Casinos in the United States which generate more than $1,000,000 in annual gaming revenues are required to report certain currency transactions to assist the Financial Crimes Enforcement Network (FinCEN) of the Internal Revenue Service (IRS) in uncovering money laundering activities and other financial crimes (including terrorist financing).
Although Title 31, also known as the Bank Secrecy Act, was originally focused on financial institutions, criminal use of banking services located within casinos created a need for additional regulations that were specific to casinos. Because large sums of currency are transacted through slot machines, gaming tables, automatic change machines, retail operations and the cage (banks), and with high frequency, the regulations were targeted at transactions in excess of $10,000. Casino regulation has been a topic of debate, prompting the United States Senate to have a hearing before the United States Congress in which Title 31 topics were discussed through testimony by industry experts such as Grant Eve, CPA and partner at Joseph Eve, Certified Public Accountants and Ernest Stevens Jr., Chairman of the National Indian Gaming Association.[1]
- 2Suspicious activity
Transaction reporting[edit]
The anti-money laundering rules were previously applicable to casinos only. According to many the risks of money laundering in online gambling are ‘very limited’. This third anti-money laundering Directive puts a threshold on all online wagers above €2,000 to be monitored. Casinos in the Canadian province of British Columbia will start to roll out new anti-money laundering policies in the near future, pushing to combat what the provincial government believes is the. In 2017, the UK’s Gambling Commission, which regulates British casinos, tightened up its compliance regulations, to ensure that UK establishments were in compliance with international anti-money-laundering efforts.
Currency transactions that occur within a single Gaming Day (the normal 24-hour period that any casino uses for accounting and business reporting), whether the currency is paid into the casino, paid out, or exchanged (in the case of foreign currency exchanges), in excess of $10,000 requires the completion of a Currency Transaction Report (CTR, FinCEN Form 112) and must contain enough information to accurately identify the individual(s) transacting the currency.
For example, if a man walks into a casino and stops at the blackjack tables and buys into the game for $12,000 (using cash), a CTR must be completed by the casino and filed with the IRS. In this example, currency is paid into the casino in the form of cash and happened within the unique 24-hour Gaming Day of the casino.
Here is an example of a cash out transaction: the established Gaming Day of a certain casino begins at 1:00am and ends at 12:59am. At 6:30am, a woman takes $6,400 in slot machine tickets to the main cage of the casino and requests payment in all $20 bills. Later that day, at around 7:10pm, the same woman approaches another cash cage on the opposite side of the casino and exchanges $4,000 in blackjack chips for cash. Because $10,400 was paid out in cash to a single individual in a single Gaming Day, a CTR must be filed by the casino to report the Cash Out transaction, because it is above the $10,000 threshold.
Because multiple transactions are aggregated for the purpose of Title 31 reporting, casinos create tracking programs to identify large transactions and automatically aggregate them in real time to ensure that they are compliant with the regulations.
Suspicious activity[edit]
Many criminals, such as those interested in tax evasion and money laundering, have researched the Title 31 requirements and have created a number of strategies to avoid detection of their activities by circumventing the reporting requirements. When these activities are discovered, casino staff are required to file a Suspicious Activity Report (SAR, FinCEN Form 114) to report the suspicious activities. Because there are many types of suspicious activities, it is required that casino personnel receive Title 31 training to avoid penalty and remain compliant.
Two of the most popular strategies for circumventing CTR reporting are structuring and minimal gaming.
Structuring[edit]
Because the $10,000 per gaming day CTR threshold is part of the Bank Secrecy Act, a criminal may seek to evade being recorded on a CTR by breaking a transaction over $10,000 into multiple smaller transactions, which is known as structuring. Single and multiple currency transactions in excess of $10,000 (in a single Gaming Day) are reported to the IRS. To track multiple transactions, many casinos record transactions as low as $3,000 (and lower) to ensure that they remain compliant with the CTR requirements. Again, criminals (including those interested in tax evasion) may break up their transactions into several, smaller transactions to avoid detection.
For example, conducting three transactions of $4,000 is more than $10,000, which is the threshold of reporting a CTR. If the casinos did not track multiple transactions, the individual might be able to circumvent the reporting of their transactions. However, because most casinos track transactions of $4,000 (and lower), structuring this $12,000 transaction into three, smaller transactions would not prevent a CTR from being filed. And, while it may be possible to break up $12,000 into 20 individual transactions of $600 each, casino personnel also maintains awareness of this tactic and would likely detect the numerous trips to the cage to perform similar transactions.
Minimal gaming[edit]
Another type of suspicious activity is related to money laundering, where a casino patron may put large amounts of money in play, but gambles very little before cashing out.
For example, a bank robber steals $50,000 from a large bank. Most banks mark cash with exploding dye or sequential numbering of the large bills. To avoid being apprehended, the bank robber needs to exchange the stolen money for money that cannot be traced back to the robbery. In this situation, a bank robber may put $1,000 in $20 bills into a slot machine and spin twice before cashing out. Whether the slot machine pays the bank robber in coins or a slot ticket is irrelevant because the traceable money is in the machine and the bank robber will effectively receive 'clean' or 'laundered' money.
Both of these situations are suspicious, as defined by Title 31 regulations, and require a completed SAR by the casino, within a specified period of time.
Involvement of Agents[edit]
Two or more individuals handling the same currency bankroll are commonly referred to as 'agents' by the casino. An example of this would be individuals purchasing chips and dividing them amongst themselves. Agents cashing out chips or making currency transactions on behalf of one another are also popular examples of agent activity. Since agents handle the same bankroll, they essentially become entities and their transactions must be recorded together. All parties involved in agent activity must submit proper identification and complete the required IRS forms when their COMBINED transactions reach over $10,000 in a gaming day. While agent activity can sometimes occur with legitimate transactions (e.g. a husband cashing out his wife's slot vouchers so she can continue to play), agent activity is highly suspicious because it allows individuals to structure their transactions below the $10,000 to avoid being documented to the IRS.
