BSA / AML

Presented by

JOHN SEXSMITHVice President of FinanceFireKeepers Casino Hotel

AUDIENCE POLL – Who’s here?

• Risk Management?

• Insurance?

• Finance?

• Compliance / Internal Audit?

• Legal?

• Regulatory?

Who the **** is John Sexsmith??

Credentials:• CPA, CGA designation• Master of Science in Finance (MSF)• Bachelor of Commerce (B.Comm)

Experience:• 1999 – Started in casino industry at MotorCity Casino

o Internal Auditoro Responsible for training Title 31 / BSA requirementso Conducted BSA Compliance audits twice annually

• 2004 – Transferred to Finance Dept at MotorCity Casinoo Chaired Title 31 / BSA Committeeo “SURVIVED” IRS BSA Compliance examination

• 2010 – Moved to Finance Dept at FireKeepers Casinoo Chairperson Title 31 / BSA / AML Committeeo Responsible for policies, procedures, training, etc.o “WILL SURVIVE” another IRS BSA Compliance examination

GLOSSARY

• “Title 31”o Formerly 31 CFR Part 103o Now 31 CFR Chapter X (since March 1, 2011)

• “BSA” – Bank Secrecy Act (1970)• “AML” – Anti-Money Laundering

• “CTR” – Currency Transaction Report• “MTL” – Multiple Transactions Log• “MIL / NIL” – Monetary/Negotiable Instruments Log

• “SAR” – Suspicious Activity Report• “KYC” – Know Your Customer• “SOF” – Source of Funds• “CDD” – Customer Due Diligence

Money Laundering Defined

• concealing the source of illegally gotten money (thefreedictionary.com)

• the act of concealing the transformation of profits from illegal activities and corruption into ostensibly "legitimate" assets (Wikipedia)

• Money laundering is the process of making illegally-gained proceeds (i.e., "dirty money") appear legal (i.e., "clean"). Typically, it involves three steps: placement, layering, and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean". (U.S. Treasury Dept)

Money Laundering – $$How Much??

~ $300 Billion

Source: TheFreeDictionary.com

Money Laundering … is ILLEGAL

The Money Laundering Control Act of 1986 (Public Law 99-570) is a United States Act of Congress that made money laundering a federal crime.

• passed in 1986

• consists of two sections: 18 U.S.C. § 1956 and 18 U.S.C. § 1957

• first time that the United States criminalized money laundering

Question:

What are the “6 Pillars of Compliance”?

Answer:The “6 Pillars of Compliance”

The BSA and its implementing regulations require casinos to develop and implement written anti-money laundering (AML) programs reasonably designed to assure and monitor compliance with the BSA. AML programs must, at a minimum, provide for:

1. SYSTEM OF INTERNAL CONTROLS to assure ongoing compliance;2. INDEPENDENT TESTING of the casino’s AML program by casino personnel or parties

external to the card club; 3. TRAINING of personnel (ongoing); 4. the designation of an individual or individuals responsible for assuring day-to-day

compliance (COMPLIANCE OFFICER(s), SME);5. PROCEDURES FOR USING ALL AVAILABLE INFORMATION to determine:

a) name, address, SSN, and other identifying information; b) the occurrence of any transactions or patterns of transactions requiring an SAR;c) any record as described in subpart D - Records Required To Be Maintained By

Casinos and Card Clubs6. for CASINOS with automated data processing systems, use of such systems to aid in

assuring compliance (USE OF ELECTRONIC DATA).

AUDIENCE POLL – The “6th Pillar”

Any properties still doing BSA reporting in manual mode? (i.e. pen & paper MTL’s)?

Any properties without automated BSA filing system? (e.g. NEWave, Resort Advantage, EVERI Compliance)?

WARNING:As part of a BSA Compliance examination,

IRS WILL MINE YOUR PLAYER DATA!!(Customer Master Files, Table & Slot Rating Systems, Revenue Reporting Systems, etc.)

CONCLUSION: Programmed DATA ANALYTICAL TOOLS are MISSION CRITICAL!

