Developing and maintaining a culture of compliance has not been “top of mind” in the casino industry. The question is, “why?” If we look to the past, we will find the answer. The casino industry has some roots in organized crime where transparency and assisting the government in their efforts to deter crime and identify suspects was not considered a virtue. While this is no longer the case, there are still those that wished they could gamble with the freedom of not having their activities reported to the government. Consequently, it is with this backdrop that casinos, at times, struggle with establishing a culture of compliance.
Changing the culture in any major industry is a challenge and the gaming industry is no different. The American Gaming Association estimates that there are over 1,000 casinos (commercial and tribal) and card clubs operating in the U.S. generating over $60 billion in revenue.1 Pivoting its culture to one of transparency and government assistance will take time. However, the clock is ticking. One of the primary purposes of the Bank Secrecy Act (BSA) is to solicit the assistance of financial institutions, including casinos, in the identification of those involved in potential illicit activity. The recent increase in the number of casino enforcement actions by the government indicates a concerted effort by regulators and law enforcement to ensure casinos are in compliance with the BSA.
In order to change the culture in any organization it begins at the top with its leadership. Consistent with the advisory issued by the Financial Crimes Enforcement Network (FinCEN) in August 2014,2 and reinforced to the casino industry in October 2016,3 the following is a suggested approach for casinos in building a culture of compliance.
Leadership Compliance Efforts
Leadership needs to understand why the BSA covers casinos. An excerpt from a congressional hearing leading up to the 1985 Final Rule classifying casinos as financial institutions provides some insight: “[T]he use of casinos by drug traffickers for money laundering processes is clearly based upon the fact that financial transactions by casinos are not subject to the reporting and the record keeping requirements of the Bank Secrecy Act.”4
For a good reason, casinos were brought under the “BSA umbrella” but an organization’s leadership—to fully appreciate compliance efforts—needs to have a working understanding of how it functions. This means that the leadership from executives to managers needs to be engaged in the work of the BSA officer. They cannot discount it as a collateral administrative function. They need to understand that an ineffective Bank Secrecy Act/anti-money laundering (BSA/AML) program can have severe consequences to the organization, including civil and criminal penalties, as well as, reputational harm.
The first step is for leadership to support compliance by providing it a “seat at the table.” Some casinos place BSA compliance functions within their accounting departments and have the BSA officer reporting to a controller, chief financial officer, or other similar positions. This type of reporting structure will generally exclude the BSA officer from executive-level meetings. They would have to rely on others to deliver the “BSA message” to the senior leadership. Placing the BSA officer at senior level status provides concrete action of a casino’s commitment to compliance.
Creating an effective governance structure is another aspect of how the organization’s leadership can show their support. There should be a board-level committee that oversees the work of the BSA compliance function. This committee should meet at least quarterly and review reports from the BSA officer on the status of the program. This would include topics, such as the approval of written BSA/AML program policy, risk assessment, the result of audits and independent testing, regulatory reporting and other BSA/AML issues that merit a policy discussion.
For casinos, a suspicious activity report (SAR) working group should also be considered at the management level. The purpose of the working group is to discuss suspicious activity to enhance identification and the reporting of unusual activity to compliance.
BSA/AML Deficiencies and Risks
The BSA officer’s primary responsibilities should be ensuring day-to-day compliance with the BSA. They may have other responsibilities, but they should not create a conflict or interfere with his/her ability to effectively manage the BSA/AML program.
A BSA officer should have the authority to make critical compliance decisions without being overruled or worrying about the adverse revenue impact. This means having the authority to decide issues including, but not limited, to:
- Filing SARs;
- Excluding patrons from the casino based on money laundering risk;5
- Requiring AML training of staff;
- Engaging a qualified person(s) to conduct independent testing; and
- Implementing a system of internal controls necessary to comply with the BSA.
It is not suggested that a BSA officer have unfettered authority to impose their will. The executive board that oversees BSA compliance should question or challenge a BSA officer’s decisions, particularly on policy that seems unreasonable.
