12th Annual Las Vegas Anti-Money Laundering Conference
Las Vegas, Nevada
Introduction
Thank you for that wonderful introduction, Greg.
Good morning, everyone. I am delighted to be here today to address the 12th Annual Las Vegas Anti-Money Laundering Conference.
Thank you for having me. And thank you so much, Mindy, for inviting FinCEN to be a part of this year’s event—it provides another great opportunity to share with you what we at FinCEN are thinking, and to hear from all of you and get your perspective and thoughts—that is critical for our mission.
I would like to spend our time together this morning discussing a number of topics that I hope will be meaningful to all of you, and help set the stage for further discussions while you are here:
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First, I will share my perspective on how new technologies are impacting AML/CFT and financial crime detection, particularly sports betting and mobile gaming;
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Second, I will discuss how FinCEN’s recent guidance on Convertible Virtual Currency is something that casinos need to pay attention to;
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Third, I will revisit the importance of a strong culture of compliance within casinos; and
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Lastly, I will provide an overview of our ongoing work related to regulatory reform, innovation, and BSA value.
The Impact of Advanced Technologies
Casinos and card clubs know as well as any financial institution the important role technology can play in detecting and reporting financial crimes.
Indeed, they have explicit pillars in their AML program rule requiring the use of all available information and automated data processing systems to aid in ensuring compliance with the BSA.
Over the past several years, we have talked extensively about the “all available information” pillar at events such as this one, as well as in some of the enforcement actions we have taken.
Let me also address the “automated systems” pillar and describe some developments and considerations that impact your casino or card club’s operations.
Sports Betting and Mobile Gaming
With last year’s Supreme Court decision legalizing sports betting, it’s important for casinos and card clubs to consider how to integrate sports betting programs into their existing AML programs.
Sports betting, and other mobile gaming services run through your casino, are no different than other products and services.
FinCEN expects that your casino or card club is monitoring your sports betting programs for potentially suspicious activity. This includes offering sports betting through a mobile app.
Whether or not sports betting is offered on or off-premise, your AML obligations are the same. Not only that, we expect your SAR reporting will include cyber-related indicators collected through the use of mobile gaming or betting applications.
You must establish and implement procedures for using all available information to detect and report suspicious transactions, or suspicious patterns of transactions, that occur through mobile sports applications.
We recently updated the SAR form to have fields allowing you to report cyber-indicators ranging from source and destination information, file information, subject user names, system modifications, and account information.
FinCEN issued FAQs in 2016 to assist financial institutions in reporting such cyber indicators and cyber-enabled financial crime, and they are available on our website. This is an area you can expect your examiners to ask about.
Relevance of Convertible Virtual Currency (CVC) Advisory to Casinos
Last year, when I spoke to this group I highlighted some of the work FinCEN is doing with respect to cybersecurity and emerging payments; there have been substantial developments over the past year, so I want to mention some of them.
In May of this year, FinCEN issued guidance on how regulations relating to money services businesses (MSBs) apply to certain business models involving money transmission denominated in value that substitutes for currency, specifically, convertible virtual currencies (CVCs).
The guidance does not establish any new regulatory expectations or requirements. Rather, it consolidates current FinCEN regulations, and related administrative rulings and guidance issued since 2011, and then applies these rules and interpretations to other common business models involving CVC engaging in the same underlying patterns of activity.
This guidance is intended to help financial institutions comply with the BSA in light of current and emerging business models involving CVC.
The guidance describes FinCEN’s existing regulatory approach to the issues most frequently raised by industry, law enforcement, and other regulatory bodies within this evolving financial environment.
There are generally two areas where CVC will intersect with casinos and card clubs: so-called CVC casinos on the internet, and physical casinos and card clubs that accept CVC for gaming.
There are two conditions that must be met for a financial institution to be considered a casino or card club:
(1) it must be duly licensed or authorized to do business as such in the United States, whether under the laws of a State or a Territory or Insular Possession of the United States, or under the Indian Gaming Regulatory Act or other Federal, State, or tribal law or arrangement affecting tribal land, and,
(2) it must have a gross annual gaming revenue in excess of $1 million. That $1 million can be denominated in US dollars, CVC, or other value.