Involvement of casino staff[edit]
It is illegal for an employee of the casino to assist a casino patron in circumventing the reporting requirements of Title 31. Such circumvention can include notifying patrons that they are nearing reporting thresholds, disclosing the time that the Gaming Day ends, and neglecting to report suspicious activity. A casino employee that has been found to have circumvented Title 31 can be assessed civil and criminal fines, in addition to incarceration.
References[edit]
- ^United States Senate Committee on Indian Affairs (November 17, 2011). 'The Future of Internet Gaming: What's at stake for tribes?'. One Hundred Twelfth Congress First Session.
Online Gambling Anti Money Laundering Compliance
The rush to get sports betting up and running across the country has caused some hiccups in the rollout to date. In the opening weekend at The Meadowlands, FanDuel posted laughable lines. The book quickly corrected those lines.
Similarly, in Mississippi, the first weekend of legalized sports betting passed without a single casino obtaining a license. While the product roll outs have been somewhat bumpy, it is likely that operators will fix the kinks in the coming weeks.
One area we have seen a lag is the launch of mobile / online sports betting. This is likely due to regulatory issues, but this may also be a risk management strategy.
Lawmakers have historically disliked gaming. However, their dislike for online gaming seems exponentially greater. There has been an extensive history of Congress connecting online gaming to illegal activities. While chances of Congress seeking to stop brick and mortar sports betting expansion remain very low, online gambling may face a greater threat.
The post 9/11 era
In the wake of September 11, 2001, Congress went after funding mechanisms that had been used by terrorists. A Washington Postarticle from 2007 noted a joint investigation between U.S. and British authorities. In the case, three men were accused of using “computer viruses and stolen credit card accounts to set up a network of communication forums and Web sites that hosted such things as tutorials on computer hacking and bomb-making….”
The men were using the money to:
“buy items that fellow jihadists might need in the field. Authorities also say the men laundered money from stolen credit card accounts through more than a dozen online gambling sites.”
One of the group members “allegedly laundered money through online gambling sites, using accounts set up with stolen credit card numbers and victims’ identities, and ran up thousand-dollar tabs at such sites as AbsolutePoker.com, BetFair.com, BetonBet.com, Canbet.com, Eurobet.com, NoblePoker.com, and ParadisePoker.com.”
The group completed hundreds of transactions at more than 40 different sites. When successful, the group would withdraw the money from the gambling site. Then they would transfer it online to their bank accounts.
Congressional concerns about online gambling
After the Washington Post article, there was a recurring theme in congressional hearings related to online wagering. They nearly universally contained some reference connecting online wagering to money laundering. In 2009, Congressman Spencer Bachus wrote to FBI Director Robert S. Mueller requesting answers to a variety of questions regarding online poker.
Amongst the questions Bachus posed to Mueller was whether “technology could be used to illicitly transfer or launder money in the guise of ‘innocent’ participation in an online poker game…?”
FBI responds to online casino worries
In the response from Assistant FBI Director Shawn Henry, the FBI took this position:
Online Gambling Anti Money Laundering Training Program
“Yes, online poker could be used to transfer ill-gotten gains from one person to another, or several other people. Private tournaments exist on several online poker programs which would allow a subject to create a private game with his/her money mules. Once the game is created, the subject could raise the pot, to whatever maximum amount is allowed, and then fold before the hand is finished. This would allow the subject to transfer the money from his account to the mule account. This activity could repeat itself several times, virtually ‘washing the money.’ Once again, this activity could be detected by the vendors, but at what cost…?”
Several years later, Congressman Bill Young wrote to the FBI requesting information about money laundering via online gambling.
Deputy Assistant FBI Director J. Britt Johnson responded to Young, stating:
“Online casinos are vulnerable to a wide array of criminal schemes. For example, criminals may participate in games with exclusively criminal players, exchanging money to launder criminal proceeds; or a criminal might intentionally lose a game to a public official in order to effect a bribe payment. Transnational organized crime (TOC) groups might exploit legal online gambling to generate revenue, steal personally identifiable information (PII), and engage in public corruption. TOC groups could hire hackers to rig games in favor of TOC members playing in a particular game—depriving the game operators of revenue. TOC groups could also use intrusions to steal PII from players, which the groups could employ in future financial fraud schemes.”
FBI always emphasized difficulty detecting money laundering
The letter goes on to take a subtle jab noting that many of these methods could be “detected and thwarted by a prudent online casino, for example, by blocking software designed to enable online anonymity.” But, Johnson stated the other, more sophisticated methods may be difficult to “identify or deter.”
What to make of the slow online roll out?
Mobile betting is coming. However, given the recent history of Congress being hyper-vigilant regarding online gaming, it appears prudent for operators to play it safe. Cybercrime is our new reality. In many ways, the bookmaker model of online wagering is likely a greater obstacle to money laundering than certain other wagering formats such as some types of exchange wagering.
Anti-money laundering protocols are an important step for all operators. Given the attention at the federal level, it is also not one where operators cannot afford to take shortcuts and bungle the launch.
Indeed, anti-money laundering concerns arose in the daily fantasy industry as well. Even so, the industry has appeared to weather the storm.
While there has been historical opposition to expanded online wagering in Congress, the move from brick and mortar to online is unavoidable. It is likely best for the industry to ensure that the online rollout happens glitch-free. After all, the stakes may be substantially higher with a highly public failure.
Such a failure could give Congress ammunition to roll out new regulations for online betting.