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Casinos use technology and training to fight back against counterfeiting and money laundering
"Senators Fear Terrorism Link to Casinos," blared the Las Vegas Review-Journal headline. "Money service businesses and casinos present problems of a scale that dwarf anything else," warned Sen. Richard Shelby (R-Ala.). Red flags waved everywhere.
The scene was the Senate Banking Committee's hearing on money laundering in September. The impetus was the failure of MGM Mirage and Station Casinos to file thousands of required currency reports. Also on the senators' minds were allegations that terror suspects had spent money in casinos and taken videos of them.
Testifying before the committee, Frank Fahrenkopf, president of the American Gaming Association, sought to reassure the lawmakers. "I want to stress that none of these violations has been found to be intentional, or to involve some form of collusion with a money laundering enterprise," he said.
Casinos will remain vigilant against terrorist or criminal threats, he declared.
Are gaming establishments really a magnet for money-processing schemes and swindles? Or are politicians playing the terrorism card just to get good press? Let's look at the problem and see how the industry is addressing it.
The Las Vegas office of the U.S. Secret Service reportedly confiscates $40,000 in counterfeit money each week-75-80 percent of it from casinos. Casino transactions generated 27 percent of the counterfeit funds seized in Edmonton, Alberta, during an 18-month study. Police in Minnesota recently arrested two men with counterfeiting apparatus and a stack of bogus bills en route from Grand Casino Mille Lacs to Grand Casino Hinckley.
Desktop publishing has made copying currency easier than ever. Anyone with a computer, scanner, and printer can make decent duplicates of legal tender. To obtain the right paper, counterfeiters bleach bills of their ink or paste insignia from one bill onto another.
The U.S. Bureau of Engraving has introduced color $20 and $50 bills with overt and covert security features. It plans to develop similar $10 and $100 bills in the next couple years. But criminals are changing with the times too. As the technology evolves, each side tries to stay ahead of the other.
With their trained personnel and surveillance equipment, however, casinos aren't a good place to pass bad money. Of the more than $1 billion a week processed in Las Vegas, only a tiny fraction is fake. Several gaming officials said they couldn't recall a significant case of counterfeiting in the last seven years.
"The casinos are actually better than most businesses about picking up counterfeit bills," said Keith Copher, chief of enforcement at the Nevada Gaming Control Board. "They do a real quick, good inspection."
"You might get away with one or two bills," said Alan Feldman, senior VP of public affairs at MGM Mirage, "but it's going to be a little hard to do it in large quantities.
"The people who try are somehow under the impression that casinos are too busy to notice phony bills, he added. "And of course they all end up in jail."
Although the phrase "money laundering" wasn't used until the Watergate era, it's always been a problem. The United Nations defines it as "any act or attempted act to disguise the source of money or assets derived from criminal activity." Essentially the process transforms "dirty money" from crimes into "clean money" whose source can't be traced.
Criminal networks reportedly launder $1 trillion, or 3-5 percent of the world's economic output, a year. Much of this comes from the illegal drug trade and goes to finance drug trafficking, insurgent, and terrorist organizations. In the New York City area alone, drug traffickers cleanse an estimated $4-8 billion annually.
In a typical ploy, a launderer buys chips with ill-gotten gains, gambles a
little, then cashes them in. To avoid reporting thresholds, crooks may divide a cash hoard into smaller amounts and hire "smurfs" to make purchases and redemptions. To further obscure themselves, they may wire money from an outside account and draw on it for chips.
Since patrons do similar things for legitimate reasons, identifying illegal conduct means building a paper trail. That's where government reporting requirements come in. Casinos must file currency transaction reports for cash transactions exceeding $10,000 and suspicious activity reports for those exceeding $5,000.
Gaming establishments prevent money laundering by a variety of means. They train their personnel to look for unusual behavior. They segregate funds over a certain amount so a gambler who brings money in will get the same money back.