These distinctions are important because, as our May CVC guidance points out, internet gaming sites that operate online but that are not duly licensed or authorized to do business as casinos in the United States are not “casinos” for purposes of regulations implementing the BSA. Rather, it is likely they are operating as money transmitters.
Money transmitters have their own obligations under the BSA and its implementing regulations, which includes a formal registration with FinCEN. This applies equally to domestic money transmitters and to foreign-located money transmitters that do business wholly or in substantial part within the United States.
For casinos and card clubs accepting CVC from customers either on location or through your mobile applications, you need to ensure that this is accounted for in your policies, procedures, and internal controls—as well as your risk assessments. You should also consider how you will review and conduct due diligence on transactions in CVC. How will you conduct blockchain analytics to determine the source of the CVC? How will you incorporate CVC-related indicators into your SAR filings as appropriate?
FinCEN has provided additional assistance on certain illicit activity involving CVC through an advisory we issued on the same day as our guidance.
This advisory assists financial institutions in identifying and reporting suspicious activity related to criminal exploitation of CVCs for money laundering, sanctions evasion, and other illicit financing purposes. The advisory highlights prominent typologies, associated “red flags,” and identifies information that would be most valuable to law enforcement if contained in suspicious activity reports. This advisory is not aimed only at depository institutions or MSBs; it has material that is important for casinos and card clubs as well.
One area of concern is that we appear to have a gap in reporting in this area by casinos. While FinCEN has received some filings from casinos regarding cyber-enabled crimes, CVC-related SAR filings by casinos have not been as robust as expected since the May CVC guidance and advisory were published.
I encourage casinos to closely review both documents on FinCEN’s website to see how we are addressing this industry and its interactions with others in the financial sector. Casinos should be filing SARs when they encounter suspicious CVC activity and any cyber events that affect, facilitate, or conduct transactions. We know that casinos are targets for cyber and cyber-enabled criminal activity such as ransomware attacks and business e-mail compromise schemes.
Culture of Compliance
This feeds into the concept of having a strong “culture of compliance,” which I know is not something new to casinos or card clubs. It is a theme we have reiterated in our speeches, enforcement actions, and advisories issued since 2014. So it concerns me when I hear about some compliance budgets being cut by casinos looking to trim costs and retain gamblers.
To be clear—we take the culture of compliance seriously. This is a national security issue: not something to be taken lightly—and we will not take it lightly.
We know the kind of significant information that casinos are able to develop on gaming customers. This information is extraordinary and relevant, and is already used by casinos for a variety of marketing and other business purposes.
This information can and should be used by your compliance personnel as they monitor customers for suspicious activity.
Information developed by your security departments for combating and preventing fraud should also be shared with compliance personnel. The legal department should also alert the compliance department when a subpoena is received. A subpoena could trigger reviews of customer risk ratings and account activity.
Moreover, larger casinos may have multiple affiliated casinos that could benefit from the sharing of information across the organization.
FinCEN issued guidance in January 2017 discussing how a casino that has filed a SAR may share the SAR, or any information that would reveal the existence of the SAR, with each office or other place of business located within the United States of either the casino itself or a parent or affiliate of the casino. Sharing SARs under these circumstances can assist casinos in identifying suspicious transactions and fulfilling their responsibilities to comply with BSA responsibilities.
There is a misconception that just because FinCEN has not publicly issued an enforcement action against a casino or card club since last year that FinCEN is not looking at this financial sector. Let me assure you, this is not the case. FinCEN is continually looking at compliance across all financial institutions and will not hesitate to act when it identifies financial institutions that violate the BSA. It is also important to note that not all enforcement actions are public—FinCEN often closes cases with warning letters sent to financial institutions or refers cases to our delegated examiners to conduct additional examinations.
More importantly, a strong culture of compliance promotes breaking down traditional communication and information silos. You need to talk to people other than your compliance people.
