GamblingCompliance: IRS Criminal Chief Expresses ‘Keen Interest’ In Gaming Industry


The head of the Internal Revenue Service Criminal Investigation unit recently warned casino executives that the gaming industry is one of the very few that the agency has a “keen interest in at all levels,” and that law enforcement could be watching them.

“So, I would encourage you to make sure that the business side of your casino takes AML controls just as seriously as its other threats,” Don Fort, the recently appointed chief of criminal investigations with the IRS, said in remarks prepared for an AML conference in Las Vegas.

Fort admitted there were a “variety of customers and (a) breadth of transactions” in the gaming business.

Fort said many of those customers are legitimate, hard working people just trying to hit it big in Las Vegas. But others, he said, may be trying to hide and conceal illicit proceeds or violate bank secrecy laws, and even various tax crimes.

All of these potential violations, he said, intersect with our primary jurisdiction that includes tax, money laundering and Bank Secrecy Act (BSA).

“First and foremost … we are a tax agency,” Fort reminded conference attendees last week. “We take this very seriously. What we do in investigating and recommending cases for prosecution to the (U.S.) Department of Justice is crucial.”

Fort cautioned attendees that it is extremely important for the casino industry to understand and embrace a risk-based approach to anti-money laundering compliance.

“Casinos are not strangers to the concept of risk,” he said. “You calculate the risk of losing money as part of your business operations every day. You safeguard yourselves from cheating and theft.”

“I would encourage you to make sure that the business side of your casino takes AML controls just as seriously as its other threats,” Fort said.

Fort was the keynote speaker on August 16 at the 2017 National Title 31 Suspicious Activity & Risk Assessment Conference and Expo held at the Cosmopolitan of Las Vegas.

Casinos and card clubs have been required to comply with reporting requirements of the BSA for many years and since 2001 have been obligated to implement formal AML policies.

But recent years have seen a notable increase in federal enforcement activity for AML lapses, with at least seven actions brought against licensed gaming operators since the beginning of 2015.

Fort educated conference attendees as to how his investigators build a criminal case against a casino.

He said the IRS uses special investigative techniques and data analytics tools to look for evidence that demonstrates willful actions to avoid regulatory requirements.

In a typical case, evidence may include communications between employees and senior leaders and with patrons that are well-know to the property.

Fort’s also suggested a simple step to avoid a criminal case: casino employees should be made to understand that “law enforcement could be watching.”

So what can casinos do to better protect themselves from enforcement risks?

Fort said it starts with providing a thorough, detailed narrative in suspicious activity reports (SARs) to assist the IRS and other federal agencies, including the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of Treasury.

Then 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.”

According to federal regulations, a compliant risk-based program should pay attention to five specific factors: customers’ source of funds; customer due diligence; international money transfers; pass through activity; and third-party transactions.

“But the most important of all is to create a culture of AML compliance,” Fort said. “Violating BSA can result in FinCEN imposing civil penalties against the casino itself, as well as its employees, partners, officer and directors. It can also result in … criminal penalties.”

He added that from the IRS Criminal Investigation’s (IRS CI) perspective, SARs and the information contained within them is incredibly valuable, bringing to light behaviour and activities that in many cases are the only indication of other criminal activity.

The IRS CI downloads about a million SARs each year, he said. The total nuimber of SARs filed by casinos and card clubs has increased from 49,558 in 2015 to 57,210 last year.

So far in fiscal year 2017, the IRS has successfully prosecuted one case involving illegal gambling.

In October, David Stewart of Orlando, Florida, was sentenced to 41 months in prison for wire and bank fraud in connection with an illegal online gambling business.

The IRS said Stewart got financial institutions to process internet gambling payments by disguising the transactions as payments for online television and movie subscriptions from DiamondPayTV, a phony online merchant.

Stewart then funneled the illegal gambling proceeds through business bank accounts that he opened in the names of shell companies and transferred the funds to overseas accounts controlled by the internet casinos, according to the IRS.

During a one-year period, Stewart and others involved processed over 59,000 credit card transactions for illegal internet gambling, totaling about $4.2m.

Since October 2014, none of the illegal gambling convictions won by the IRS involve commercial or tribal casinos. The 12 cases involve people being sentenced for not paying taxes on proceeds from illegal gambling operations, video poker, bookmaking or online gambling.

Despite its unique focus, Fort said IRS CI plays a “critical role” in cyber crimes cases and terrorism cases; not by going after the hacker or terrorist, but going after the money.

