Leaked FinCEN Files: Gaming Industry Suspicious Activity Reports

Leaked FinCEN Files: Gaming Industry Suspicious Activity Reports

December 16, 2020

In September, Buzzfeed News and the International Consortium of Investigative Journalists (ICIJ) reported on documents leaked from the Financial Crimes Enforcement Network (FinCEN), which is the Department of the Treasury’s bureau tasked to:

“safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.†[1]

This reporting, known as the “FinCEN Files†sent shockwaves across the financial services industry—and ultimately cast a spotlight on the performance of casino management to monitor suspicious activity.

Largely, casinos have fulfilled their compliance duties in regard to FinCEN, but FinCEN and law enforcement agencies have historically lacked sufficient funding, resources and information-sharing capabilities to effectively pursue and root out illicit use of the financial system. According to their own records, FinCEN receives an average of 2 million Suspicious Activity Reports (SARs) a year and yet employs only about 300 employees. How can one government agency so small possibly review and analyze 2 million SARs a year looking for bad actors?

Coincidentally, in September, FinCEN published an advanced notice of proposed rulemaking requesting public comment on potential regulatory amendments that would “explicitly define an effective and reasonably designed anti-money laundering (AML) program.†If implemented these changes could place an additional burden on gaming organizations and their AML programs.


What the Current Rules State for SARs

The preparation and filing of a SAR with FinCEN is not optional, and casinos are held accountable for failing to file SARs and not meeting the filing deadlines. The law states that a gaming establishment is required to file a SAR no later than 30 calendar days after the date of the initial detection of facts that may constitute a basis for filing a SAR. If no suspect was identified on the date of detection of the incident requiring the filing, the casino may delay filing for an additional 30 days to identify a suspect. In no case shall reporting be delayed more than 60 calendar days after the date of initial detection of a reportable transaction. [2] 

The Currency and Foreign Transactions Reporting Act of 1970, commonly referred to as the Bank Secrecy Act (BSA), goes even further by requiring gaming establishments to assist U.S. government agencies to detect and prevent money laundering. Specifically, one area of the act requires casinos to report suspicious activity that might signify money laundering, tax evasion or other criminal activities; FinCEN has instructed them that they must file SARs when certain circumstances occur.

The USA Patriot Act has also expanded SAR requirements to help combat domestic and global terrorism. The act expanded the immunity from liability for reporting suspicious activities and expands prohibition against notification by the casino to any individual involved in the transaction, that the transaction was reported.

Due to the information contained in a SAR, confidentiality of the SAR and any information that would reveal the existence of a SAR is required. As such, there are criminal penalties for disclosure of a SAR. Under the BSA, willful disclosure of a SAR or its contents by government employees or agents is a felony unless necessary to fulfill official duties.


The Role of Casino Establishments in Monitoring Suspicious Activity

As opposed to turning a blind eye, many casinos were doing precisely what was required of them by filing SARs when they detected suspicious activity. They are required by law to maintain an effective compliance program which must include at a minimum the designation of a compliance officer, development of internal policies, procedures and controls, ongoing employee training and an independent audit function to test the program.

In an adequately designed compliance program gaming establishments would be alerted to unusual activity to review and investigate. If the activity was deemed suspicious and meeting the criteria for reporting, a SAR would be filed. There are also instances where historical reviews are conducted on transactions due to an establishment’s own review or at the request of a regulator. If suspicious activity is revealed during this “lookback,†a SAR will be filed. This type of delayed reporting may have been highlighted by the ICIJ as a casino’s failure, although it is actually the gaming establishment’s remediating any prior lapse in their identification and reporting of suspicious activity.

Casino management must have a strong defense system in place to identify and report suspicious activity.

If your compliance department needs to be enhanced, now is the perfect time to request additional funding.


How Casinos Can Prepare for Changes Ahead

It’s important that casinos prepare and stay up to date with changes to the AML regulatory framework. They should outline steps to take now to enhance their AML programs.

Here are some best practices seen in the industry:

  • Building a culture of compliance from the top down, along with strengthened BSA/AML training
  • Installing robust internal controls, quality review processes and effective policies in line with updated regulatory guidance and best practices
  • Ensuring sufficient funding and expertise for the compliance department and BSA Officer
  • Communicating clearly to the Board of Directors/Title 31 Committee about BSA reporting
  • Creating an open system for employees to make referrals without fear of reprisal (i.e., anonymous hotline)
  • Clarifying and developing a process to deal with law enforcement requests for additional information on SARs, tracking subpoenas and National Security Letters

Contact REDW Gaming Experts for AML Guidance

For questions regarding preparations for your AML programs, please contact REDW’s AML, Title 31, and casino gaming specialists Adam Smith, Joe Smith, or Anh K. To.

[1] www.FinCEN.gov

[2] 12 CFR Ch. 1. 21.11

This article originally appeared in BDO USA, LLP’s “Forensics and Investigations†newsletter (November 2020). Copyright © 2020 BDO USA, LLP. All rights reserved. www.bdo.com.

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