Questions about complying with Title 31? Joel Haaser. Related Industries. Public Sector. Related Services. Source of Funds Another important facet of your Title 31 program is identifying sources of funds to help detect and prevent money laundering. Alert Feb 24, Alert Jan 21, Alert Jan 15, Alert Dec 29, Article Dec 02, Alert Nov 16, These types of arrangements create an enticing method for criminals to move illicit funds to or through casinos or card clubs and their use should raise a red flag for compliance officers: You need to know the beneficial owners of those funds.
A casino or card club may need to look at other factors, such as whether the customer is from a high-risk jurisdiction with poor AML controls, or is a politically exposed person from a country with significant public corruption. These are all indicators that will help a casino or card club in truly knowing its customers and ensuring proper BSA compliance. Despite the elevated risks present in these salons, Caesars failed to apply appropriate AML scrutiny, thus allowing some of the riskiest financial transactions to go unreported.
Furthermore, Caesars marketed these salons through branch offices in the U. Caesars made the effort to identify and entice these customers to travel across the world to come gamble at their institution, but, when it came time to compliance with its legal BSA requirements, Caesars looked in the other direction. Therefore, we urge you, as leaders of the gaming industry, to take prudent steps to know who you customers are, even and perhaps especially those who may be the beneficial owners of legal entities.
For example, if one branch identifies potentially suspicious activity related to a customer, compliance personnel at other branches should be alerted to this activity. Along those same lines, U. This is especially important for transfers between a U. Simply because funds are moved between affiliated casino accounts does not excuse the U. This may sound straightforward in principle, but we have seen that it is all too often not implemented in practice. Let me pause here to emphasize this point.
By partnering with regulators and law enforcement, your institutions will be better positioned to detect and address illicit activity. This requires institutions to play a more proactive role that goes beyond simply filing SARs and cooperating with grand jury subpoenas. Take advantage of the opportunity at this conference to get to know some of the law enforcement representatives who work on these issues. Then, if in your work you identify significant suspicious activity, you have a name and a phone number that you can call in law enforcement in addition to filing a SAR.
By consulting with law enforcement upon discovery of suspicious activity, an institution may be able to avoid taking actions that unintentionally harm a criminal investigation or benefit the criminal. For example, when an institution unilaterally terminates a relationship with a suspicious customer, that termination might prompt the criminal to move and hide his illicit funds elsewhere. But, if you reach out to law enforcement proactively, there are a number of steps we might wish to take depending on the nature of what you have identified.
Maybe we will ask you to leave the casino account open so we can monitor the activity. Maybe we will seek a restraining order or a seizure warrant from a judge to give us time to gather more evidence.
While FinCEN has been very active on this front in the last two years, make no mistake, the DOJ will pursue criminal charges and penalties against any financial institution—including casinos and card clubs—that willfully violates the BSA. We expect you, as members of the financial community, to take compliance risk at least as seriously as you take other business-related risks.
The Department is keenly aware of the unique compliance challenges faced by casinos and card clubs. You represent an industry that is primarily focused on providing entertainment to its customer base, with financial services being a complementary element of your business model. Nevertheless, because you do offer those financial services to your customers, you have taken on a great responsibility in the fight against illicit finance.
As a result, I strongly encourage each of you to take the opportunity— both today and once you return to your respective offices—to reflect on whether your institutions have effective AML programs and other compliance policies and practices to prevent or mitigate financial crime.
All of us here today share the goal of ensuring a financial system free from illicit proceeds and criminal abuse. I am grateful for the opportunity to speak with you today, and am confident that this forum will prompt meaningful discussion regarding these important issues.
Thank you. That concludes my prepared remarks. Good morning. I would like to thank Mindy for the very kind introduction, as well as Jim Dowling, who invited me to speak today. I want to also thank every one of you who are on the front lines of BSA compliance. Casinos and card clubs play a critical role in keeping our financial system safe from potential money laundering and terrorist finance.
The high level of attendance at this conference and the questions you have raised tells me that the casino industry continues to show a strong interest in developing a deeper understanding about these issues. And, I am very happy to be a part of the discussion. Let me next provide a brief overview of FinCEN, for those of you who might not be as familiar with our role. As you are aware, FinCEN has had some recent changes in its senior management with the departure my predecessor, Stephanie Brooker, in April of this year, followed by our director, Jennifer Shasky Calvery, at the end of May.
And, I can assure you that we are continuing our work while we await the announcement of a new director. I can also assure you, that for at least the Enforcement Division, we will continue to follow the same trajectory with respect to our priorities and practices. With approximately employees, we are relatively small considering our broad responsibilities.
Our mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities. Some of the threats we are focusing on at FinCEN include Mexican drug trafficking organizations, transnational criminal organizations, frauds against U. These are serious threats to the United States, our people, our businesses, and our communities.
