Gambling enterprises, both legal and illegal, have long been considered to be integrally involved with criminal elements in various ways. In recent decades, concerns have revolved around the use of casino organizations as banking institutions that could aid criminals in what is called money laundering. The Bank Secrecy Act of 1970, with amendments; the Money Laundering Act of 1986; and the Money Laundering Suppression Act of 1994 address the problem of money laundering.
Money laundering involves various activities. One is simply changing one set of cash bills for another set of cash bills. Many criminal enterprises rely upon patronage of ordinary people at the street level – purchasers of drugs, illegal bettors, customers of prostitutes. Such people pay for their products and services with small denomination billsones, fives, tens, and twenties. As a result, criminal enterprises have very large quantities of paper money. It is difficult to carry the money, and it is especially hard to transport the money outside of the country in order to put it into secret bank accounts in other countries. When a bank or a casino willingly changes many small bills for a few large bills, they may be laundering money for criminal elements.
Laundering also occurs when financial institutions convert the criminals’ cash deposits into different forms – traveler’s checks, cashier’s checks, or money orders. The institutions may also assist laundering efforts by initiating a series of wire transfers of money to foreign bank accounts or to other peoples’ accounts in a series of transactions that make it difficult for law enforcement to identify the true source of the money.
Casinos are also vulnerable for use by criminals who simply wish to establish a legitimate source for their funds so that they may use them openly. Theoretically, it would be very easy for a criminal to come to a casino, change cash into casino chips, wager with a confederate at roulette (one playing black, the other red), and then claim all the chips they end up with as income – keeping record only of their wins and not of their losses. If a casino would cooperate in such a ruse, the criminals would be very happy to let the casino have its 5 percent edge in the game (both players would of course lose when the roulette ball fell into the zero or double zero slot of the wheel.
In the case above, the gamblers (criminals) are happy to pay income tax on their winnings, freeing them from the fear of being subject to investigation from the Internal Revenue Service. The situation is even better in Canadian and European casinos, where no income tax is imposed upon winnings. All the “laundry” operation needs is a verification that the money was “won” at the casino. When I asked the manager of a large casino in Germany about the possibilities of money laundering in his casino, he smiled and quietly said, “that is a service we provide.” He was happy to have the player’s action, as the casino could not lose. Today, however, casinos in the United States can lose by laundering criminal money. They can be fined or closed down (Burbank 2000).
In 1970, Congress enacted the Bank Secrecy Act. Initially the act applied to traditional bank-type institutions only. Banks were required to report to the U.S. Treasury Department any single-day transactions that involved $10,000 in cash. The bank was required to be vigilant and to track smaller transactions to make sure that a single party was not violating the law through multiple transactions. In 1985, regulations of the Treasury Department extended the provisions of the act to the casino industry. Casinos with over $1 million in annual revenues had to abide by the reporting and other requirements. In 1986, the Money Laundering Act criminalized violations of the procedure. The act specified a very large number of criminal activities that generated money that would likely be laundered. If any person attempted to launder any such money through a bank or casino, that person would be committing a criminal offense. Anyone knowingly assisting such a person in moving that money would also be guilty of a criminal action. In 1994, the Money Laundering Suppression Act extended the provisions of the acts to Native American casinos.
The banks and other financial institutions, Native American casinos, and commercial casinos in all states except Nevada make reports to the U.S. Treasury Department. The state of Nevada made a plea to Treasury officials to allow state casino regulators to implement the requirements. Accordingly, Nevada gaming agents spend over 20,000 hours a year collecting reports, checking records, visiting casino cages, and investigating complaints regarding cash transactions. Nevada authorities have also levied much higher fines for violations of the procedures than have been levied elsewhere. One casino had to pay fines in excess of $1.5 million for multiple infractions discovered by state agents.
The casinos must track all gamblers to ensure that none is exchanging over $10,000 in a day without making a full report involving positive identification of the gambler. Reports must be given to authorities within fifteen days of the transaction. They must also keep records of every transaction over $3,000 so that they can later assess whether a single-day transaction of $10,000 has been made. The requirements apply to bringing cash into the casino for any reason—to buy chips, deposit money for later play, make cash wagers. They also apply to money coming out of the casino – as prizes, withdrawals from deposits, cashed checks. Nevada casinos are also required to report events involving suspicious activities by players or by employees.
The money laundering laws, as amended, require all casino organizations to conduct special training for all employees to ensure that they are familiar with reporting and recording requirements. They also must have an accounting plan to conduct the required activity.
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