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FinCEN fines California card club $8 million for lax AML program, allowing ‘flagrant' criminal acts

Wednesday, November 22, 2017   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
bmonroe@acfcs.org
November 22, 2017

The U.S. Treasury this week fined one of California’s largest card clubs for turning a “blind eye” to loan sharking, suspicious high-value chip transfers and “flagrant criminal activity” for years as its financial crime compliance programs generally floundered.

In the Financial Crimes Enforcement Network (FinCEN) penalty against Artichoke Joe’s Casino (AJC), the country’s financial intelligence unit stated that the operation “willfully violated” anti-money laundering (AML) laws for nearly a decade, from October 2009 to November 2017.

In March 2011, state and federal law enforcement authorities raided AJC, leading to the racketeering indictment and conviction of two AJC customers for loan-sharking and other illicit activities, with the knowledge of top club employees.

In some cases, employees witnessed loan sharks giving chips to customers, but AJC still never filed any suspicious activity reports (SARs). To read the full penalty order, please click here. The casino, in operation since 1916, has 38 tables offering card and tile games, including baccarat, blackjack, poker, and Pai Gow.

At the heart of the penalty was the club's failure to actually use the AML information it was collecting. AJC was capturing many of the details needed to perform adequate due diligence, but never chose to “use all available information” to verify information to ensure it was not fictitious, thus rendering any related token monitoring useless.

Moreover, many of the activities that got the club into trouble happened after it pledged to improve compliance procedures and identify loan sharking after paying a state fine.

In 2011, AJC entered into a settlement with the California Bureau of Gambling Control, paying $550,000, with $275,000 stayed for a two-year period.

That stay was based on the promise to “modify its surveillance, work with the city of San Bruno to improve coordination with law enforcement, replace employees at the Pai Gow tables, and provide additional training on loan-sharking, illegal drugs,” and bolster compliance with AML laws, according to FinCEN, which didn’t happen.

FinCEN noted that AJC’s policies were weak and its customer risk ranking and monitoring non-existent, leading to individuals placing anonymous bets potentially from illicit funds while mingling with legitimate funds. The casino also failed to spot or report structured transactions tied to chip redemptions.

Some of the failures FinCEN noted were both egregious and obvious.

For instance, the 2012 AML program’s section on the negotiable instruments log consisted solely of a highlighted phrase, “Describe Card Club procedures.”

While other sections of the AML program are “blank, omitted, or contain placeholders” such as “Insert explanation of how we intend to accomplish,” “Insert Description of Systems in Place,” and “find actual wording.”

The club also failed to do an independent audit – for 13 years, and only after law enforcement raided the establishment.

AJC also failed to inculcate propositional players, or players paid to be in the casino to draw more patrons, into the AML program, even though these individuals observed some of the illegal activity and detailed those actions to investigators.

The hefty size of the penalty is related to the “severity of AJC’s violations, the size and sophistication of the card club, AJC’s awareness of criminal activity on its premises, and its deficient culture of compliance,” according to FinCEN.

FinCEN has seen its overall enforcement figures fall in the wake of its director departing for the private sector in April of last year.

In September 2012, Jennifer Shasky Calvery, the former head of the Justice Department’s Asset Forfeiture and Money Laundering Section, took the helm at FinCEN.

In 2015, Shasky Calvery’s last full year at FinCEN, the agency was a part of a dozen major enforcement actions, including against banks, casinos, money services businesses, and securities firms.

In 2016, that figure fell by half, to six actions, and so far in 2017, the number has shrunk further, to four.

On the casino end, the penalty against AJC was the first of the year against a gaming institution after three penalties in that area in 2016 and four in 2015, though most were against smaller operations that are not household names.

FinCEN announced last week that it has named a new director, Kenneth Blanco, a top U.S. Justice Department official with nearly 30 years of prosecutorial experience. To read ACFCS coverage of the announcement, please click here.


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