In May 1985, the Bank Secrecy Act (BSA) was updated to include Title 31, a regulation aimed at casinos and card houses with gross annual gaming revenues (GAGR) in excess of $1 million. Coverage of this regulation was extended to include tribal casino operations in August 1996.
Over the years, enforcement of Title 31 has increased exponentially as have the penalties for non-compliance. The repeal of the Professional and Amateur Sports Protection Act (PASPA) by the Supreme Court earlier this year is expected to cause an astronomical increase in sports betting and gambling across all avenues, opening the U.S. financial system up for increased levels of risk. With BSA professionals being held personally liable for AML compliance negligence and casinos risking losing their gaming license in addition to being slapped with hefty fines, Title 31 compliance should be top of mind for compliance executives.
To protect both their personal and casino assets, Title 31 officers need to instill and enforce a culture of compliance with the entire staff, from top to bottom. BSA/AML regulation needs to be taken as seriously on the casino floor as it has been in traditional financial institutions for the last 17 years. Casino compliance compartments should also consider automation technologies that make it easier to detect money laundering and other Title 31 risks. Enforcement in this industry is not letting up; if anything, it is just now getting hot. And the compliance staff cannot afford to get burned.
This article will explore the history of Title 31 and what institutional actions FinCEN recommends to keep casinos and card houses compliant. From small town card houses to multi-billion-dollar casinos, no one is excused from protecting the financial system.
ESTABLISHING COMPLIANCE RULES
In 2015, annual commercial casino gaming revenues in the U.S. topped $40 billion, according to the University of Nevada, Center for Gaming Research. The banking services these establishments offer combined with the high amount of money being wagered by patrons on a daily basis creates fertile ground for money laundering and other illegal activity… activity that went unregulated until 1985 and then only loosely enforced. Initially, the Financial Crimes Enforcement Network (FinCEN) did little to explain the reach of BSA regulations. In August 2008, FinCEN published further guidance that urged casinos to “implement risk-based anti-money laundering programs that assist with the identification and reporting of suspicious transactions.”
As part of Title 31 (specifically Title 31, Sections 1021.210), each casino and card house is required by law to file and keep records of Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SAR) for casinos and develop and implement a written compliance program and ongoing monitoring of that program.
According to FinCEN, the compliance program must include these six items:
- Internal controls which assure ongoing compliance with regulations and requirements;
- A designated person on staff who is responsible for assuring compliance;
- Training of allcasino employees (not just cage workers) on the program’s internal controls;
- Internal controls must be created, implemented and followed to ensure all information from all sources is used to track and monitor patrons—including marketing assets;
- All automated data must be used as a source of information—including marketing assets; and
- Independent testing of the casino’s compliance with all essential regulations and requirements must be performed.
Internal controls implemented to track patrons should be based on a casino’s risk analysis. As with banks and other financial institutions, casino’s risk ratings are unique to each establishment and should be reevaluated periodically.
As to what casino employees should be on the lookout for, FinCEN issued a guide to help casino operators recognize suspicious activity. Specifically, they addressed that casino staff should be diligent and alert when a patron keeps his/her transactions below the CTR and MTL reporting thresholds, uses a cage for banking-like services (wiring funds from non-gaming proceeds, using a casino account as a temporary repository, etc.), and participating in minimal gaming without reasonable explanations.
Additionally, FinCEN warns casino employees to be aware of unusual characteristics that could be red flags for illegal activity. Those include:
- Covering both sides of a bet at a table or betting both sides of a sporting event;
- Requesting the casino issue checks for under the $3,000 threshold;
- Giving a legitimate form of ID for filling out a CTR, but it is false or altered or doesn’t match the patron’s appearance;
- Making large deposits or paying off large markers with multiple forms of payment, each under $3,000;
- Presenting different or conflicting identification information for the filing of CTRs (spelling variations in address street name, different house address numbers, etc.); and
- Arranging for large money transfers out of the country, paid for by multiple cashier’s checks under $10,000 from different financial institutions.
CHANGING OF THE GUARD
The director of FinCEN is responsible for enforcing compliance with BSA for financial institutions, including casinos. FinCEN was making a shift intended to reallocate resources to terrorism purposes instead of mortgage fraud, as was the previous focus. With that in mind, Jennifer Shasky Calvery was named the director of FinCEN in September 2012 after spending 15 years with the Department of Justice, most notably as chief of the Asset Forfeiture and Money Laundering Section (AFMLS), focused on combating criminal financial schemes. Unlike her predecessors, she was a prosecutor, not a regulator. Under her leadership, FinCEN started cracking down on casino’s Title 31 compliance efforts.
Shasky Calvery’s tenure ended in May 2016 but during her time, the casino industry was slammed with $145 million in civil penalties for AML violations. Prior to her appointment, the most the industry had turned over since 2000 was $4 million. Casino compliance budgets grew more than two-thirds over this time, with 70 percent of casinos surveyed saying they increased their AML compliance spending 100 percent over the last five years, according to the American Gaming Association (AGA).
