Following a multiyear lull, the Nevada gaming industry has recently experienced a flurry of federal and state regulatory actions related to the enforcement of the Bank Secrecy Act. Just the past several months alone have seen significant settlements between regulators and some of the biggest casinos on the Strip. This client alert explains what this federal law requires, describes its interaction with Nevada state law and regulations, and provides some guidance to casinos on how to avoid or withstand similar scrutiny.
The Bank Secrecy Act
The Bank Secrecy Act, or “BSA,” is a federal law that requires financial institutions—including banks but also casinos and certain other types of business, for example, money services businesses or “MSBs”—to maintain an effective anti-money laundering, or “AML,” program. Specifically, the BSA requires businesses subject to its jurisdiction to submit certain reports of financial activity to the Financial Crimes Enforcement Network (“FinCEN”), an agency within the U.S. Department of the Treasury. These submissions fall into two categories: Currency Transaction Reports, or “CTRs,” and Suspicious Activity Reports, or “SARs.”
In the casino context, CTRs must be submitted for every cash transaction—in or out—that exceeds $10,000 for a single customer or for multiple transactions for a single customer that together exceed $10,000 in a single 24-hour period. SARs must be submitted concerning any transaction, cash or other, that includes any indicia of money laundering, fraud or other criminal activity and exceeds $5,000. Any business subject to the BSA is also required to maintain a robust “Know Your Customer” (“KYC”) program with the goal of determining not only the identity of certain customers but the source of the funds used for gambling or other activities as well. The overall goal of the BSA’s requirements is to collect intelligence on certain types of financial activity so as to allow federal law enforcement agencies to connect financial transactions to criminal activity, thus allowing the government to make criminal cases against those who attempt to launder the proceeds of their criminal activity.
Nevada’s Role in Federal BSA Enforcement
Nevada gaming regulations previously provided what might be described as parallel responsibility for scrutiny of the types of transactions covered by the BSA, but that state role gave way to exclusive federal jurisdiction with the repeal of Nevada Gaming Commission Regulation 6A back in 2007. Nevertheless, Nevada’s gaming regulators continue to have a strong interest in whether and how Nevada gaming licensees comply with their responsibilities under the BSA. One way in which Nevada regulators review licensees’ BSA compliance is through the Nevada Gaming Control Board’s (“NGCB”) periodic compliance reviews of licensees. Such reviews include an assessment of the licensee’s BSA overall compliance program with some specific focus on the casino’s BSA compliance program.
A second way that the NGCB will show an interest in a casino’s BSA compliance is by way of Nevada Gaming Commission Regulation 5.0101(1), which mandates that “all establishments wherein gaming is conducted in this state be operated in a manner suitable to protect the public health, safety, morals, good order and general welfare of the inhabitants of the State of Nevada.” It is this regulation that has been invoked by the NGCB when pursuing enforcement actions against licensees found to have violated the BSA. Indeed, for each recent federal BSA enforcement action against a Nevada casino, whether pursued civilly by FinCEN or criminally by the U.S. Department of Justice (“DOJ”), the NGCB has pursued its own related enforcement action culminating in the Nevada Gaming Commission imposing its own fine on top of federal penalties, generally by way of an agreed-to resolution between the casino and the feds.
BSA Compliance Basics for Casinos
For a casino AML program to satisfy the requirements of the BSA, there are five basic pillars that must be in place. These include:
- Designation of a BSA Officer.
- Development of Internal Policies.
- Creation of a Training Program.
- Integration of Independent Auditing and Evaluation.
- Implementation of risk-based policies and processes for customer due diligence.
Of course, simply putting these pillars into place is only the first step toward an effective program. It is also essential that these persons, programs and processes are actually effective at combatting money laundering. Here are some further thoughts concerning best practices for each pillar.
