Casinos: Keeping In Line With Title 31 (Part 1)

Topics: ACAMS, Compliance, Corporate Legal, Financial Crime, Financial Institutions, Fraud, Money Laundering, Regulation & Compliance, Risk Management, Thomson Reuters Regulatory Intelligence

Title 31

In a new two-part blog series, we examine how casinos are on the front lines of money laundering investigations amid rising government enforcement actions.

Will casinos (and other non-bank financial institutions) eventually need to be compliant with the “fifth pillar” of customer due diligence and beneficial ownership information?

The Jackson Rancheria Casino and Resort, in Jackson, California, noticed something was odd with a few customers. After all, people typically don’t come to a casino just to eat the food.

Customers came in with cash in low denominations, particularly $20 bills. They went straight to the cashiers to exchange their twenties for hundreds. Casino officials soon noticed a pattern developing. A customer would buy in at, say, a Blackjack table for $20 but seem more interested in eating from the buffet. They’d play while waiting for their dinner reservation, and never return to gaming.

They never wagered the great majority of the $8,000 or $10,000 in cash they’d exchanged. They had, in truth, used the casino’s cash windows as a bank and even possibly as a means of money laundering.

Background checks revealed some customers ran small businesses in the Bay Area — they were indeed apparently using the casino to consolidate cash holdings. But “one set of people had been shut down due to illegal activities such as prostitution happening at their establishments,” recalled Robert Ashton, the Jackson Rancheria’s Tribal Gaming Agency Manager. “That had pushed them further away from wanting to use banks or other traditional financial institutions.”

On the Front Lines

Among non-bank financial institutions, casinos are on the front lines of money laundering investigations. It’s easy to see why. A casino’s clientele, especially for operators based in cities, vacation spots, or near interstate highways, can be transient. Gaming is still greatly a cash business, one where it’s not unusual for a customer to exchange thousands of dollars in a single visit.

Title 31

Jeremy Kuester

And casinos are still trying to shake an outdated reputation of being a “Wild West” business where red-flaggable clients get excused if they’re high rollers, and operators don’t ask too many questions about customers.

Casino operators are hiring more capable risk managers and have become more rigorous about anti-money-laundering activity. In part, it’s because Title 31 enforcement against casinos is on the rise. “Because non-bank financial institutions have been identified as weak points in the U.S. AML (anti-money laundering) regime, that can leave them vulnerable to being open to quick fixes from the government,” said Jeremy Kuester, a counsel at White & Case and a former Deputy Associate Director for the Policy Division of the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). “For them, it’s often no attention or lots of attention with huge enforcement actions.”

Where FinCEN issued only three civil penalties against casinos from 2003 to 2014, totaling $1.6 million, it levied $110 million in civil penalties against casinos from 2015 to 2016 alone, noted a 2018 analysis by lawyers at Ballard Spahr.

Some fines were substantial: the Tinian Dynasty Hotel & Casino was hit with a $75 million fine for Bank Secrecy Act (BSA) compliance violations, including allegedly failing to file suspicious activity reports (SARs) and currency transaction reports (CTRs). In 2017, Artichoke Joe’s Casino was hit with an $8 million fine for allegedly, according to FinCEN, “turning a blind eye to loan sharking, suspicious transfers of high-value gaming chips, and flagrant criminal activity that occurred in plain sight.”

And fines may keep getting costlier. FinCEN has amended BSA regulations to increase the maximum amount of civil penalties and make annual adjustments to account for inflation.

Growing Responsibilities

Since 1985, casinos have been defined as “financial institutions” under the BSA. This means they must file CTRs whenever a customer brings in or takes away more than $10,000 in currency within a 24-hour period. And casinos also need to make a SARs filing whenever they have suspicions about a transaction. These suspicions, as per the American Gaming Association’s Best Practices for Anti-Money Laundering, include:

  • The potential a transaction is derived from illegal activities, or that the casino is potentially being used to facilitate criminal activity;
  • That the transaction is not the sort that a patron typically engages in, given past history;
  • The transaction appears to have no economic or business purpose.

Will casinos (and other non-bank financial institutions) eventually need to be compliant with the “fifth pillar” of customer due diligence and beneficial ownership information? While the Customer Due Diligence Requirements rule (CDD rule) has been in place for banking institutions since 2016, the rule does not yet apply to non-bank institutions like casinos.

The CDD rule is an awkward fit for such an institution as a casino, noted White & Case’s Kuester. “The rule only applies to those financial institutions that typically have account relationships, and therefore generally longer-term customer relationships,” he said. “It doesn’t apply to, say, money transmitters. From a practical perspective, collecting beneficial ownership information at that single point in time for a customer whom you may never see again may not be super-productive.”

Kuester added that while “in the long term, it’s not impossible to imagine some sort of CDD system for non-bank financial institutions, I don’t think it will look like the CDD rule as it currently is. Those same institutions with a CDD obligation are also those with a customer identification program [CIP] obligation. CDD and CIP are paired together.”

CDD In All But Name

That said, even if casinos remain exempt from the CDD rule, they will likely need to comply with it in all but name.

“While casinos have an obligation to identify customers, the premise is that it’s to support their reporting obligations rather than a standalone obligation,” Kuester said. “Even without a formal beneficial ownership requirement, many casinos may essentially be looking at beneficial ownership. Seeing what gaps casino operators are seeking to address now, what sort of compliance trends they’re following, and how they’re trying to adapt to meet their own risk management obligations may anticipate where the regulatory attention goes in the next few years.”

Simply filing a SAR may no longer be adequate for regulators. Jackson Rancheria’s Ashton said he believes “the days of robotic filing SARs are over.” A casino can no longer expect to cover its bases by sending a generic SAR and declining to do any follow-up.

“We are being audited on not just the number of reports but the investigations, and the steps that we used in the decision to file — or not to file — the SAR,” he said.


Anti-money laundering regulations related to casinos are continuing to evolve. As these changes take place, you can help ensure your institutions aren’t unwittingly financing money launderers.

TRRI