Rolling the Dice: Casinos, FinCEN and AML Compliance
FinCEN has many important responsibilities but one of its more interesting assignments is oversight of anti-money laundering compliance by casinos (and card clubs).
Casinos are under increasing scrutiny these days for lax AML compliance.
In March 2015, FinCEN imposed a $10 million penalty on Trump Taj Mahal in Atlantic City, New Jersey, for violations of the Bank Secrecy Act (BSA). In addition to this hefty civil penalty, Trump Taj Mahal has to conduct periodic external audits to examine its anti-money laundering BSA compliance program and provide those reports to FinCEN and the casino’s board of directors.
Trump Taj Mahal admitted to failure to implement and maintain an effective AML program, failure to report suspicious transactions, failure to properly file currency transaction reports and failure to keep appropriate records as required by the BSA. Trump Taj Mahal had received numerous warnings of deficiencies in previous regulatory examinations, but failed to remediate the problems. Trump Taj Mahal’s records is pretty bleak – in 1998 FinCEN assessed a $477,700 civil money penalty against Trump Taj Mahal for currency reporting violations.
In June 2015, FinCEN assessed a $75 million penalty against Hong Kong Entertainment Investments Ltd., d/b/a Tinian Dynasty Hotel & Casino, for BSA violations. Tinian Dynasty failed to develop and implement an AML program and no member of Tinian Dynasty staff was designated as a BSA officer in the casino. Tinian Dynasty also never conducted an independent test of its systems to ensure compliance, and no one was trained in BSA record keeping or in identifying, monitoring and reporting suspicious activity. The casino operated for years without AML programs in place and was more than happy to assist customers by conducting large financial transactions involving large amounts of cash. In some instances, casino employees provided detailed instructions on how patrons could conduct transactions without being reported or without attracting law enforcement scrutiny.
FinCEN officials have been warning casinos that more enforcement is coming. In fact, FinCEN wants casinos to start implementing a culture of compliance throughout the business and casino functions.
The BSA reporting system depends on suspicious activity reports (SARs). FinCEN looks to these reports to combat money laundering and other criminal activity, including organized crime, drug trafficking and terrorism. FInCEN has detailed regulatory requirements for the filing of such reports by casinos.
The number of SARs filed nationwide has increased nearly 70 percent over the last two years throughout the financial industry, and in casinos. The most common issues cited by SARs involving casinos are alternating transactions to avoid currency transaction report filing. However, SARs have also exposed patrons using casinos to conceal narcotics transactions, moving money in support of international fraud schemes, laundering real estate fraud money and transferring money for other illicit purposes.
FinCEN’s aggressive enforcement attitude towards casinos reflects a long-standing frustration with compliance and the lack of a culture of compliance. FinCEN has stated that it will take into account a casino’s historical compliance record when deciding whether to take an enforcement action or set the amount of a penalty.
Casinos that have repeat violations over multiple exams will receive heightened scrutiny and more severe penalties. FinCEN is including remediation requirements in its enforcement actions to ensure that violators do not repeat failures and compliance deficiencies. In addition, FinCEN may impose corporate monitors or require additional independent testing to meet certain requirements.
Unlike the SEC, FinCEN appears to be more comfortable with “neither admit nor deny” settlements with casinos. Given the possible impact that admissions could have in civil litigation, FinCEN is not wedded to specific admissions in order to settle cases.
FinCEN has made it clear on numerous occasions that it expects casinos to meet the same high standards set for other financial institutions regarding a culture of compliance. Fundamental to the creation and development of a strong culture of compliance, casinos must develop a risk management framework that is engrained into the day-to-day culture of the entity. The entity’s board and management must exercise oversight of the risk management plan to ensure the establishment of effective communication channels, culture change, discipline and accountability.
This article originally appeared in Corruption, Crime & Compliance.
Michael Volkov, CEO and owner of The Volkov Law Group, LLC, has over 30 years of experience in practicing law. A former federal prosecutor and veteran white collar defense attorney, he has expertise in areas of compliance, internal investigations and enforcement matters.
Mr. Volkov maintains a highly popular FCPA blog – Corruption, Crime & Compliance. He is a regular speaker at events around the globe, and is frequently cited in the media for his knowledge on criminal issues, enforcement matters, compliance & corporate governance.