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Aggressive U.S. casino enforcement continues with nearly $23 million fine against Cantor affiliate

Wednesday, October 5, 2016   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
bmonroe@acfcs.org 

October 5, 2016

The sports-betting affiliate of a large equity investment and financial services firm will pay the U.S. government more than $22 million in fines and forfeitures for broad failures in its financial crime compliance countermeasures and role in an illegal gambling and money laundering network.

In a non-prosecution agreement, CG Technology LP, an affiliate of Cantor Fitzgerald, must pay the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) and other agencies a combined $22.5 million for actively participating in an illicit gambling operation and wide-ranging failures in its anti-money laundering (AML) program, from slipshod customer identification to lax monitoring, recordkeeping and suspicious activity reporting.

The multi-agency penalty is yet more evidence of an increased focus on the financial crime compliance operations of casinos and the gaming sector. 

For the prior decade, the sector remained relatively free of penalties against any large, well-known casinos. But in the last two years, FinCEN and other agencies have handed down penalties against the Sands, Taj Mahal and the largest fine to date, $75 million against the diminutive Tinian Dynasty, among others.

“Cantor Gaming quickly grew into one of the largest race and sports book operators in the United States,” Brooklyn U.S. Attorney Robert Capers said. “Unacceptably, this growth came at the expense of compliance with the law, and as a result Cantor Gaming became a place where at least two large-scale illegal bookmakers could launder their ill-gotten proceeds.” 

Those bookmakers were part of additional supporting information concerning illegal gambling and money laundering that surfaced stemming from a criminal investigation and indictment of 25 individuals, known as the “Jersey Boys,” conducted by the U.S Attorney’s Office for the Eastern District of New York.

In a concurrent settlement with the U.S. Attorney’s Offices for the Eastern District of New York and District of Nevada, Cantor Gaming resolved possible criminal charges, agreeing to a forfeiture of $6 million and a criminal fine of $10.5 million.  Six million dollars of the criminal fine and forfeiture will be credited to partially satisfy FinCEN’s $12 million civil money penalty.

In a rare move, FinCEN undertook an audit using its own staff in 2014, following up on the results of a 2010 exam from the IRS’ AML division. FinCEN doesn’t typically do AML exams, an authority it has delegated to the IRS and its Small Business/Self-Employed Division, a small but dedicated unit that shoulders many of the exam duties for entities without a federal functional regulator.

Higher risk whales given special treatment

In several instances, even after several high-roller clients were indicted on illegal gambling, corruption and money laundering charges, Cantor never did any kind of lookback at their transaction activity or filed a SAR, even those announcements were public and easily available.

“When greed clouds judgment within the leadership of an organization, and when even explicit warnings are ignored, it is a sign that the organization’s compliance culture is damaged or nonexistent,” said FinCEN Acting Director Jamal El-Hindi.  

“Failure to focus on developing a strong compliance culture is not only short-sighted for an institution in terms of potential penalties, it also undercuts its stature within the financial community where many others are committed to supporting AML measures.”

Federal prosecutors in Brooklyn stated that between 2009 and 2013, CG Technology, then calling itself Cantor Gaming, became a choice destination for illegal gambling operators and a place to launder the proceeds of wagers, growing into one of the largest race and sports book operators in the United States, at one point representing more than 30 percent of all sports wagers in Nevada.

Documents reveal that rather than asking more details of high-risk, high-rollers, they were feted by top officials, who asked few questions about where their money – in some cases hundreds of millions of dollars – came from and also gave the white-glove treatment to their identity information and records, an attempt to obscure financial trails.  

In many cases, required customer due diligence (CDD) and know-your-customer (KYC) provisions for top clients were given short shrift. The physical and virtual dataset on clients was threadbare and incomplete, often missing even the most basic details of social security numbers, addresses and the like, making it nearly impossible for Cantor to file accurate and timely customer transaction, or suspicious activity reports.

In investigations related to the action, several top executives at Cantor have been indicted.

Michael Colbert, a former senior executive officer at Cantor Gaming, who was the Director of Risk Management, previously pleaded guilty in the United States District Court for the Eastern District of New York to conspiring to participate in an illegal gambling business. 

Colbert faces up to five years’ imprisonment for his involvement in criminal activity at Cantor Gaming.