BSA Officer: Every casino must have one person who is clearly understood by everyone else, both internally and externally, as the person in charge of BSA compliance. This person must have significant experience and expertise with day-to-day BSA compliance in the casino setting, i.e. real life experience with day-to-day CTR, SAR and other AML responsibilities. Beyond practical BSA compliance experience, the BSA officer must have in-depth knowledge of every aspect of the casino’s operations, from the cage to table games to marketing, and must develop and maintain close working relationships with the individuals responsible for these and other relevant casino departments. The BSA officer must also have responsibility for BSA compliance training, including the content, delivery and record-keeping, often in cooperation with the casino’s overall training operation. Depending on the size of the casino, the BSA officer should typically hold a suitable rank relative to other casino department heads and should report to the casino’s chief compliance officer, if that role exists, or to the casino’s chief financial officer. Generally speaking, the BSA officer should be focused solely on BSA compliance and should not have any other significant collateral duties.
Internal Policies: At a high level, each casino should have a written BSA compliance policy that sets forth the basic organization of the BSA compliance team, makes clear how BSA compliance responsibilities are divided within the BSA team and across the casino’s other departments, and otherwise explains that effective BSA compliance depends on effective data monitoring. The way in which the BSA compliance team within a casino is staffed will largely depend on the details of the internal policies that are implemented given the requirements of the BSA itself and the casino’s policies. The details of these policies must evolve from time to time and should be aided by the latest technology.
Training Program: Every casino that is subject to the BSA’s requirements must have a training program appropriate for the casino’s particular business model, size and risk profile. Training should be conducted for all relevant employees at the outset of their employment, at regular intervals thereafter, and to address specific issues or developments as they emerge. Relevant employees should include three basic categories:
- those who have direct BSA compliance responsibilities, including the teams that monitor transactions for BSA purposes and prepare and submit CTRs and SARs;
- employees in any casino department that have regular or potential exposure to customers and/or transactions in a way that could implicate BSA compliance issues; and
- senior executives, compliance committee members and members of the company’s board of directors, all of whom have high-level responsible for BSA compliance.
The details of the trainings should, of course, be different for each of these audiences. Records of all training and related knowledge testing should be maintained in accordance with the BSA’s record-keeping requirements.
Independent Auditing and Evaluation: Beyond the day-to-day transaction “auditing” that the casino’s BSA team must do in order to be able to accurately file CTRs, the overall BSA compliance program should be subject to regular auditing or testing to confirm ongoing compliance with the casino’s BSA compliance program. This function is typically performed by the casino’s internal audit team working in close collaboration with the BSA officer to ensure proper scoping and detail. The results of such audits should be scrutinized by the casino’s compliance and/or audit committees on a regular basis to ensure high-level visibility into any deficiencies that are noted and the corrective actions being taken. In addition, every casino should, from time to time, engage an outside expert to conduct a comprehensive evaluation of every aspect of its BSA compliance program, including organization, staffing, use of technology, training, internal controls, etc. This type of review should be done once every three to four years and the results, recommendations and action plan for correcting deficiencies or making improvements should be the subject of detailed review by the C-suite, compliance committee and board of directors.
Customer Due Diligence (“Know Your Customer”): Increasingly, a key part of any casino’s BSA compliance program is an effective set of procedures to identify customers who meet certain criteria, to understand the nature and purpose of specific customer relationships, to identify and report suspicious activity, and to facilitate timely decisions to terminate customer relationships when appropriate. Increasingly, “KYC” issues and problems are the focus of regulatory enforcement actions and, as a result, must be at the foundation of any effective casino BSA compliance program.
Final Thoughts
The old adage, “good compliance is good business,” is as true today as ever when it comes to the gaming industry generally and casino BSA compliance in particular. It is absolutely critical for any casino operation to not only foster a robust culture of compliance throughout the organization but to also ensure that the nuts and bolts of the day-to-day BSA compliance operation is sound. Much of any casino’s success in this regard starts with the appropriate “tone at the top” beginning with the C-suite and the corporate board. But just as important is the so-called “mood in the middle.” Managers throughout the organization must understand the importance of BSA compliance and must see it as a critical part of their job to ensure that the same is instilled in their line level employees across the enterprise. Anything less can expose the company to not only BSA enforcement attention by the feds, but also state regulator scrutiny as well in a way that can result in the potential for short-term financial penalties and long-term reputational harm.
This document is intended to provide you with general information regarding Bank Secrecy Act compliance for casinos. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.