The challenge today is having more responsibility with the same number of agents — 2,200 — that the IRS had “about 40 to 50 years ago,” Fort said.

“Financial crime has not diminished, in fact, it has proliferated in the age of the internet and virtual currency.”


GamblingCompliance: U.S. Supreme Court Case A Predicament For Sports Leagues


If the U.S. Supreme Court rules New Jersey can offer legal sports betting, the four major U.S. professional sports leagues may not be pleased with the outcome but they are likely to be prepared for that outcome, a panel of experts said Tuesday.

David Purdum, a gambling reporter with ESPN, said if the leagues were to lose their case, they “would relinquish all control of sports betting.”

Currently, the leagues have control by being able to go to court to block any proposed expansion of sports betting in the U.S. That is lost if the Supreme Court overturns the federal ban on wagering on sports.

Purdum said the best-case scenario for the leagues would be a “direct and significant revenue stream” from legal sports betting in the U.S. The catch, Purdum said, is the leagues will want to avoid the appearance of making that direct connection to gambling.

The Supreme Court is expected to hear New Jersey’s challenge to the scope of the Professional and Amateur Sports Protection Act (PASPA) by late fall or early winter.

Purdum added that he did not think a loss would be the worst case scenario for professional sports leagues. He believes they are worried about a patch work, or state-by-state, system of regulations with no revenues for the leagues.

“It still comes back to they want to make money,” Purdum said.

Andrew Brandt, director of the Jeffrey S. Moorad Center for the Study of Sports Law at Villanova University, said on the legal front, the Supreme Court taking this case is a big deal.

The court decided to take up the case despite the U.S. solicitor general’s opposition and the Supreme Court’s denial in 2014 to consider an earlier version of this case.

Brandt said “evolving” was the word he kept hearing when it came to the position of the four major professional sports leagues — the National Football League (NFL), the National Hockey League (NHL), Major League Baseball (MLB) and the National Basketball Association (NBA) — on sports betting.

“We are only three years from [former Dallas Cowboys quarterback] Tony Romo being told he couldn’t attend a fantasy sports conference in Las Vegas,” Brandt said. “Not because it was Vegas, but because it was held in a casino.”

“We are at a different point today,” Brandt said.

Both Brandt and Purdum participated Tuesday in a webinar presented by Clarion Gaming on preparing for the Supreme Court’s New Jersey decision and options for the sports industry.

Moderator Daniel Wallach, a gaming attorney with Becker & Poliakoff in Fort Lauderdale, Florida, asked if Nevada should be concerned that the court could decide not only to maintain a wagering ban on New Jersey but also extend the betting prohibition to the Silver State.

Wallach called it the “doomsday scenario,” where the court kills an industry.

He cited an article by Ryan Rodenberg, who teaches at Florida State University and is considered an expert on PASPA, that said the Supreme Court might simply eliminate the exemptions from PASPA instead of overturning the federal ban.

Under PASPA, which Congress passed in 1992, Nevada is completely exempt from the federal sports-betting ban and Delaware, Montana and Oregon are partially exempt.

Beyond those four states, evidence from Congress indicates Arizona, New Mexico, North Dakota, South Dakota and Wyoming also are exempt from PASPA in varying degrees, according to Rodenberg’s article in the Duke Law Review.

Purdum acknowledged the doomsday scenario as a possibility, but from a practical standpoint it is unlikely that the justices would decide to take away an industry that generated $4.5bn in bets last year.

“There will be some type of compromise and a ruling will come down the middle,” Purdum said.

Until there is a decision, the four major professional sports leagues have been reluctant to comment on the Supreme Court’s decision to take the case.

But the commissioners of the NBA and MLB, along with Major League Soccer (MLS), have said they need to be in a position to try to shape what a future regulatory scheme for sports betting might look like, even as both the NBA and MLB continue to oppose New Jersey’s efforts in court.

“There will be some point when they can’t straddle the issue anymore,” Brandt said.

Brandt expects the NFL to reach that point in about three years, when the Raiders complete their move from Oakland to Las Vegas.

“I think the NFL understands their predicament,” Brandt said. “Commissioner Roger Goodell praises Nevada’s gaming regulations, while fighting those exact same regulations New Jersey has proposed.”

Brandt, a former vice president with the NFL’s Green Bay Packers, said people associated with the NFL he has spoke to about the Raiders move to Las Vegas were concerned about whether the market was large enough to support a team or whether it is just a tourist market.

They also expressed their concern if there was long-term support for the team, he said.

