The Financial Crimes Enforcement Network imposed a $75 million penalty on Tinian Dynasty Hotel & Casino for willful and egregious violations of the Bank Secrecy Act, the bureau’s largest penalty against a casino and one of its largest monetary sanctions ever.
An undercover operation revealed that the casino, located in the US territory of the Northern Mariana Islands, had no existing anti-money laundering (AML) program and failed to delegate responsibility of the AML compliance program to any of its staff.
According to a statement by the agency, or FinCEN, the casino failed to file thousands of Currency Transaction Reports (CTRs), a document central to monitoring large cash transactions of more than $10,000.
The casino, operated by Hong Kong Entertainment (Overseas) Investments, Ltd., accommodated customers who wanted to conduct large financial transactions without reporting them to the government, providing “helpful hints for skirting and avoiding the laws in the US and overseas,” according to the statement.
“Tinian Dynasty’s actions presented a real threat to the financial integrity of the region and the U.S. financial system,” according to the agency.
During the investigation, aided by Internal Revenue Service Criminal Investigation and the US Attorney’s Office for the Districts of Guam and the Northern Mariana Islands, undercover agents posing as customers told casino staff that they planned to gamble large amounts of money and requested that the casino not report their transactions to the government.
Tinian Dynasty helped these “customers” with their requests, and in some instances, casino employees provided detailed instructions on how the patrons could conduct the transactions without attracting law enforcement scrutiny.
Joseph Kelly, a business professor at SUNY College in Buffalo, NY, is an expert in the gaming industry and the regulations on the industry which he says is only second to the nuclear power industry in strict regulation enforcement.
Kelly said the FinCEN penalty on Tinian Dynasty shows that the US Treasury’s financial intelligence branch is focusing more on the casino industry, sending a message that non-compliance will not be tolerated.
“It’s the only place that carrying around huge amounts of money is completely normal and therefore to prevent criminal figures from money laundering, casinos have to develop strong policies,” he said.
Kelly said that in the US, gaming control boards will keep a close eye on casinos to prevent any violation of the Bank Secrecy Act (BSA), in hopes that FinCEN won’t have to interfere.
“FinCEN will work with the gaming control board and then each casino has staff to train people and to detect any sort of suspicious transaction. The gaming control boards will do whatever FinCEN suggests because they don’t want federal intervention.”
In the US, FinCEN has delegated the examination duties for casinos to the IRS’ AML division, which oversees a host of sectors subject to AML obligations, but that don’t have a federal functional regulator. IRS examiners, when they find deficiencies, then forward the findings to FinCEN’s penalty division for consideration.
The size of the penalty is also more evidence of a new, hardened mindset to harshly punish financial crime program weaknesses occurring across non-bank sectors, including casinos, chiefly due to FinCEN’ leader, Jennifer Shasky Calvery.
She took over the bureau in September 2012 from heading the US Department of Justice’s Asset Forfeiture and Money Laundering Section and has stated in conferences in recent years she was more willing to penalize a broad range of industries for program failures and had particular fears about casinos.
“Tinian Dynasty didn’t just fail to file a few reports,” Calvery said in a prepared statement. “The casino operated for years without an AML program in place. It failed to file thousands of CTRs and its management willfully facilitated suspicious transactions.”
Calvery has stated at industry conferences and in discussions with bankers she had concerns some gaming operations had lax AML controls with no impetus to improve them and risk losing high-net worth customers, even though these higher risk individuals could have ties or illicit entities. FinCEN also usually works with local gaming control boards to coordinate actions.
Kelly said that in the case of Tinian Dynasty, there seemed to be no gaming control board for extra scrutiny.
Tinian Dynasty opened in 1998, in a Pacific paradise closer to the Philippines than to the continental United States.
The hotel and casino came under question in April 2013 when the US Attorney for the Districts of Guam and the Northern Mariana Islands announced that a criminal complaint was filed against two individuals and the casino with conspiracy to cause a financial institution to fail to file currency transaction reports.
The 2013 criminal complaint states that in May 2012, IRS CI initiated an undercover investigation in which the two individuals accommodated agents posing as gamblers in their desire to use large amounts of currency but not file reports with the government.
Each of the nine transactions that the casino failed to file in regards to the undercover operation were above the reporting threshold for CTRs.
In 2013, Kenneth Hines, Special Agent in Charge of IRS CI in the Pacific Northwest region, responded to the criminal complaint, saying “federal laws that regulate the reporting of financial transactions are in place to detect and stop illegal activities.”
FinCEN is honing in on casino anti-money laundering violations, as other nations like Singapore and Macau also step up their own regimes to address significant vulnerabilities.
Kelly said that FinCEN is issuing the penalty as a warning to other casinos and non-financial institutions that may be skirting the law, although he said this case is extremely rare.
“What strikes me here is that FinCEN found that the policies were rueful over a long period of time. This happening at any casino in the US would be shocking,” Kelly said.
It may not be so shocking, however.
In March 2015, FinCEN made another move toward a New Jersey Casino, the Trump Taj Mahal Casino Resort, for long standing anti-money laundering violations. The Atlantic City casino was fined $10 million in a civil penalty for several willful BSA violations, including violating AML program requirements, reporting obligations, and recordkeeping requirements.
“Trump Taj Mahal received many warnings about its deficiencies,” Shasky said in a statement in March.
“Like all casinos in this country, Trump Taj Mahal has a duty to help protect our financial system from being exploited by criminals, terrorists, and other bad actors. Far from meeting these expectations, poor compliance practices, over many years, left the casino and our financial system unacceptably exposed.”
FinCEN press release: www.fincen.gov/news_room/nr/pdf/20150603.pdf