24TH AUG 2017 | WRITTEN BY: CHRIS SIEROTY
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.”