Remediation reminder

As part of an extensive remedial plan agreed to by Cantor Gaming, the operation must improve nearly every aspect of its AML program and engage third-parties to scour for any suspicious activities missed the first time around. The remediation plan includes:

  • Independent external reviewer: Cantor must engage an independent outside reviewer, a person who must be approved by U.S. authorities, to evaluate program governance; compliance structure and staffing; risk assessments; compliance with all recordkeeping and reporting requirements, including CTRs, SARs and KYC policies, procedures and controls; transaction monitoring; and training and communications. The person will create three reports through 2020, with findings going directly to the government at the same time as the compliance committee. Any material findings must also be remediated. Responses to prior government findings will also be checked.
  • AML program report: By April 30, 2017, and annually thereafter for the next three years, Cantor will provide a comprehensive AML report to FinCEN and other authorities on the implementation of its AML program, including “all initiatives to improve BSA compliance and any material breakdowns or deficiencies in internal controls, and management’s responses and action plans to address any issues raised in the Third-Party Reviewer’s Report.”
  • Transactional review: Cantor, using in-house or external parties, must conduct a review of all transactions and attempted transactions between 2011 and 2013 involving at least $5,000 in funds or other assets. The lookback will be searching for specific indicia of illicit activities, with a particular emphasis on transactions tied to illegal activity, transactions meant to hide or disguise funds or the individuals or companies involved, structured or transactions serving no business or apparent lawful purpose.

AML failings allow gambling gains

In its own AML investigation, FinCEN found that Cantor Gaming failed to have sufficient internal controls and mandatory independent audits; AML training for its officers and employees; and chose not to use “all available information to detect and report suspicious transactions.”

Cantor Gaming also failed to file SARs on “several transactions, including transactions by customers who were involved in blatantly suspicious activity, those who were involved in criminal activity, and those who had no legitimate source of funds,” according to FinCEN.

Due to not tracking and filing customer transaction reports (CTRs), Cantor “committed thousands of recordkeeping violations, including by failing to keep required records on its highest-volume patron who placed more than $300 million in wagers between 2010 and 2013.”

Part of FinCEN’s action also stemmed from a criminal investigation relating to Cantor Gaming’s involvement with the aforementioned “Jersey Boys,” an illegal gambling operation that employed “runners,” or individuals who opened wagering accounts and placed bets with Cantor Gaming’s sports books.  

These runners were paid for illegally placing bets on behalf of others, including out-of-state bettors.

On the monitoring side, Cantor violated the recordkeeping requirement by “failing to obtain or verify critical information in at least 97.5% of all deposit accounts opened from March 1, 2009 through March 31, 2010,” according to FinCEN. “Specifically, 5,210 of 5,369 deposit accounts lacked a social security number, a permanent address, or a verification of valid ID.”

The sloppy records were considered a preferred perk by some lofty clients.

“In perhaps the most egregious recordkeeping violation, Cantor Gaming failed to keep proper records on its highest-volume patron, A.M,” according to penalty documents. “There is no evidence that A.M. had filled out a wagering account application, despite having been a patron of Cantor Gaming since at least 2010.”

On January 23, 2013, the Enforcement Division of the Nevada Gaming Control Board requested the application for the unnamed individual, but when Cantor Gaming provided the application on January 30, 2013, “it had been completed on January 29, 2013, six days after the request from the Gaming Control Board.”

Expecting improvements, regulators see retractions

With examiners having highlighted key deficiencies in the AML program after several rounds of examinations, regulators expected Cantor to implement remediation and improvements. Instead, in some ways Cantor actually “weakened its AML program by affirmatively removing provisions from its AML program,” that would have helped identify certain customers or suspicious transactions.

“For instance, in 2012, Cantor Gaming’s AML program described various activities or conduct that might be deemed suspicious, including situations where a customer transfers, with no reasonable explanation, funds between his or her own wagering account and another customer’s wagering account. But in January 2013, Cantor Gaming deleted the provision from its AML manual.”

And again, in another example, Cantor Gaming’s original AML program instructed that if a transaction was completed without getting the customer’s required information the customer “would be barred until the information was obtained and the CTR was filed. However, that provision was deleted from Cantor Gaming’s AML program in May 2011, and did not reappear in later versions.”

Despite the Cantor case and other recently penalties against casinos for AML issues, overall, “casinos appear to be steadily improving their anti-money laundering efforts,” El-Hindi said in a Treasury post that detailed what a “culture of compliance” looks like.  

For example, in 2010 casinos filed fewer than 14,000 SARs with FinCEN, he noted.  In 2015, casinos filed almost 50,000 SARs. “Those numbers tell us that casinos are paying more attention to their AML/CFT responsibilities,” he said.

“A good compliance culture is one where doing the right thing is rewarded, and where ‘looking the other way’ has consequences,” El-Hindi said. “FinCEN will continue to work with the casino sector on its compliance efforts, in order to ensure each casino is taking the appropriate actions to protect the gaming industry – and the greater U.S. financial system – from abuse."


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