The BSA provides FinCEN with broad supervisory and enforcement authority, allowing FinCEN to impose civil penalties not only against domestic financial institutions, but also against partners, directors, officers, and employees of such entities who themselves participate in misconduct.
We do consider potential individual liability. We also have the authority to obtain injunctions against institutions, as well as individuals, that we believe are involved in violations of the BSA. In our BSA oversight role, we, of course, focus on compliance in all our regulated industry sectors. Since joining FinCEN a little over two years ago, I have gained a deeper understanding of the relevant perspectives and equities that exist across diverse financial sectors.
FinCEN is in a novel position as a regulator. It must vigorously enforce the rules that financial institutions such as casinos and card clubs are required to follow to guard against money laundering, terrorist finance, and other financial crime. However, FinCEN must also work in partnership with these same financial institutions. In fact, the BSA was created to protect the integrity of the U. Public-private partnerships are increasingly important for FinCEN to succeed in its mission, so I hope to impart the value of proactive engagement with the casino industry to combat illicit financial activity.
Due to their cash intensive nature, casinos and card clubs have historically been susceptible to abuse by certain criminal actors. That type of vulnerability requires significant resources from your institutions to combat threats posed by those who seek to exploit your businesses for illicit purposes. Now, before I get too far into this presentation, I want to recognize the obvious: casinos and card clubs, like other financial institutions, are increasingly spending time and money to comply with the BSA.
And, FinCEN is committed to working with you to maximize our ability to be effective partners. And, while I suspect you may not have all of your questions answered by the end of my presentation, I hope to at least take a few steps towards enhancing your understanding. My goal today is to 1 provide a brief overview of a few of our recent enforcement actions; 2 dispel certain myths or misconceptions about the filing of Suspicious Activity Reports SARs ; 3 help you to appreciate the immense value of your work to FinCEN and law enforcement; and 4 give you some insight into our regulatory enforcement process by outlining some of the factors we consider in determining the amount of our civil money penalties.
As my colleagues have stated in prior remarks, we hope that our enforcement actions will not only bring violators into compliance, but will also serve to educate financial institutions and the public. FinCEN takes great care to ensure transparency in our rationale and clearly articulate the facts underlying our actions in our assessments. If you look at our past enforcement actions, and review the facts, you will clearly see why FinCEN took actions in these cases.
Several failures at the casino caused systemic and severe AML compliance deficiencies. These salons were marketed through branch offices in the U. This was a significant action not just for the nature and scale of the violations, but also due to terms by which the case was resolved. FinCEN has been committed to ensuring that financial institutions violating the BSA rectify their deficiencies and improve their compliance.
This strikes at the heart of the theme of this conference, and one of the themes that FinCEN has been emphasizing for years: culture of compliance. Culture of compliance was also an important theme of an assessment that we issued in April Management repeatedly ignored their compliance officer, and failed to use all available information it collected on its customers to assist with completing its BSA filing obligations, which resulted in repeated failures to file currency transaction reports CTRs and SARs.
Nor can compliance merely exist on paper; for instance, this institution had a SAR review committee, but it never met. Now, I recognize that there may be different views among compliance officers on whether or not to have a SAR review committee. But, if you choose to go that route, I strongly suggest ensuring members are at least notified that they are on the committee.
They should not learn about it the first time from the IRS. These facts, among others, demonstrate that a culture of compliance was clearly lacking for this casino. First, it highlighted the importance of KYC: knowing your customers.
It is imperative that policies and procedures are in place to assist with knowing your customer and meeting your reporting and recordkeeping requirements. The assessment against this card club also stressed the importance of how customers who engage in suspicious activity should be handled by a casino. It highlighted an unknown customer on whom there were 15 SARs filed, and who refused to provide identification on multiple occasions.
Nevertheless, this customer was allowed to continue to gamble there without any additional due diligence or further action taken by the card club—despite an independent test that made this very recommendation. This card club put profits before compliance—but it ultimately cost them. Further, this action also demonstrated the importance of filing quality SARs. The card club in this case would file numerous SARs on customers, but none of these SARs indicated or reflected the fact that the customers in question were prior subjects of SARs or identified patterns of suspicious activity.
This requirement plays a critical role in providing law enforcement with the information they need—which the BSA expressly states as one of the underlying purposes of the SAR provisions. Finally, the action we took in this case continued our practice of establishing a remedial framework to help rectify the deficiencies highlighted in our assessment. BSA reports filed by our financial institutions, including casinos and card clubs, provide some of the most important information available to law enforcement and other agencies safeguarding the United States.
