It may be no coincidence that the Association of Certified Anti-Money Laundering Specialists will be hosting its annual conference in Las Vegas this month during the same week as G2E, just down the strip. Whether the overlap in dates is random or not, it’s true that anti-money laundering compliance is the new zeitgeist issue for the gaming industry.
According to research by the Financial Times, U.S. agencies have collected nearly $150 billion in settlements and fines from domestic and foreign banks since 2007. Granted, most of these bank settlements, such as the most recent $17 billion deal reached between Bank of America and the Department of Justice, stem from issues related to the financial crisis, such as illegal lending and foreclosure practices and defrauding investors on the sales of mortgage-backed securities.
But the Bank Secrecy Act, the primary U.S. anti-money laundering law, is also being wielded as an effective enforcement instrument. Because the U.S. dollar remains the world’s primary currency, and transactions conducted in dollars must be cleared by New York banks, U.S. financial regulators have enormous ability to go after even foreign banks for happenings that would otherwise be completely unrelated to the U.S.
BNP Paribas, the French bank, pleaded guilty this summer to processing transactions in countries subject to U.S. sanctions and was forced to pay $9 billion.
The Department of Financial Services of the state of New York has been extremely aggressive in pursuing BSA-related violations, extracting a $200 million concession from the U.K. bank Standard Chartered in 2012 and a follow up settlement for $300 million last month because the bank failed to improve its procedures for identifying suspicious transactions.
This flood of eye-popping deals leads us to two main conclusions:
* U.S. regulators are increasingly viewing financial institutions as piñatas that spill out candy with every swat. Seemingly every agency has had its crack at both Bank of America Citigroup and JPMorgan, who have been demonised as the major villains of the financial crisis.
* The message being sent is not only about punishment for past wrongs, but also of deterrence. Eye-raising settlement figures are meant to have a “Fear of the Lord” chilling effect on other institutions that might contemplate similar behavior.
Casinos are obviously not banks. But the point is that in the eyes of FinCEN and other regulators, non-bank institutions that handle large amounts of money are just as prone to potential abuses, and perhaps even more so because they don’t think of themselves as banks. Casinos should therefore think about financial controls more like banks do.
If they don’t get their acts together, more non-bank institutions are likely to find themselves on the wrong side of settlements, settlements that make the $47 million penalty paid by Las Vegas Sands last summer look like peanuts.
In fairness, casinos do have legitimate gripes about being held to the same Anti-Money Laundering (AML) standards as banks and traditional financial institutions. The primary product of casinos is entertainment, not lending out deposited funds. To incorporate high-level compliance for a service that is only a small part of one’s business model does not seem like the best investment.
In addition, casinos do not have the same access to customer information as a bank does, which makes complying with know-your-customer regulations inherently tricky.
But there exists middle ground, and the search for that sweet spot will be an important part of this year’s G2E.
At the Bank Secrecy Act conference earlier this summer and at last year’s G2E, FinCEN chief Jennifer Shasky Calvery urged the gaming industry to take a proactive approach to AML. Such an approach, she said, must start with a large cultural shift that stresses a risk-based approach that goes well beyond just checking off boxes.
Calvery also laid out a framework for what a comprehensive AML program for a casino should look like. Atop the list is monitoring the source of customer funds, screening customers for involvement in illicit activities, tracking the transfer of funds internationally, and paying closer attention to customer account activity.
The American Gaming Association, which has been in ongoing discussions with FinCEN, has launched an AML working group to formalize the industry response. The AGA expects to release a set of much-anticipated best practices before G2E that will build upon Calvery’s recommendations. Casinos would be wise to spend some time and money implementing these best practices, where they are not already in place, or be prepared to face the regulators.
