FinCEN focus requires major shift in gaming business practices
Which complex, global industry where billions of dollars exchange hands every day, and where high-net-worth customers park significant sums, is facing unprecedented scrutiny from anti-money laundering regulators?
Readers who said “casinos” are winners. AML compliance pressures from the Financial Crimes Enforcement Network (FinCEN) aren’t new to the financial services industry, but gaming is drawing FinCEN’s interest as never before. The federal anti-money laundering (AML) watchdog has declared casinos equivalent to financial institutions for purposes of monitoring, investigating, and reporting. FinCEN has levied multimillion-dollar fines on high-profile casinos such as the Las Vegas Sands, Caesars Palace, and the Trump Taj Mahal in Atlantic City, New Jersey, for deficient internal AML controls. Concerns over this newly expanded focus and enforcement effort were expressed by participants at two conferences held recently in Las Vegas: the ACAMS 15th Annual AML & Financial Crime Conference and the Global Gaming Expo.
The conferences took place during the same week on opposite ends of the Strip, which is interesting because financial institutions and casinos have up to now operated without much regard for each other. One thing they have in common is they both handle a lot of money. Another is they both must have in place internal controls and a compliance infrastructure to identify customers and conduct ongoing transaction monitoring using risk-based procedures. The problem for casinos is that this is uncharted territory; many of them may not know where to begin.
As FinCEN rightly notes, casinos represent an extraordinary opportunity for money laundering. Many casinos don’t just offer gambling; they encompass hospitality, food and beverage, entertainment, transportation, and other services. Gaming may in fact be the smallest part of a guest’s expenditure while there. A financial criminal can literally go to one facility and have access to a host of opportunities to place, layer, and integrate illicit funds. Further complicating matters, high rollers often notify casinos before they arrive, wiring in large amounts of money in advance, and may arrange to receive gambling proceeds in the form of a check or as a credit advance.
Gaming regulators have made remarkable efforts in the past several decades to vet and prevent criminal involvement in casino ownership. It is extremely difficult for casino operators with even a hint of association with crime to get a license. But, until now, the gaming industry has never had to make such efforts to investigate its customers. Banks, on the other hand, have well-established know-your-customer (KYC) programs and controls to flag and report suspicious activities. This is new territory for a gaming industry that ranges from very large commercial enterprises to relatively small entities. Casinos’ best weapon against money laundering is the consistent use of player cards, which track the user’s gambling and purchasing habits. Not all casino customers like the intrusiveness of such cards, however, which can be accompanied by frequent marketing and promotional offerings, and not all casinos use them. Without a player card to monitor their activity, financial criminals have an array of options to launder money, such as bill stuffing in slot machines, purchasing a large quantity of chips and cashing in most of them, or “chip walking” by using agents to divide up a large purchase of chips and cash in smaller amounts to avoid notice.
Compliance with the Bank Secrecy Act’s Title 31 applies not only to the big commercial casinos in Nevada, New Jersey, Louisiana, California and elsewhere—it also is required of casinos operated by Native American tribal governments. Indian gaming is a fast-growing part of the industry. According to the National Indian Gaming Commission, in 2015, tribal nations had 474 gaming operations generating $29.9 billion, up nearly 13% since 2010, with year-over-year growth in the interim. In 2015, U.S. commercial casino revenues were $40.2 billion, up 16% since 2010, according to the Center for Gaming Research at the University of Nevada, Las Vegas.
Some financial institutions, sensing a high risk, are choosing to de-bank casino company customers. Other banks are creating departments just to review and evaluate the compliance of casinos, and the banks are unsure whether they will be held liable if the casino misses something. There is an alternative to accepting the risks as they are or avoiding them altogether. That alternative requires a deeper understanding of the business and its risks, informed by thorough investigation and analysis.
Casinos, like banks, require ongoing third-party audit and assessment of their AML policies and procedures and a robust program for identifying, resolving, and addressing compliance issues.