They post signs warning visitors of reporting obligations.
Onus on staff
Most of a casino's cash comes from slot machines. Today's machines have internal validators that reject counterfeit bills, virtually eliminating the problem. JCM American Corp., which controls 80 percent of the validation market, has worked with the government to ensure machines accept the new currency.
That puts the onus on staff members who deal with money. MGM's properties provide ongoing training on topics such as cash handling and counterfeit recognition. They post bulletins about people who pass bad bills or tricks that crooks may try.
"To be honest, probably the most effective tool in combating counterfeits-currency or chips-is your front-line employee, your cashier or dealer," said Jim Dougherty, executive director of casino accounting operations at Foxwoods Resort Casino in Connecticut.
If something doesn't look or feel right, the trained staffers should know. They can test questionable items with devices available in-house.
But if workers are tired, upset, or overburdened, bogus bills may still slip by. "People are fallible," said David Kubajak, director of customer service at JCM. "That's just the way it is."
Technology can help
Properties such as Foxwoods are developing computer systems to track their customers' moves. If people deposit a lot of cash but don't play much, the systems will mark them for investigation. JCM's validation software can detect odd playing patterns in slot machines and the company is adding that capability to table games.
Foxwoods also uses an ID check machine to read the magnetic strip or bar code on a credit card or driver's license. This helps thwart credit-card fraud and verify IDs for reporting purposes. A patron who doesn't want to be identified will sometimes disappear before the review is done.
JCM is developing high-speed bill acceptors for use at table games. Kubajak envisions a time when every dollar will routinely pass through a validator. Education and training are paramount, he said, but "technology is ultimately the only true protection you can have."
But casinos don't give every monetary act the same scrutiny. That would slow the play too much. "A lot of it's going to be based on intuition," said Dougherty. "Something doesn't feel right about the transaction."
"The technology allows you to create paper trails," said Feldman, but "the majority of that is handled by people." Prevention is no more complex than following procedures when an exchange exceeds the threshold, he added. "It's all about people doing their jobs."
"Be compliant with the federal laws regarding cash reporting procedures," recommended Copher. "And take steps to regulate yourself." Many properties hire outsiders to try unauthorized operations. Like mystery shoppers, these people test whether employees are obeying the rules.
The secret to avoiding crimes is to make yourself a smaller target, said Kubajak. Be like a homeowner with locked doors, an alarm system, and a dog. "If nine casinos are protected and the tenth one isn't, that's the one all the criminals are going to gravitate to."
Five easy ways to detect fake bills
The new $50 bills have a host of anti-counterfeiting features. These include fine-line engraving, words hidden in the design, color-shifting ink, and geometric "moire" patterns in the background. Sophisticated forgers may reproduce these things, but a few tests will expose almost any fraudulent bill:
• Feel - U.S. currency is made of a cotton and linen paper that has a unique feel to it.
• Rubbing - The currency's ink floats in a substrate of the paper and never completely dries. Rubbing a bill against white paper should leave a dark smudge.
• Watermarks - Examine the front and back for the embedded watermarks. Counterfeiters often place a copy of the watermarks on the back because they're difficult to embed.
• Ultraviolet - A $10 black light will reveal the bill's strip of ultraviolet ink. This strip is almost impossible to duplicate.
• Validators - An inexpensive validation unit will identify a bill by its UV strip and magnetic pattern.
Three signs of illegal intent
To catch counterfeiters and money launderers, look for people who:
• Pull a hat or hood down over their faces. Crooks know casinos have security cameras. The last thing they want is for someone to see them.
• Sit at a slot machine, put a bill in, and quickly cash out-repeatedly. "A natural player in today's gaming industry does not put in a bill and cash out," said David Kubajak of JCM. "It's just not normal behavior."
• Bounce from game to game or machine to machine, staying only a minute or two at each location. It's especially suspect if they go straight down a row of games or machines. Gamblers often sample games, but they don't do it so methodically.