FinCEN will play closer attention to certain casino practices
This past August, Kenneth A. Blanco, the director of the Financial Crimes Enforcement Network (FinCEN), an arm of the U.S. Department of the Treasury, spoke to the 12th Annual Las Vegas Anti-Money Laundering Conference.
Blanco’s remarks indicate that FinCEN is monitoring casinos—both brick-and-mortar establishments and online gaming ventures—to ensure that they live up to their reporting obligations under the Bank Secrecy Act (BSA), and is also focusing more broadly on the money laundering risks associated with cryptocurrency and sports betting.
MOBILE SPORTS WAGERING
In 2018, the Supreme Court struck down the Professional and Amateur Sports Protection Act’s 26-year federal ban on sports gambling, and cleared the way for all 50 states to legalize sports betting. Since the court’s ruling in Murphy v. NCAA, 10 states, including New Jersey, Illinois, Pennsylvania and Rhode Island, have legalized sports gambling, and other states, including Maine, have legislation pending that would authorize sports betting.
State actions to legalize sports betting are leading to a proliferation of new sports betting outlets—both conventional ventures and online. Focusing on the rise of online sports gaming, Blanco emphasized that casinos are responsible for managing the money laundering risks associated with online sports betting and other forms of mobile gambling, stating:
“Sports betting, and other mobile gaming services run through your casino, are no different than other products and services,” Blanco said. “FinCEN expects that your casino or card club is monitoring your sports betting programs for potentially suspicious activity. This includes offering sports betting through a mobile app.”
In discussing mobile betting, Blanco pointed out that FinCEN recently updated its form for Suspicious Activity Reports (SARs) to have fields allowing financial institutions covered by the BSA (including casinos) to report cyber-indicators—that is, unique electronic footprints—ranging from source and destination information, file information, subject user names, system modifications and account information. Blanco’s remarks serve as a reminder that FinCEN expects all covered institutions to establish anti-money laundering (AML) compliance programs to correspond with expanding technologies that implicate money laundering risks.
Blanco also underscored that as financial institutions, casinos must conduct risk-based customer due diligence and submit SARs on suspicious transactions to FinCEN. On this note, Blanco described how FinCEN is increasingly using artificial intelligence to evaluate the data that casinos input into the BSA reporting system. “In the case of using ‘big data,’ FinCEN is able to apply machine learning and other tools to all the reports and other information available to us to identify and build out illicit finance networks and identify new financial crime trends, which we can share with law enforcement, our OFAC colleagues, regulators and the private sector,” he said.
Blanco gave the example of how a drug suspect would be more likely to give a casino his correct cell phone number to ensure his winnings were properly wired out, and a DEA agent searching FinCEN’s SAR database would then be able to cross reference that number with other leads. Given Blanco’s remarks on how FinCEN uses SAR filings as a law enforcement tool, it should not be surprising that Blanco emphasized that FinCEN may bring enforcement actions against casinos that shirk their SAR filing requirements. In fact, FinCEN highlighted SAR filing failures in its last enforcement action against a casino. In May 2018, FinCEN fined Artichoke Joe’s, a California-based card club, $8 million for various violations of the BSA, including for filing multiple SARs on transactions over $10,000 without filing corresponding currency transaction reports (CTRs).
In his remarks to the Las Vegas Anti-Money Laundering Conference, Blanco bluntly reminded casinos that FinCEN will hold casinos accountable to uphold their obligations under the BSA. “There is a misconception that just because FinCEN has not publicly issued an enforcement action against a casino or card club since last year, FinCEN is not looking at this financial sector,” he said. “Let me assure you, this is not the case. FinCEN is continually looking at compliance across all financial institutions and will not hesitate to act when it identifies financial institutions that violate the BSA.”
Blanco noted that the growth of mobile gaming ties into the rise of cryptocurrency, particularly in online casinos that allow pay-ins and cash-outs in cryptocurrency, or allow for patrons to exchange cryptocurrency for government-issued currency.
As background on the BSA’s application to cryptocurrency transactions, in 2011, FinCEN issued a final rule amending definitions and other BSA regulations relating to money services businesses (MSBs), a type of financial institution under the BSA, to provide that money transmission covers the acceptance and transmission of value that substitutes for currency. Cryptocurrency is such a substitute and is covered by that regulation. In March 2013, FinCEN issued guidance further clarifying this point and providing that the BSA’s AML provisions apply to all transactions involving money transmission—including virtual currency.
Most recently, in May 2019, FinCEN issued guidance setting forth examples of how the BSA regulations apply to business models involving the transmission of cryptocurrency, including internet casinos. That guidance provides that even operations engaged in the business of gambling that are not otherwise covered by the BSA regulatory definitions of casino or card club, but that accept and transmit cryptocurrency, might qualify as money transmitters under the BSA. Casinos that accept and transmit cryptocurrency must register as MSBs with FinCEN, and, like other casinos, must develop and maintain written AML programs, implement know-your-customer (KYC) programs to ensure that patrons who cash-in or out with cryptocurrency have a legitimate source of funds, identify and report suspicious transactions and file CTRs on transactions over $10,000. In particular, casinos that fall under the definition of an MSB must file SARs on suspicious cryptocurrency transactions over $2,000, while casinos dealing in government issued currency must file SARs on suspicious transactions over $5,000.
Tellingly, Blanco expressed concern that cryptocurrency related SAR filings by casinos “have not been as robust as expected since the May [2018 cryptocurrency] guidance and advisory were published.” Blanco’s remarks indicate that FinCEN is not relaxing its commitment to applying and enforcing AML regulations in the cryptocurrency industry, including any casino that deals in cryptocurrency.
In fact, a 2018 FinCEN enforcement action further indicates that FinCEN is cracking down on cryptocurrency exchangers. On April 18, 2018, FinCEN announced that it was assessing a $35,000 fine against Eric Powers, a peer-to-peer cryptocurrency exchanger who purchased and sold millions of dollars of bitcoin, for failing to have any written AML compliance policies or procedures in place, failing to conduct KYC due diligence and failing to report suspicious transaction and currency transactions. In announcing the action against Powers, Blanco emphasized that BSA obligations apply to money transmitters “regardless of their size.”
Blanco’s remarks in Las Vegas affirm FinCEN’s commitment to enforcing the BSA on casinos that deal in cryptocurrency—regardless of the scale of the operation, and regardless of whether the casino accepts cryptocurrency “from customers either on location or though mobile applications.” Indeed, Blanco stressed that all casinos that deal in cryptocurrency must design AML programs unique to the risks posed by such transactions. For instance, Blanco remarked on the specific compliance concerns posed by cryptocurrency, including processes for conducting due diligence on digital currency; Blockchain analytics to determine the source of the cryptocurrency; and mechanisms for identifying “red flags” for “money laundering, sanctions evasion, and other illicit financing purposes.”