Compliance Officer(s) = SME(s)

SME: Subject Matter Expert

FinCEN Advisory: FIN-2010-G003

Criteria for Assessing a BSA Compliance Program

A casino or card club may need to consider the following criteria, among others, when assessing its BSA compliance program:

• Compliance officer’s authority, responsibilities, and extent of control and effectiveness, as well as the expertise of the compliance staff;

• Effectiveness of a compliance committee (if established);

NIGC MICS Requirement:

§542.3(c)(2) – Tribal Internal Control Standards shall …Contain standards for currency transaction reporting that comply with 31 CFR part 103

Suspicious Activity Reporting (SAR) Criteria(Hint: “SIN”)

A transaction requires reporting if it involves or aggregates at least $5,000 and the casino knows, suspects, or has reason to suspect that the transaction (or pattern of transactions):

(i) Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity;

(ii) Is designed, whether through structuring or other means, to evade any (reporting) requirements of the Bank Secrecy Act;

(iii) Has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the casino knows of no reasonable explanation; or

(iv) Involves use of the casino to facilitate criminal (or terrorist) activity.

Note: SAR requirements for casinos became mandatory in 2002. Previously, “encouraged”.

Source: 31 CFR 1021.320 - Reports by casinos of suspicious transactions.

LV Sands Case – “Get Ye Gon”

• August 2013 – LV Sands agrees to $47 million “payment to avoid prosecution.”

• failure to report suspicious transactions by an alleged drug kingpin

• amount represents funds accepted by Sands on behalf of Zhenli Ye Gon, a native of China who was being held in the U.S. pending extradition to Mexico on drug trafficking charges, accused of importing chemicals from his native country to Mexico for methamphetamine production

• high-stakes gambler who lost more than $125 million between 2004 and 2007, including over $84 million at the Sands-owned Venetian in Las Vegas.

• suspect and his associates wired money from a number of different banks and currency exchange houses in Mexico to Sands accounts in the U.S.

• Prosecutors say the volume of Ye Gon's transfers and the vague sources of the funds should have raised red flags.

Source: various published reports

LV Sands Case – “Get Ye Gon” (cont’d)

"All companies, especially casinos, are now on notice that America's anti-money laundering laws apply to all people and every corporation, even if that company risks losing its most profitable customer."

~ U.S. Attorney André Birotte Jr.

id in a statement.

• DOJ acknowledged Sands' extensive cooperation and "voluntary and complete disclosure of the conduct." Also noted that “the company has since improved its internal compliance program.”

• Expected rule from FinCEN requiring casinos to vet gamblers’ source of funds.

Source: various published reports

Casino Industry: Meet Jennifer Shasky Calvery!(FinCEN Director’s prepared remarks for 2014 BSA Conference, Las Vegas, June 2014)

We often hear the refrain “just tell us what to do” when we explain why a risk-based approach to AML is needed. I can appreciate that a prescriptive yes-or-no/check-the-box exercise may seem easier. I can also appreciate that a risk-based approach can create some uncertainty.

Unfortunately, there is no one-size-fits-all approach to AML. Every financial institution – from its products, to its customers, to its internal procedures –is different. So every financial institution needs to consider its own products and practices and assess its own risks, to develop a program that works best for that financial institution to mitigate its particular risks.

Source: www.fincen.gov

Casino Industry: Meet Jennifer Shasky Calvery!(FinCEN Director’s prepared remarks for 2014 BSA Conference, Las Vegas, June 2014)

I recognize that casinos offer far more than financial services. Understandably, the entertainment component is a significant driving force behind the decisions your casino makes as a business.

But casinos are not simple cash intensive businesses. They are not arcades. They 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.

Source: www.fincen.gov

Casino Industry: Meet Jennifer Shasky Calvery!(FinCEN Director’s prepared remarks for 2014 BSA Conference, Las Vegas, June 2014)

Casinos have the same responsibility as more traditional financial institutions to file reports about certain financial transactions. For example, casinos need to report currency transactions by any person of more than $10,000 in cash each day (CTR).

