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December 12, 1996

Anti-Money Laundering Regulations Extended to Card Clubs

The Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued today a notice of proposed rulemaking that would extend regulations aimed at combating money laundering to card club establishments.

Most frequently found in California, card clubs typically offer facilities for gaming by customers who bet against one another, rather than against the establishment. While California does not permit casino gambling, customers wagered over $8.9 billion at these card clubs in 1995. This amount accounted for 92 percent of the national card room gaming market that year.

"Card clubs are at least as vulnerable to use by money launderers as other gaming establishments, both because of their size and because those institutions lack the controls found at casinos," said Stanley E. Morris, Director of FinCEN.

The proposed rule would amend regulations issued under the Bank Secrecy Act (BSA) -- Treasury's key tool in the fight against money laundering, bank fraud and tax evasion -- to include card clubs under the regulatory definition of financial institutions.

FinCEN, in administering the BSA, has sought to apply regulations to gaming establishments that provide their customers with a financial product--gaming--and a broad array of other services typically found in more traditional financial services businesses, such as banks. In addition to gaming activity, card clubs offer their customers deposit and credit accounts, facilities for transmitting and receiving funds transfers from other financial institutions, and check cashing and currency exchange services.

Since 1985, Treasury, through its BSA regulations, has required recordkeeping and reporting of large cash transactions occurring at state licensed casinos with gross annual gaming revenue in excess of $1 million. This information preserves a financial trail for investigations or proceedings. In addition to state licensed casinos, tribal casinos are now subject to BSA reporting requirements. This change went into effect August 1, 1996.

"Given their growth, their prevalence in the nation's most populous state, and their potential for expansion, there is no basis for distinguishing the operations of card clubs from those of casinos in the context of anti-money laundering controls," said Morris.

Under the proposed rule, card clubs -- including those operated on tribal lands -- would be treated in the same manner as casinos. Thus, they would be subject not only to currency transaction reporting rules but to the full set of provisions to which casinos in the United States are subject. These provisions include a comprehensive recordkeeping system and a compliance program containing anti-money laundering safeguards.

Paralleling the currency reporting provision of FinCEN's proposed rule, on September 28, 1996, California Governor Pete Wilson signed into law a requirement that card clubs report cash-in and cash-out transactions in excess of $10,000 to the California Department of Justice. It is anticipated that the California and BSA currency transaction reporting requirements will be coordinated (as in other situations when BSA and state reporting rules overlap) to reduce regulatory burden and costs of compliance.

"California Attorney General Dan Lungren has been at the forefront of this issue," said Director Morris. "His efforts have been critical in focusing our attention on the need to regulate this industry in order to prevent its abuse by money launderers and other criminals."

The Federal Register will publish the notice of proposed rulemaking tomorrow.

( California Department of Justice News Release December 19, 1996 -- New Requirements To Start Soon To Limit Money Laundering At Club Cards)





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