$10 million in penalties against two casinos in one week for AML

The US Treasury last week penalized a small Nevada casino $1 million for extensive compliance failures while the nation’s top securities regulator days later leveled a $9 million penalty against a large Las Vegas casino for corruption failings, evincing the need for broad-based financial crime controls.

The Financial Crimes Enforcement Network (FinCEN) penalized the Sparks Nugget $1 million April 5th for “egregiously and willfully” violating anti-money laundering (AML) requirements, including in some cases overruling its designated compliance officer in filing reports of suspicious activity (SARs), in one instance even after an individual was arrested for embezzlement.

In the second action, last week the Securities Exchange Commission (SEC) fined the Sands Corp. $9 million to settle charges it violated the Foreign Corrupt Practices Act (FCPA) by failing to adequately authorize or document millions of dollars in payments to a consultant doing business on its behalf in China and Macao.

The latest enforcement action – the Sands FCPA investigation was first publicized in 2013 – represented the Sands casino’s second major penalty for financial crime compliance failings. The penalty for corruption failings is also a rare foray by the SEC to penalize an entity considered a financial institution for corruption issues.

The SEC fined Bank of New York Mellon nearly $15 million in August for providing valuable student internships to family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund.

Also in 2013, the casino chain entered into a deferred prosecution agreement with the US Department of Justice, paying $47 million to settle charges it failed to file SARs on a risky high roller who later ended up accused of being an illicit drug kingpin.

The SEC stated that its investigation found that Sands “kept inaccurate books and records and frequently lacked supporting documentation or proper approvals for more than $62 million in payments to a consultant in Asia.”

In fact, the regulator stated the consultant acted as an intermediary to obscure the company’s role in certain business transactions such as the buying of a basketball team and a building in China, where casino gambling isn’t permitted.

The SEC uncovered that Sands could “not account for more than $700,000 transferred to the consultant for team expenses, yet continued to transfer millions of dollars to him.  A portion of the payments were improperly recorded in company books and records, such as money supposedly spent on artwork for the building when none was actually purchased.”

Sparks casino sparks criticism

In the FinCEN action, the Sparks casino couldn’t account for why it failed to file SARs and blew off recommendations from its compliance staff.

“Sparks Nugget had a systemic breakdown in its compliance program,” said FinCEN Director Jennifer Shasky Calvery. “Despite the fact that it hosted convicted embezzlers and had been repeatedly alerted to suspicious transactions by its own BSA compliance manager, Sparks saw no need to re-think its AML defenses.”

According to FinCEN, the casino “disregarded its compliance manager” by not allowing the unnamed person to file “rightfully prepared” SARs. The casino even went so far as telling the compliance officer not to work with the IRS AML division’s auditors, not even letting the compliance officer review a finalized exam report.

The FinCEN penalty is not surprising, roughly coinciding with the US Treasury’s Office of the Comptroller of the Currency (OCC) issuing a revised penalty matrix and guidance on AML enforcement actions.

The OCC, the nation’s regulator of the largest and most sophisticated US banks, stated in its update it was required to issue formal actions for longstanding AML violations and further had to issue monetary penalties when institutions intentionally tried to hide issues from examiners or allowed uncorrected violations to fester.

FinCEN noted that the Sparks Nugget, by having such weak controls and not giving its AML officer proper authority, also committed hundreds of recordkeeping violations, and failed to report several Currency Transaction Reports (CTRs) as well as SARs.

In one amusing anecdote revealing the depth of the diminutive casino’s issues, the management committee Sparks Nugget established to determine whether to file SARs “never held a single meeting, and some committee members were unaware that they were even on the committee.” The company, which also had hotels, later sold its casino property.

Overall, FinCEN concluded, that Sparks Nugget “lacked any mechanism to document or otherwise account for decisions not to file SARs, and its day-to-day managers maintained that no suspicious activity ever transpired in the millions of dollars of transactions that occurred at the casino.”