While, as I have said, there are notable advancements in SAR filings by the gaming industry, there are still challenges we are working to overcome. I can understand the origin of this myth. Everyone wants to know and be sure that their SAR filings are serving their purpose; assisting law enforcement investigations and stopping illicit behavior. There are certainly important reasons for some of the silence on this: SAR confidentiality, law enforcement sensitivities, intelligence concerns, among other reasons all can make it difficult to give feedback on specific filings by financial institutions.
Not every SAR results in a criminal prosecution. Now, in my role at FinCEN, I see how important our partner regulators and stakeholders also view this data. Taken together, BSA data includes nearly million records and there are around 55, added each day. The reporting contributes critical information that is routinely analyzed, resulting in the identification of suspected criminal and terrorist finance activity and the initiation of investigations. Domestically, FinCEN grants more than 10, agents, analysts, and investigative personnel from over unique federal, state, and local agencies across the United States with direct access to the reporting.
There are approximately 30, searches of the BSA data taking place each day. In addition, more than SAR review teams and financial crimes task forces across the country bring together prosecutors and investigators from different agencies to review BSA reporting related to their geographic area of responsibility and insatiate investigations.
Every day, we see the BSA data being used by our law enforcement partners. For specific examples of the significant role casino SARs play in law enforcement investigations, I would invite you to look at our recent Law Enforcement Awards Ceremony.
This ceremony took place in May at the Treasury Department headquarters next to the White House, and a representative of the American Gaming Association participated. BSA reports from multiple financial institution—including casinos—identified the perpetrator of the scheme, and noted an increase in cash transactions in his personal accounts. Investigators used the information provided by the reporting financial institutions to uncover the full magnitude of the scheme and to successfully prosecute the perpetrator.
Ultimately, the perpetrator pled guilty to federal charges of money laundering, and wire and mail fraud, and was sentenced to several years of imprisonment and ordered to pay hundreds of thousands of dollars in restitution. Other examples of where BSA filings contributed to a successful U. Internationally, FinCEN also facilitates the sharing of information for criminal and terrorism investigations on both a bilateral and multilateral basis through the Egmont Group of Financial Intelligence Units.
The Egmont Group, currently comprised of over member jurisdictions, provides an unparalleled, preexisting platform for the secure exchange of financial intelligence. In response to some recent world events, FinCEN has been called upon to provide any relevant BSA data it has received from financial institutions. This is a common myth across all financial sectors. And, I think this myth may stem from not fully appreciating or understanding how valuable a complete and accurately filed SAR can be in an investigation.
What does this mean for your SAR filed on a low-dollar amount transaction? Well, regardless of the amount, the reporting aids in expanding the scope of ongoing investigations by pointing to the identities of previously unknown subjects, exposing accounts and hidden financial relationships, or revealing other information such as common addresses or phone numbers that connect seemingly unrelated participants in a criminal or terrorist organization and, in some cases, even confirming the location of suspects.
The reporting—even of transactions involving low dollar amounts—has served to unmask relationships between illicit actors and their financing networks, enabling law enforcement to target the underlying conduct of concern, and to disrupt their ability to operate. Your filing may just be the source of a missing piece of information that is needed in an investigation. Law enforcement also uses the reporting to identify significant relationships, patterns, and trends.
Your filings contribute to a more comprehensive picture that informs our understanding and analysis of criminal typologies. FinCEN includes an Intelligence Division that uses SARs and other reports to conduct strategic analysis to identify new trends and emerging threats in illicit finance.
It assesses AML compliance across industries, identifying new illicit finance trends and developing typologies for illicit activity. We hear this one a lot. But this requirement goes beyond a speech given by FinCEN—the regulations themselves support this statement. Casinos and card clubs are required to develop and maintain a robust risk-based AML program. It is a voluntary program that can assist in helping casinos and card clubs obtain missing information to meet their regulatory obligations.
Section b provides a safe harbor that offers protections from liability. When a financial institution notifies FinCEN of its intention to participate in this information sharing program, FinCEN first validates the registration. Once approved, the financial institution is provided access to the most current list of b participants, which is used by the financial institution to validate that they are sharing with a legitimate participant. Additional information about the b program can be found on the FinCEN web site.
Obviously, an effective AML system cannot work like that. Similarly, some financial institutions hold on to the myth that their AML program should be based on their risk appetite or risk tolerance. This view may be compounded by the misperception that SAR filings can be proportionally based on the size of an AML program. These related myths are also contradicted by the rule [31 CFR So if you have a reason to suspect it, then you are required to file.
It is that simple. Decisions are not always clear-cut. However, I must emphasize financial institutions like yours and those of your clients must have appropriate risk-based AML programs in place. That concludes my attempt to dispel four common myths about SAR filing. I can step off my soap-box for a moment. Because—the good news is that the casino and card club industry has improved their filing of SARs over the past several years.