Executives of regulated entities often lament that fulfilling compliance obligations interferes with their ability to operate their business. However, an extensive (and extended) regulator investigation with the potential for civil and / or criminal penalties can present an even greater obstacle to running a business.

Trends over the last year in the gaming industry suggest that Title 31 compliance remains a key focus of the industry’s primary federal regulator, the Financial Crimes Enforcement Network (FinCEN). As a result, executives tasked with compliance at financial institutions such as casinos should be mindful of recent events that, taken together, may warrant a fresh look at the anti-money laundering (AML) compliance program currently in place.

Remarks of FinCEN Director. Nearly one year after DOJ entered into a non-prosecution agreement (NPA) with Las Vegas Sands Corporation stemming from its failure to file suspicious activity reports – casinos (SARCs), in June 2014 FinCEN Director Jennifer Shasky Calvery delivered remarks at the 2014 Bank Secrecy Act conference. Among her remarks, she urged casinos to “continue their progress in thinking more like other financial institutions to identify AML risks.” She emphasized the need for casinos to “embrac[e] a risk-based approach to anti-money laundering (AML) efforts,” in part through customer due diligence efforts and awareness of their source of funds. In her concluding remarks, Director Shasky Calvery said, “We are counting on you to control for [money laundering and terrorist financing] risks.”

FinCEN Advisory (Culture of Compliance). In August 2014, FinCEN issued an advisory seeking “to highlight the importance of a strong culture of BSA/AML compliance for senior management, leadership and owners of all financial institutions subject to FinCEN’s regulations.” To encourage a culture of compliance, FinCEN recommends that: (1) leadership be engaged, (2) compliance not be compromised by revenue interests, (3) information be shared throughout the organization, (4) leadership dedicate adequate human and technological resources to its Bank Secrecy Act (BSA)/AML compliance efforts, and (5) an AML program be effective and tested by an independent and competent party (FIN-2014-A007).

AGA Best Practices. In response to the heightened emphasis on casinos as “financial institutions”, in December 2014 the American Gaming Association (AGA) published its Best Practices for Anti-Money Laundering Compliance. The AGA described the document as “an attempt to distill the practices” that casinos and Internet gaming sites have adopted to meet their Title 31 obligations, with the goal of providing “a resource for industry and law enforcement to help guide their efforts to protect the gaming industry . . . from money launderers and others involved in illegal activity.” The AGA made these guidelines available to all gaming entities, not just AGA members or those members that contributed to this effort.

FinCEN Guidance. Also in December 2014 (on the eve of the Super Bowl, no less), FinCEN responded to a letter from the president and CEO of the AGA regarding sports betting. In the response, FinCEN reminded casinos of their obligation to identify third parties to transactions in currency transaction reports (CTRs) and, if applicable, in SARCs. FinCEN cautioned that the “failure to identify a third party on whose behalf a transaction is conducted” – including wagering activity – “may constitute a violation of the casinos’ recordkeeping and reporting obligations under the BSA.” The AGA, in January 2015, announced that it “welcomes continued guidance from FinCEN to protect against attempts to use casinos for money laundering and illicit financing.”

Trump Enforcement Action. In early 2015, Trump Taj Mahal (Trump), entered into a Consent Order, carrying a $10 million civil penalty, with FinCEN for willful violations of BSA requirements. These included Trump’s failure to: (1) implement and maintain an effective AML program; (2) report suspicious activity; (3) properly file CTRs; and (4) maintain adequate records. In several instances, the conduct cited in the Consent Order had been identified previously by regulators in examinations; however, Trump failed to implement adequate corrective measures.

Significantly Increased SARC Filings. FinCEN recently released its updated “SAR Stats” for financial institutions, including casinos. The statistics reveal the same trend we have seen over the past two years: dramatic increases in the number of SARCs filed. For January, February and March 2015, there were 26.6%, 29.3%, and 17.0% increases, respectively, over the previous year’s comparable months. For the three years ended March 31, 2015, the most common suspicious activity types were: (1) minimal gaming with large transactions; (2) altering transactions to avoid CTR threshold; (3) structuring (other); (4) multiple transactions below CTR threshold; (5) refusing or avoiding request for documentation; (6) suspicion concerning source of funds; and (7) suspicious use of EFT / wire transfers. These categories accounted for nearly 60% of all SARCs filed.

The above developments reflect the continued evolution of the view of casinos – most importantly in the eyes of their regulator, FinCEN – less as entertainment venues and more as traditional financial institutions subject to the obligations imposed by the BSA and its implementing regulations under Title 31. These developments also reflect efforts by casinos to increase their compliance efforts. Coming in such a compressed time period, gaming entities still have an opportunity to reexamine their BSA / AML compliance programs, perhaps through the independent testing contemplated by the regulations and recent FinCEN guidance. Such testing alone may indicate to the regulator a commitment to a culture of compliance; it also may identify gaps and offer an opportunity to close them prior to a regular FinCEN examination. McGuireWoods attorneys have experience with casino AML guidance and are happy to discuss the current (and rapidly evolving) regulatory environment.