Ken Blanco, another Department of Justice alumnus, took over as director of FinCEN following Shasky Calvery’s departure. He previously served as the acting assistant attorney general of the Criminal Division, overseeing many of the division’s most significant investigations into national and international financial crimes. While many in the gaming industry were relieved to see the exit of “The Enforcer,” her successor isn’t going to be backing down on regulation compliance.
In a survey conducted by the AGA in 2015, compliance executives reported that prior to five years ago, some of their companies’ properties had never been subject to an AML regulatory exam. These same properties went on to state they have had two exams in the past three years. They also mentioned they had an increase in interaction with internal audit and senior management on these regulatory matters. The results were unanimous that both the frequency and the comprehensiveness of the exams and audits have dramatically increased over the past five years.
Another point of emphasis for Shasky Calvery was the need for companies to build and cultivate a culture of compliance—from top to bottom. That means as part of a casino’s Title 31 compliance program, every single casino employee should be trained up on their compliance policies and procedures, not just the staff working the cages or other banking services. All employees need to understand “a single customer is not worth the casino’s license,” Shasky Calvery said in 2014.
To that end, in August 2014, FinCEN released an advisory promoting the culture of compliance, specifically stating that an organization with a poor culture of compliance is more likely to have holes in its BSA/AML program, regardless of the institution’s size. Additionally, an institution’s revenue should not “compromise efforts to effectively manage and mitigate BSA/AML deficiencies and risks, including submission of appropriate and accurate reports to FinCEN,” according to the report.
As casinos collect patron’s information to keep in compliance with Title 31, there is a fine line between keeping high rollers happy, spending big money on the floor and keeping the nation’s financial security at top of mind. This isn’t lost on casino staff and is a big reason why some institutions who choose to ignore these regulations receive heavy fines for enforcement.
Casinos, just like banks and other financial institutions, have a requirement to know their customers to help in preventing financial crimes. Casinos deal with large amounts of cash flow and it is their responsibility to know where a patron’s money is coming from and if it is an illegal or suspicious source. The problem with that is casinos, unlike traditional financial institutions, are mainly viewed as an entertainment venue, not a bank. Casino employees may never actually know their patrons because of the infrequency of their visits and/or the vast number of patrons that come through their doors each day. Additionally, their patrons don’t necessarily want their gambling activities known and recorded.
To aid in that, casinos need to use all available information to know their patrons better. The marketing departments at casinos have greatly expanded and collect demographic and other data on most people that walk through a casino’s doors. There seems to be an internal tug-of-war at casinos between the marketing departments and compliance professionals. The marketing department is working to bring more customers in to spend more money, while compliance is attempting to restrict and reject customers who pose a compliance or financial risk. The two need to work together to share the full data profile on patrons in an enhanced effort to help combat financial crimes. As Shasky Calvery told the audience at the Global Gaming Expo in September 2013, “those same sophisticated systems [used by marketing] should also be used to protect the financial system and national security.”
STAFFING AND OTHER ISSUES
A basic required element of any BSA/AML program is designating one member of a staff responsible for BSA compliance. Management should arm that person with adequate training on BSA and make sure they have a large enough staff to handle all of the compliance needs of the financial institution. Additionally, they should receive appropriate technological resources to keep them compliant. Larger institutions or institutions with higher risk profiles may need larger BSA/AML staffs than smaller institutions or ones with fewer daily transactions. Not having sufficient resources for BSA/AML compliance can result in a backlog of alerts or dismissing alerts that result in the untimely reporting of suspicious activity, such as:
Another issue for compliance professionals: FinCEN insists compliance employees to be aware of industry enforcement actions and how they affect their institution and adjust their BSA/AML programs accordingly. Compliance professionals need to be up-to-date on the latest industry news and trends. Part of having a proper BSA compliance program includes BSA professionals providing effective reporting to their executive management team regarding not only current, but also emerging money laundering-related risks.
Be forewarned: while the entire staff at any financial institution needs to buy in to its BSA/AML compliance, it falls on the shoulders of the BSA officer at the end of the day, making him/her personally liable should they receive an enforcement from FinCEN.
As this article shows, casinos and card houses aren’t exempt from BSA/AML regulation, thanks to the enhanced enforcement of Title 31, and FinCEN is not loosening its enforcement of Title 31 any time soon. So it is time for casinos and card houses to bring their BSA/AML compliance programs up to speed to avoid further enforcement fines. Manually monitoring these risks leaves an institution at high risk of non-compliance and infractions… compliance professionals in casinos and card houses need to examine the increased need for an automated system to help them keep our financial system safe, just as their counterparts in traditional financial institutions have been doing for years.