Bankers, casino executives and consultants said the U.S. crackdown
has resulted in unprecedented scrutiny and collaboration between the
two industries, including banks vetting casino customers' anti-money
laundering systems, checking to make sure casinos don’t accept
anonymous wire transfers, and offering databases and other
information to help the gaming industry identify risky transactions.
While the idea of money-laundering through casinos is nothing new –
and has been fodder for plots in Hollywood movies like "Casino" –
until recently, banks haven't been expected to take part in
regulators' and prosecutors' pursuit of such criminals.
Some bank executives grumble about the extent of the work they have
to do for government enforcement agencies now, and the penalty for
failure. Standard Chartered Plc said on August 6 that a computer in
its anti-money-laundering surveillance system made an error, which a
source said could trigger fines between $100 million and $340
million payable to New York State's financial regulator. In an
interview with Reuters on August 7, Standard Chartered Chief
Executive of Asia, Jaspal Bindra, said the penalties are unfair.
"We are supposed to police that our counterparties and clients are
not money laundering," said Bindra, "and if when we are policing we
have a lapse, we don't get treated like a policeman who's had a
lapse, we are treated like a criminal."
Casinos were historically a popular place for criminals to launder
money because it was easy to make large-scale transfers through
casino accounts, and swap ill-gotten gains for chips, and back into
clean cash. Because of this, regulators have required casinos to
report suspicious or abnormally large transactions for a number of
years. That hasn't stopped the flow of illicit funds because
criminals have grown more sophisticated in working around the rules,
and because casinos have not always fully complied with the rules,
according to anti-money-laundering consultants.
In recent years, regulators have also become more aggressive about
enforcing the rules – on both casinos and banks. In 2012 financial
institutions agreed to pay $3.5 billion in anti-money laundering
infractions, up from the $26.6 million in 2011, according to the
Association of Certified Anti-Money Laundering Specialists.
In light of the enforcement actions and tough public statements by
federal authorities, banks have begun taking further steps to ensure
their casinos customers' accounts are legitimate. As opposed to
merely asking whether a casino has anti-money laundering programs,
banks are now reviewing them and conducting onsite work to test
their efficacy, said Adam Shapiro, a director specializing in
preventing money laundering at Promontory Financial Group.
"What we're seeing is some catch-up in oversight of other
institutions involved in transferring money," such as casinos,
The casino industry is just one of many that enforcement officials
have started targeting through banks to enforce laws.
The Department of Justice's "Operation Choke Point," which aims to
protect consumers from online scammers, has subpoenaed 50 banks that
process transactions for companies like payday lenders. Meanwhile,
the Consumer Financial Protection Bureau is penalizing banks
including Ally Financial Inc <ALLY.N> that fund loans made by auto
dealers, if the car sellers are found to have discriminated against
minorities or other protected groups.
Spokespeople at the CFPB and the Justice Department did not respond
to requests for comment. Spokespeople at Bank of America Corp,
Citigroup Inc, JPMorgan Chase & Co and Wells Fargo & Co declined to
TIME TO STEP UP
Preventing money laundering has become a higher priority for the
Department of Justice and other enforcement officials in recent
years, and banks have been a key target of enforcement actions. HSBC
Holdings PLC <HSBA.L> and JPMorgan Chase have been censured for lax
controls that did too little to prevent money laundering by Latin
American drug cartels and Ponzi schemer Bernie Madoff, respectively.
The increased scrutiny on banks in regards to money-laundering has
only recently extended to the casino industry. In August 2013, Las
Vegas Sands Corp <LVS.N> agreed to pay the Justice Department more
than $47 million over anti-money laundering lapses linked to
high-roller Zhenli Ye Gon, a Mexican pharmaceutical magnate.
[to top of second column]
Prosecutors said Ye Gon transferred around $45 million to Las Vegas
Sands, mostly from accounts of Mexican currency-exchange companies
with which he had no obvious affiliation. His actions did not arouse
any serious suspicion from casino staff, prosecutors said. Ye Gon is
currently fighting extradition to Mexico, which has charged him with
drug trafficking. His case is pending, according to his attorney.
Pressure on the gambling industry intensified over the past year as
the head of a U.S. Treasury agency that monitors the financial
system for evidence of money laundering gave two speeches reminding
the casino industry of its compliance obligations. Jennifer Shasky
Calvery, who has led the agency – called the Financial Crimes
Enforcement Network, or FinCEN – since September 2012, has a
background in prosecuting organized crime.
A spokesman for FinCEN declined to comment.
"Banks that do business with casinos would be wise to pay attention
to what the FinCEN director is talking about," said Kevin Rosenberg,
a former federal prosecutor in Los Angeles. "Banks are years ahead
of casinos when it comes to anti-money laundering compliance. Now
it's the casinos' turn to step up."
But there are limits to how much banks should be expected to know
about the casino customers because casinos are either unwilling or
unable to hand over detailed information about individuals to
bankers, said one anti-money laundering executive at a large bank.
In addition to regulators' own actions, bank examiners are pressing
institutions they oversee to better manage the risk associated with
the casino-related transactions they process, compliance officers in
both industries said.
The anti-money laundering executive said his bank has forbidden
casinos from accepting transfers of large sums of money from
corporations or limited liability companies if the identity of the
person that controls the account is unknown. Owners of private
businesses and operators of junkets to Las Vegas commonly transfer
money from such entities to gamble, but they could also be used for
A spokesman for the American Gaming Association said in an email
that the industry group is currently developing a list of best
practices around anti-money laundering and "know your customer"
issues that it expects to have completed in the coming months.
An executive at another large U.S. bank whose clients include gaming
companies said that when the bank's compliance team comes through
Las Vegas, he sometimes arranges meetings between them and the
compliance staffs of different casinos. The meetings are an
opportunity to share know-how about what the latest money-laundering
threats are and how each side is updating systems and screening
transactions, said the executive. Powwows like these have been
encouraged by regulators, including FinCEN's Calvery.
Additionally, even though banks want to obey regulators’ directives,
they are reluctant to have too much oversight and validation
outsourced to them if it comes with having to assume legal liability
when something goes awry with casinos’ compliance programs.
"Banks don't want to be casinos' de facto regulators," said James
Dowling, the founder of Dowling Advisory Group, a consulting firm
specializing in regulatory compliance. "I think you'll get a lot of
pushback from the banking industry if they have to do that."
(Reporting by Peter Rudegeair and Brett Wolf in New York; editing by
Dan Wilchins, Lauren Tara LaCapra and John Pickering)
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