As disclosed recently in a bankruptcy court filing, on January 27, 2015, the Financial Crimes Enforcement Network (“FinCEN”) imposed a $10 million civil money penalty pursuant to the Bank Secrecy Act (the “BSA”) on Trump Taj Mahal Associates LLC. Trump Taj Mahal consented to the imposition of the penalty (subject to the bankruptcy court’s approval) and admitted that its conduct violated the BSA. This $10 million penalty, reported to be the largest BSA penalty ever imposed upon a casino, highlights the government’s ongoing focus on the gaming industry.
The BSA requires financial institutions, which include casinos, to establish and implement policies to detect and prevent money laundering. Casinos must implement anti-money laundering (“AML”) programs that require, among other things, the creation of internal controls to ensure compliance with the BSA, independent testing of their AML programs, AML training for personnel, the designation of individuals responsible for AML compliance, and the implementation of procedures to identify suspicious transactions and determine whether records must be made or maintained under the BSA. Trump Taj Mahal admitted that it failed to implement such an AML program.
With respect to these failures, Trump Taj Mahal admitted that its violations were “willful,” as that term is used in civil enforcement of the BSA. Trump Taj Mahal did not admit that it knew that its conduct violated the BSA or that it otherwise acted with an improper motive or bad purpose. Instead, the casino acknowledged that it acted with either reckless disregard or willful blindness.
The settlement proposes to treat the $10 million penalty as an unsecured claim in the Trump Taj Mahal bankruptcy case. Under the Bankruptcy Code, certain penalties assessed by the government are to be accorded “priority,” to be paid before general unsecured creditors. Based on current law, the penalty assessed for a BSA violation does not fall within the priority treatment, and any payment of the penalty would be based on a pro-rata distribution to general unsecured creditors. Notably, a criminal penalty assessed for a violation that occurred during the pendency of a bankruptcy (unlike the civil penalty here) might be treated as having priority by certain courts, but not all courts. Courts that deny priority to a penalty do so to enhance recovery for all creditors.
Recent enforcement actions against others in the gaming industry, as well as FinCEN Director Jennifer Shasky Calvery’s recent speeches cautioning casinos not to let the entertainment component of their business color their view of their AML obligations, suggest that the industry will remain under FinCEN’s scrutiny for the near future. As Director Shasky Calvery noted in June 2014, casinos are “complex financial institutions with intricate operations that extend credit, and that conduct millions of dollars of transactions every day. They cater to millions of customers with their bets, markers, and redemptions. And casinos must continue their progress in thinking more like other financial institutions to identify AML risks.”*