. See also 31 U.S.C. § 5318(h). These include, at a minimum, the following:
(i) A system of internal controls to assure ongoing compliance;
(ii) Internal and/or external independent testing for compliance. The scope and frequency of the testing shall be commensurate with the money laundering and terrorist financing risks posed by the products and services provided by the casino;
(iii) Training of casino personnel, including training in the identification of unusual or suspicious transactions, to the extent that the reporting of such transactions is required by this part, by other applicable law or regulation, or by the casino’s own administrative and compliance policies;
(iv) An individual or individuals to assure day-to-day compliance;
(v) Procedures for using all available information to determine:
(A) When required by this part, the name, address, social security number, and other information, and verification of the same, of a person;
(B) The occurrence of any transactions or patterns of transactions required to be reported pursuant to § 103.21;
(C) Whether any record as described in subpart C of this part must be made and retained; and
(vi) For casinos that have automated data processing systems, the use of automated programs to aid in assuring compliance.
31 C.F.R. § 1021.210; see also 31 U.S.C. 5318(h). In addition, the casino’s AML Compliance program must be designed to protect against the unique money laundering and terrorist financing risks posed by the individual casino. Further, to the extent that a casino employee (including dealers and cage personnel) will confront money laundering activities, they must be included as part of the program and given instructions and training on how to report suspicious activity.
In addition, U.S. based casinos must ensure that these AML Compliance programs which are required under U.S. law are implemented in their Macau facilities due to the potential effects extraterritorial violations could have on the casinos’ domestic licenses. (U.S. Casino operators Sands, MGM Resorts International, and Wynn Resorts Ltd. each have subsidiaries operating in Macau.) For example, the Nevada Gaming Control Board has exercised its authority under Nevada law to oversee U.S. casinos’ Macau operations. As the Bloomberg article explains, “[r]ules in Nevada and other local jurisdictions require regulators to monitor licensees’ activities elsewhere to guard against cross-border violations and damage to the market’s reputation.”
Sands’ change in policy comes as the casino industry as a whole, and Sands in particular, has faced increased scrutiny from State and federal regulators regarding the industry’s AML compliance efforts. As we have previously reported here and here, both Sands and Caesars Entertainment Corp. have been the subjects of Department of Justice investigation into alleged violations of the Bank Secrecy Act. In the case of Sands, on August 27, 2013, Sands resolved its money laundering investigation and agreed to forfeit $47 million to the Department of Justice in order to avoid criminal prosecution based on the Sands’ relationship with a high-stakes gambler who was later linked to international drug trafficking. We assume that Sands’ enhanced responsibilities under its non-prosecution agreement played a critical role in its decision to increase scrutiny of Macau junket operators.