In addition, casinos are required to report suspicious activity (SAR) when they know or have reason to suspect that a financial transaction, or attempted transaction:(i) involves funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity;(ii) is designed to evade regulations promulgated under the BSA, or(iii) lacks a business or apparent lawful purpose.

Source: www.fincen.gov

Casino Industry: Meet Jennifer Shasky Calvery!(FinCEN Director’s prepared remarks for 2014 BSA Conference, Las Vegas, June 2014)

Casinos invest heavily in sophisticated monitoring tools to track a wide range of customer activities and to understand their customers’ preferences.

These same kinds of monitoring and customer service capabilities can and should be leveraged for AML purposes.

I would ask those of you here today to think about the systems you already have in place and how you can adapt these systems so that you can use all available information to assess risk more effectively and improve monitoring on the AML side.

Source: www.fincen.gov

Casino Industry: Meet Jennifer Shasky Calvery!(FinCEN Director’s prepared remarks for 2014 BSA Conference, Las Vegas, June 2014)

Building upon the importance of a risk-based approach, I would like to clarify the obligations casinos have concerning the source of funds. I believe there may have been some confusion caused by recent press reports on this issue.

For example, one article stated, in part, that existing rules do not require casinos to “vet” the source of funds, and that rulemaking would be forthcoming to address this issue. That, however, is not entirely accurate.

Casinos are required to be aware of a customer’s source of funds under current AML requirements.

Source: www.fincen.gov

Casino Industry: Meet Jennifer Shasky Calvery!(FinCEN Director’s prepared remarks for 2014 BSA Conference, Las Vegas, June 2014)

Specifically, under existing regulations, a casino is required to develop and maintain a robust risk-based anti-money laundering program. In fact, the regulations explicitly state that casinos must implement reasonably-designed procedures for “using all available information to determine… the occurrence of any transactions or patterns of transactions required to be reported as suspicious.”

Among the various reporting and recordkeeping obligations imposed on casinos is the obligation to identify and report suspicious activity. Meeting this obligation relies largely upon

the casino’s ability to understand with whom it is doing business.

FinCEN expects that casinos, like other financial institutions, inquire about source of funds as appropriate under a risk-based approach.

Source: www.fincen.gov

Casino Industry: Meet Jennifer Shasky Calvery!(FinCEN Director’s prepared remarks for 2014 BSA Conference, Las Vegas, June 2014)

I want now to revisit the importance of a culture of compliance ... A strong culture of compliance within any institution is key to its ability to comply with the BSA. From purely a business side, you understandably want to be the casino that has the best reputation for catering to your guests. You pride yourself in knowing what kind of wine a high-roller drinks, or his or her favorite music. Your intelligence operations and the knowledge of your hosts, when it comes to pleasing your guests, are second to none.

You have a culture of hospitality and entertainment that enables you to grant every request a customer makes. To be sure, proper business etiquette suggests that the customer is always right – although that might be true in many things, it certainly isn’t true in everything. You could jeopardize your reputation and run afoul of the law in an effort to please your customer. A casino’s capability for knowing its customers’ preferences and credit information, combined with your security technology, can and should be leveraged to piece together relevant information to understand your customers’ source of funds.

Source: www.fincen.gov

MARIJUANA – still NOT Legal (federally)

• Federal regulation: Controlled Substances Act of 1970 – illegal under federal law to manufacture, distribute, or dispense marijuana.

• Cole Memo (August 2013) – 8 areas of focus for federal prosecutors and law enforcement:1. Preventing the distribution of marijuana to minors;2. Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels;3. Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;4. Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal

drugs or other illegal activity;5. Preventing violence and the use of firearms in the cultivation and distribution of marijuana;6. Preventing drugged driving and the exacerbation of other adverse public health consequences associated with

marijuana use;7. Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers

posed by marijuana production on public lands; and8. Preventing marijuana possession or use on federal property.

