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Special Contributor Report: Casino Fincrime Compliance – How to mitigate illicit money broker risks and create richer, timelier intelligence for law enforcement

Poker chips, Four of a kind Aces, and a roulette poker spinner on top of a puzzle representing Canada

In 2017, a major money laundering scandal erupted in British Columbia where drug trafficking gangs used Canadian casinos to launder massive amounts of currency with the help of money brokers working for Asian organized crime syndicates.

According to media reports, nearly $2 billion dollars of illegal proceeds may have flowed through the casinos.

That figure, however, is likely just the tip of the iceberg in a Canadian, Chinese money laundering machine flowing in recent years with such precision, it even got its own name: “The Vancouver Model,” due to the popularity of using casinos and real estate in the region, according to media reports.  

The underground banking and money laundering system exploited gaps individually and cumulatively in the anti-money laundering (AML) compliance countermeasures in a bevy of jurisdictions, including Canada, China, Hong Kong and Macau – with the illicit funding infrastructure even snaking tendrils to North Korea and Latin American drug cartels – and some fear soon possibly even the United States.  

In the Great White North, the money laundering helped fuel the opioid crisis in Canada. Criminal groups regularly brought bags of illicit currency to casinos in the region and the Canadian gaming operators routinely accepted the large cash deposits without questioning the source of the money.  

Money brokers tied to Asian organized crime facilitated the money laundering, according to governmental reports. The brokers exploited the need for Chinese citizens to transfer wealth out of China.  

The issue that opened up this niche laundering field: Chinese citizens can only take out of China the equivalent of $50,000 U.S. dollars a year for person use.

At the same time, in recent years, the Chinese government has ratchetted down on capital flight by strictly enforcing the $50,000 limit and requiring Chinese banks to disclose foreign payments equivalent to $10,000 in U.S. currency, causing gamblers traveling to Northern America to turn to money brokers.

The money brokers use an unground banking system to move funds in and out of China.

The basic concept of the scheme works as follows:

  •   Breaking bad broker: First, the drug gangs give the dirty currency to the broker.  
  •  Taking a gamble: Second, the broker sells the currency to a Chinese national in need of currency to gamble.  
  •  Allocation, transportation, reciprocation: Third, the gambler completes the purchase of the currency by transferring a reciprocal amount into the broker’s Chinese bank account.
  • Balancing the books: Finally, to balance the books, the broker transfers funds from his account into the drug gang’s bank account in China.  

Profiting from both sides of the transaction, the broker earns a fee from the drug gang and the gambler.  

Once the dirty money is pocketed in China, the drug gang can then use it to purchase fentanyl from Chinese manufacturers or continue the laundering process to clean it by using the mainstay of drug trade organizations, a trade-based money laundering scheme.

Cracking the ‘QR’ money laundering code

As you can see, no funds were actually removed from China allowing the Chinese national to evade the capital flight restrictions. Transferring money between Chinese bank accounts has never been easier using mobile payment applications such as WeChat Pay or Alipay, which have become quite popular in China.

These applications generate QR codes that contain bank account information. For reference, the QR codes look like the bar code imprinted on your airline ticket.

These codes in and of themselves are not dirty or suspicious. They have been around since the mid-1990s, first used for the automotive sector in Japan, and differ from the standard bar codes found on many household items as they look like a series of squares within a square with a blocky inkblot test in the middle.    

The money broker merely shows a picture of the QR code generated on his cell phone so the gambler can use his mobile application to scan and transfer money into the broker’s China bank account. An instantaneous bank to bank money transfer, courtesy of the modern-day Internet.  

Canadian, U.S. casino regulators respond

Not surprisingly, the scandal engendered Canadian gaming regulators to enact sweeping changes in the oversight of casino anti-money laundering controls.

The scandal also caught the attention of United States regulators and law enforcement. It begged the question: could similar schemes exist in American-based casinos that cater to Chinese nationals?  

Law enforcement in Las Vegas is now alerting casinos that indeed similar schemes exist in the America’s mecca for gambling. They are warning that dirty money from the Sinaloa cartel could be a source of currency for Las Vegas money brokers providing funds to gamblers.

This comes on the heels of an October 2019 federal indictment out of Oregon of three men accused of engaging in “Chinese underground banking system” that laundered an estimated $20 million from Mexican Cartels. [1]

The Federal Bureau of Investigations and IRS Criminal Investigations worked collaboratively on this case.  