Relevant information from the various departments within the organization should be shared with compliance staff to further BSA/AML efforts. Casinos have a tendency to not share information with other casinos. Although this may be understandable, there is also a lack of internal sharing. As marketing departments design their strategy and tactics to generate revenue, they rarely view compliance personnel as part of the “inner circle.” Unfortunately, this creates a “silo culture.” Without knowledge of new products and financial services, a BSA officer is unable to assess the money laundering risk. It also undermines their ability to comply with the regulations requiring that all available information be used to identify patrons, detect and report suspicious activity.6
Having a senior-level BSA officer helps break down the “silo” effect by providing them direct access to the decision-makers of the organization where marketing strategies are developed and future plans are unveiled. The BSA officer needs to be at the ground level of these discussions in order to assess the money laundering risks and implement controls. If not, it could result in taking on unnecessary risk. Compliance personnel must also have access to a variety of casino information systems beyond the multiple transaction log or negotiable instrument log. The following are examples of what may be considered “all available information”:
- Player card information
- Front money account information
- Credit application data and marker information
- Casino hosts notes relating to patrons
- Marketing data
- Patron ratings data
- Slot machine data
- Surveillance reports
The main point to consider is that if the information is available and would be useful for compliance purposes, compliance personnel should have access to it.
The organization should provide adequate resources to its compliance function. For many years, banks have been using AML software platforms to meet regulatory expectations in the area of suspicious transaction monitoring. Unfortunately, casinos lag behind in this area. Some view the technology solutions as cost prohibited. For casinos using automation, there is a regulatory requirement.7 FinCEN further highlighted this automation expectation in an enforcement action stating “[Casino] harnessed its software systems...to gather large amounts of information about its customers. [This] information provided better personalized customer services to its patrons….Yet, [the casino] failed to use this same information to develop risk-based policies and procedures to assess and minimize AML risks.”8
As with technology, some casinos are lacking qualified staff to adequately ensure compliance with the BSA. Similar to operating a business without insurance, the lack of staff can pose a very costly risk to a casino. While labor is one of the largest expenses, senior leadership must understand and support the need for adequate staffing.
To this end, the BSA officer should develop a resource plan by assessing the current staffing situation. This assessment should take into consideration staff experience, expertise needed, the size of the casino, work volume and complexity. In other words, the BSA officer needs to justify to senior leadership specific hiring needs.
The compliance program should be effective and tested by an independent and competent third party. Past practice, particularly in the tribal casino area, has been to use financial or gaming commission auditors to conduct independent testing. Arguably, there may be independence issues associated with these auditors, but the secondary issue that frequently arises is whether they have the experience and expertise to conduct the testing. An internal audit function can perform the testing so long as they are independent and qualified.
If there is a need to go outside the organization to retain a qualified firm, senior leadership should understand that the added cost is money well spent. Aside from the fact that independent testing is a regulatory requirement, the results will provide senior leadership an unbiased view on the health of the program. Moreover, testing results provide management the keys to improving the program prior to an Internal Revenue Service BSA examination.
The Purpose of BSA/AML Efforts
Leadership and staff should understand the purpose of its BSA/AML efforts and how its reporting is used. This prong of FinCEN’s Advisory recommends that leadership and staff at all levels understand the purpose of BSA reports and how the information is used. The challenge is how to effectively make this happen. The BSA officer may want to consider disseminating the information in the following components:
- New employee orientation
- AML training
- BSA oversight committee meetings
- Executive staff meetings
- Manager training/meetings
- Creation of BSA/AML quick reference guide
- Creation of periodic BSA/AML newsletter
- Internal BSA compliance Intranet
FinCEN’s website provides a wealth of information on BSA reports and how the information is utilized by regulators and law enforcement. Accordingly, the challenge is simply effective dissemination.
A strong culture of compliance is key to any financial institution’s ability to comply with the BSA. An organization’s top leadership must set such “culture.” When it comes from the top, the rest will follow.
- American Gaming Association, “2016 State of States: The AGA Survey of the Casino Industry,” pp. 7-8.
- FIN-2014-A007, “Advisory to U.S. Financial Institutions on Promoting a Culture of Compliance,” August 11, 2014.
- Treasury Blog, “Culture of Compliance and Casinos,” Jamal El-Hindi, Acting Director, FinCEN, October 3, 2016.
- Hearing before the Subcommittee on Crime of the Committee on the Judiciary House of Representatives, Use of Casinos to Launder the Proceeds of Drug Trafficking and Organized Crime at 40, February 10, 1984.
- The use of the term “money laundering” also refers to terrorist financing and other illicit activities.
- 31 C.F.R. § 1021.210(b)(2)(v)
- 31 C.F.R. §1021.210(b)(2)(vi)
- In the Matter of: Sparks Nugget, Inc., No. 2016-03, p.3, April 5, 2016.