• Cole Memo rescinded – January 4, 2018

• FinCEN Guidance – FIN-2014-G001 (Feb 2014) provides for 3 types of SARs: “MARIJUANA LIMITED”; “MARIJUANA PRIORITY”; and “MARIJUANA TERMINATION”

• Question: Filing MARIJUANA LIMITED SAR = complicit in money laundering activity?

ENFORCEMENT ACTIONS – $hame!!

Enforcement Action DateMatter

Number Penalty Amount

In the Matter of Artichoke Joe’s, a California Corporation d/b/a Artichoke Joe’s Casino

05/03/2018 2018-02 $8 million

In the Matter of Artichoke Joe's Casino [UPDATED, See #2018-02] 11/17/2017 2017-05 $8 million

In the Matter of CG Technology, L.P. f/k/a Cantor G&W (Nevada), L.P. d/b/a Cantor Gaming

10/03/2016 2016-05 $12 million

In the Matter of Hawaiian Gardens Casino, Inc. d/b/a The Gardens Casino 07/15/2016 2016-04 $2.8 million

In the Matter of Sparks Nugget, Inc., d/b/a John Ascuaga’s Nugget 04/05/2016 2016-03 $1 million

In the Matter of Oaks Card Club d/b/a Oaks Club 12/17/2015 2015-11 $650,000

In the Matter of Desert Palace, Inc. d/b/a Caesars Palace 09/08/2015 2015-10 $8 million

In the Matter of Hong Kong Entertainment (Overseas) Investments, Ltd., d/b/a Tinian Dynasty Hotel & Casino

06/03/2015 2015-07 $75 million

In the Matter of Trump Taj Mahal Casino Resort 03/06/2015 2015-02 $10 million

In the Matter of George Que 08/20/2014 2014-05 $5,000 + BANNED!!

Source: www.fincen.gov

”If you think compliance is expensive, try non-compliance.”

Paul McNulty, U.S. Deputy Attorney General, June 2009

OTHER STUFF

• Individual Liability (e.g. George Que)

• Enforcement Actions require ADMISSION OF GUILT (no pleas of “NO CONTEST”)

• Crypto Currency

• Insurance policies as vehicles to launder money

• Chip Walking

• Follow-up SAR’s – expected ~ 90 days after original filing; ISSUE – how many is too many?

• Banks as “de facto regulators” (e.g. Hawaiian Gardens; also consider case of U.S. Bank)

U.S. Bank – can’t handle the alerts!!

MONEY SUPPLY How much is physical currency?

Source: www.federalreserve.gov

MONE/ CURRENCY SUPPLY - Articles

• … by all accounts, domestic consumers are holding about 44 percent of currency in circulation. And, yet, they only admit to holding 5 to 10 percent. That leaves more than one third of all US currency in circulation unaccounted for. Rogoff implies that the difference between what is being held by consumers (44 percent) and what is admitted to being held by consumers in surveys (5 to 10 percent) is a reasonable estimate of the share of cash employed to buy and sell illegal goods and services and/or evade taxes. In other words, more than a third of all US currency in circulation is used by criminals and tax cheats. www.aier.org/article/sound-money-project/how-much-cash-used-criminals-and-tax-cheats

trillion underground economy, however, doesn’t seem ready to part with cash. In fact, • there is some evidence that the money supply is growing. A 2002 International Monetary Fund

column cites the amount of paper currency held by the public as over “$620 billion, or roughly $2,200 for every man, woman, and child.” An article published by economist Reza Varjavand in 2011 claims that number rose to $3,000 as part of a long term trend of increased demand for cash. https://priceonomics.com/why-crime-needs-cash/

• U.S. officials have said the $100 note is the most frequently counterfeited denomination of U.S. currency outside the United States due to its broad circulation overseas. In the United States, the $20 bill is the most frequently counterfeited note. https://www.reuters.com/article/us-usa-currency/u-s-fed-ships-new-100-bills-with-anti-counterfeit-features

Questions?

FinCEN’s Regulatory Helpline: (800) 949-2732website: www.fincen.gov