According to the Oregon indictment, Chinese money brokers deployed a complex scheme that allowed drug traffickers to send dirty money back into Mexican banks while enabling Chinese nationals to forego the Chinese wealth transfer restrictions.

In a twist from the Canadian scheme, the brokers exchanged pesos with the cartels for the dirty cash. Mexican banks have strict limits in the amount of U.S. currency that can be deposited so pesos are much less problematic to infuse in the Mexican banking system.  

The Chinese money brokers transferred the bulk currency to associated money brokers who advertised to Chinese nationals visiting America in need of U.S. dollars.

According to the indictment, “the buyers of the U.S. dollars then would use that money to purchase assets and support their lifestyle in the United States, which Chinese trade restrictions would otherwise limit.”[2] 

Are money brokers also money transmitters?

Similar to the Canadian scheme, the money brokers utilized the same underground banking system to engage in, for instance, a bank to bank transfer from the buyer of the currency to the seller of the currency all with the assistance of the handy dandy QR codes.

According to Title 31 U.S. Code § 5330, any person who owns a money transmitting business has to register with the Secretary of Treasury as a money services business (MSB) and, similar to other brick-and-mortar banks under the rubric of financial institution, must create, run and staff a full-fledged anti-money laundering (AML) program.

These programs are designed to uncover suspicious transaction movements and report on potential instances of money laundering and other financial crimes.

A money transmitting business, as defined by law, is a person or business who engages in the transmission of funds, including the use of an informal money transfer system that engages in transfers of money domestically or internationally outside of the conventional financial institutions system.

Title 18 U.S. Code § 1960 makes it a felony to operate an unlicensed money transfer business with significant imprisonment enhancements if the business deals in illicit funds. A money broker would be hard pressed to proclaim they are not a money transmitting business.  

In addition to the requirement to obtain a license, Title 31 U.S. Code §5313 requires money transfers business (money brokers) to file currency transaction reports (CTRs) for currency transactions greater than $10,000, just like banks and casinos.

But those brokers dealing with the criminal element are obviously motivated not to file such reports for fear of detection. Each time the brokers fail to file a CTR, it constitutes a count of criminal money laundering pursuant to Title 18 U.S. Code section 1956.

Illicit brokers using ‘independent reps’ to worm their way into U.S. casinos

Given their exposure to narcotic funds, money brokers are very much of interest to law enforcement.

These groups are already on the radar of many of the country’s most savvy federal investigative agencies, including the Drug Enforcement Agency, the Federal Bureau of Investigation and the Internal Revenue Service Criminal Investigation division (IRS-CI), which are all working collaboratively to address the challenge of money brokers attempting to infiltrate domestic casino operators.  

But these brokers are more cunning than you think.

The money brokers aren’t hanging out on Vegas casino street corners hocking their services. They can find ample patrons discretely by advertising on popular Chinese internet forums. And It’s not like they outwardly promote, “Hey come and get Cartel cash to gamble with!”

The unwitting gamblers don’t realize the currency from the money brokers may have originated from the sale illicit drugs. The gamblers are not so much targets of law enforcement, but presumably could be potential witnesses to unravel the schemes by relaying their experiences and fingering co-conspirators.  

In addition to adverting, the brokers are known to pay finders fees to casino hosts or independent reps – third parties that casinos pay to bring high rollers.

An independent rep must first obtain a license from the Nevada Gaming Control Board prior to conducting any business with a casino.

Hosts and independent reps that colluded with the money brokers are also of interest to law enforcement since they can easily be roped into a criminal conspiracy involving the cartel’s sullied funds.

How to evade investigators: Operating through patsies, ‘chipping’ away at surveillance

To stay off law enforcement’s radar, money brokers have adapted to be less “Captain Obvious” and more subtle in their business dealings, especially if they are on the casino premise.  

Consequently, their activity is not so readily apparent to casino personnel.

For instance, brokers have been known to use confederates to acquire casino chips and then give chips rather than currency to the Chinese national gamblers. As well, currency exchanges often happen in hotels rooms or off property, out of sight from casino surveillance.

Furthermore, the Chinese national may choose to gamble at multiple gaming operators, diminishing the need to deposit an inordinate amount of currency at one casino – a figure large enough to garner the attention of casino workers or AML teams.