All those issues, Brandt said, were more important than gambling and casinos, which “to me was an astounding response.”

Gary Bettman, commissioner of the NHL, which includes a new franchise in Las Vegas, recently told reporters: “We’re a small part of betting compared to football and basketball … I don’t worry about fixing games.”

Purdum reminded opponents of legalized sports betting that whether legal or not there are going to be scandals in the future.

“It’s time to move past that and have something more pragmatic,” Purdum said.

GamblingCompliance: Fitch Sees Flat Regional Gaming Markets But Bright Future For Las Vegas


Regional casino revenues in the U.S. are expected to be no better than “flattish to slightly positive” this year, with the forthcoming Hard Rock casino in Atlantic City a threat to incumbent operators there, according to a report published by Fitch Ratings.

The ratings agency attributes its cautious outlook for some regional markets to pockets of weak consumer confidence, particularly in parts of the country reliant on the energy sector.

Revenues from casino markets outside Las Vegas were up 2 percent through the end of May, with June up on the prior year as well, Colin Mansfield, director of corporate ratings gaming, lodging and leisure, wrote in a report following meetings with gaming companies and manufacturers.

“The consumer continues to feel healthy, except in petrochemical-dependent pockets of the southeast,” Mansfield wrote, referring to Louisiana and parts of Mississippi in particular. “Northeast and western markets continue to fare better than the more mature Midwest and some southeast markets with more struggling economies.”

Mansfield told GamblingCompliance that Midwestern markets such as Indiana, Missouri and Iowa are likely to see flat revenues this year as they generally have “a relatively stable supply but not a great deal of positive economic catalysts.”

“Conversely, some pockets of slightly positive growth will likely be seen in Ohio and Massachusetts as casino openings from the past few years continue to ramp up, and markets with stronger underlying fundamentals (Florida, Las Vegas Locals),” Mansfield said.

In New Jersey, Mansfield said that most of the casino operators Fitch recently met with “believe the addition of Hard Rock to Atlantic City will negatively impact the market.”

Hard Rock International, which is owned by the Seminole Tribe of Florida, has begun a $500m renovation of the shuttered Trump Taj Mahal, which it acquired for just $50m.

Hard Rock boss Jim Allen has been bullish about the future of the Trump Taj Mahal and Atlantic City, telling attendees recently at the East Coast Gaming Congress at Harrah’s Atlantic City that the “challenging days are behind us.”

That may be so. Through the end of June, year-to-date gaming revenues in New Jersey were up 3.5 percent. However, a 28 percent increase in internet gaming accounts for a significant chunk of that and land-based gaming revenue at Atlantic City casinos was up only 1.5 percent, according to the New Jersey Division of Gaming Enforcement.

New Jersey currently has seven casinos in Atlantic City, with the Atlantic Club, Showboat, Revel, Trump Plaza and Trump Taj Mahal casinos all closing between January 2014 and October last year.

Mansfield on Thursday reiterated his concern that the addition of Hard Rock “will negatively impact some of the current operators.”

“Atlantic City has stabilized around a $2.4bn per year market and the current operating environment (with seven properties) has been healthier,” Mansfield told GamblingCompliance. “It’s allowed the remaining operators to increase their profitability relative to a few years ago when there were as many as 12 properties.”

As for Las Vegas, Mansfield noted that the development of non-gaming offerings continues to “be in favor given the strength of visitation and convention business in the face of stagnant room supply.”

The next injection of new supply on the Las Vegas Strip is expected to come when Malaysia’s Genting Group opens the $4bn, 3,000-room Resorts World Las Vegas project.

The Malaysia-based Genting bought the property in 2013 from Boyd Gaming for $350m. Boyd had started building a resort on the site of the former Stardust casino when the recession struck, leaving just a steel-and-concrete skeleton standing on the property.

In a note to clients, Mansfield and fellow Fitch analyst Alex Bumazhny said the Resorts World property “has not changed much since our last visit in October.”

Meanwhile, the stalled Alon casino project appears to continue to be up for sale, the analysts noted.

By the time Resorts World opens, Las Vegas will have hosted its first NFL game after owners approved the relocation of the Oakland Raiders to southern Nevada in time for the 2019 season.

“All [casino] operators feel the new NFL franchise is positive for the long-term health of Las Vegas and will help boost visitation around the eight home games,” Mansfield said, citing meetings with nine gaming companies including Las Vegas Sands, Wynn Resorts, MGM Resorts International, and Caesars Entertainment.