Casinos need to take precautions to demonstrate they are not willingly facilitating any of the illegal financial services tied to these money brokers. Key to these efforts is timely reporting suspicious activity.

But in order to identify potential scenarios tied to these brokers, casino staff and financial crime compliance teams may need to update their understanding of certain transactional red flags. Here are situations possibly associated with money broker activity in a casino:

  •          Hefty mystery foreign deposits: Large currency deposits from foreign nations without a plausible explanation on how it was obtained through legitimate channels.
  •          Funny money between friends: Large currency exchanges between individuals, especially if there is no close relationship between them.
  •          Indebted to you: Unrelated parties using currency to pay off large gambling debts belonging to Chinese national patrons.
  •          Speaking in code: Patrons using their cell phones to exchange QR codes.
  •          Chips falling like rain: Patrons acquiring an inordinate amount of casino chips with no reasonable gaming purpose.
  •          He’s my brother’s, uncle’s, cousin’s former roommate: Patrons with large amounts of unexplained chips or unreasonable stories concerning the relationship with the person that gave them the chips.
  •          Trade-based money laundering: Unusual chip trading among patrons, especially when there is no apparent relationship between them.

To counter bedeviling brokers, update floor, AML training

The aforementioned suspicious behavior does not confirm the existence of a money broker tied to Cartel money.

There could be legitimate reasons for the behavior, so AML compliance personnel need to conduct a thorough financial crime and compliance risk assessment and transactional analysis to determine whether to file a Suspicious Activity Report (SAR).      

With any AML compliance program, relevant training is instrumental in mitigating risk.

Casino personnel, including casino hosts, should be trained to understand the basic mechanics of the money broker scheme and what constitutes suspicious activity warranting further attention.

Casino personnel should also be admonished to never refer a patron to a money broker nor accept a fee from a money broker regardless if they think the currency is from legitimate sources.

And if anyone knows of a money broker on the casino premise, they should report it immediately.

Long history tied to Asian underground banking systems

But in order to create strong AML countermeasures at your casinos, you need to understand the rather long history around Asian underground banking schemes.

The concept of the Asian underground banking system can trace its origins back to the ancient Silk Road trading arrangements.

The dangers of bandits stalking traders on the Silk Road as they returned home necessitated the need for a system to move wealth regionally without physically carrying a large number of valuable physical items or amount of hard currency on your person.  

Years of carving out a network of brokers who timely settle their books created trust and faith among customers in these unofficial channels to move money in the shadows of regulated banking.  

Just because a foreign national brings more than $50,000 of currency into a casino does not always mean it originated from the sale of narcotics.

Other sources of currency used by money brokers have come from owners of restaurants or other currency-intensive businesses that want to get wealth into China.

As criminals evolve tactics, casinos adapt to overcome, better arm law enforcement

In recent years, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), the country’s financial intelligence unit (FIU) and administrator of AML rules, has lauded casinos for significant strides in enhancing their gaming AML programs to conform to changing regulatory expectations.

Moreover, law enforcement has applauded the willingness of the casino industry to proactively seek public-private partnerships.

This is exemplified in Las Vegas and in Southern California where casino AML working groups consisting of senior compliance personnel from the largest gaming operators meet regularly to share best practices on AML compliance and discuss the latest criminal tactics to counter industry defenses.

These working groups serve as a focal point for regulators to share expectations and law enforcement to debrief the industry on the latest trends in financial crimes including money broker operations.

In the pursuit of Cartel money laundering, law enforcement has expressed their understanding that casinos do not have endless resources to force money brokers out of the Vegas market just like big retail stores do not have the resources to eliminate all shoplifters.

Piecing the evidence of a money broker operation together may take the accumulation of SARs from multiple gaming operators.

As evidenced by the case in Oregon, the underground banking infrastructure used by the money brokers can be rather sophisticated. The three men charged collected bulk currency more than 300 times and the conspiracy involved 251 Chinese bank accounts – making it difficult for one bank, one casino or one investigative agency in one jurisdiction to put it all together.  

The prudent course of action to mitigate the money laundering risk of illicit money brokers infiltrating gaming establishments requires casinos and law enforcement to work collaboratively in a manner that does not unduly burden gaming operators but allows investigators to more quickly identify material criminal activity warranting a full scale investigation. Call it the money broker-casino sweet spot.  




[2] Ibid 

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