Think about the cyber indicators I just discussed—without close collaboration with your IT and cybersecurity experts, you will only be getting part of the whole picture. It is critical that casinos utilize the information they have on an enterprise-wide basis and ensure it gets into the hands of the right people in your compliance departments.
Remember that this is not just a best practice, but a requirement under the AML program rule for casinos and card clubs, which makes explicit reference to the use of available information and automated data processing systems to aid in ensuring compliance.
Regulatory Reform, Innovation, and BSA Value
FinCEN recently launched its Innovation Hours Program encouraging financial institutions, FinTech, and RegTech companies to present to FinCEN new and innovative products and services for potential use in the financial sector.
The goal here is to provide an environment in which FinCEN can better understand innovation as it happens and provide insight or other regulatory action to ensure that innovation and compliance with FinCEN’s regulations—and promotion of anti-money laundering goals more generally—can go hand in hand.
FinCEN held its first Innovation Hours on July 11th, which focused on artificial intelligence. I encourage casinos and the technology firms supporting them that are employing innovative tools in this space to visit FinCEN’s Innovation page and learn more about this program.
We would welcome the opportunity to hear from you; it is open to everyone.
Another component of our regulatory reform efforts is in the area of BSA Value.
In January 2019, FinCEN began an ambitious project to catalogue the value of BSA reporting across the entire value chain of its creation and use. The project will result in a comprehensive and quantitative understanding of the broad value of BSA reporting and other BSA information to all types of consumers of that information.
We already know that BSA data plays a critical role in keeping our country strong, our financial system secure, and our families safe from harm. But FinCEN is using the BSA Value Project to improve how we communicate the way BSA information is valued and used, and to develop metrics to track and measure the value of its use on an ongoing basis. The project has included hundreds of interviews with stakeholder groups, including casinos.
So far, the study has confirmed there are extensive and extremely varied uses of BSA information across all stakeholders (including by the private sector) consistent with their missions.
BSA reporting is essential to these activities. Everyone has also agreed that the work of your skilled analysts and investigators (as well as frontline staff, such as those working in the money cages at your casinos) contributes greatly to the value of BSA reporting. Stakeholders also have underscored how there can be equally important value derived from specific fields within a single BSA report (even one filed years ago) and the aggregation of all the information in FinCEN’s database.
As an example, we are combating an opioid epidemic in this country that has killed thousands of innocent people, destroyed families, and left millions addicted to opioids. Given the current state of the opioid epidemic, a Drug Enforcement Administration agent would likely find tremendous value in obtaining the mobile phone number of a suspect from a casino SAR as that agent knows that the suspect would provide a real phone number to ensure he is called when his winnings are wired out to a bank account.
Using that mobile number, the agent can build out the communication tree and identify new individuals and entities, new addresses, accounts, etc. An agent can use this information to seek legal approval to wiretap or track the movement of the phone; identify potential informants; build out a network of associates we would never see; and much more.
In the case of using “big data,” FinCEN is able to apply machine learning and other tools to all the reports and other information available to us to identify and build out illicit finance networks and identify new financial crime trends, which we can share with law enforcement, our OFAC colleagues, regulators, and the private sector (such as the CVC advisory mentioned previously).
We have heard during our discussions that there continues to be a desire for more feedback on what FinCEN is seeing in the BSA data in terms of trends. We need to do better SAR analysis for wider trends and typologies to help casinos. We want to provide more feedback, and we will. My appearance and that of my team at this event is one part of that effort.
I want to share with you briefly some statistics on casino filings as well as trends we are seeing in the BSA data.
We saw decreases across the gaming sector in SARs filed by casinos in 2018, with a decrease of more than 9 percent in SARs filed between 2017 and 2018.
From 2017 to 2018, the top five SAR filings by state were Nevada, Louisiana, California, New Jersey, and Pennsylvania. While New Jersey experienced a 10% increase, possibly tied to Sports Betting, Nevada (-7%), Louisiana (-15%), and Pennsylvania (-15%) all experienced declines in overall filings, which is symptomatic of the decline in overall industry filings. Other large decreases came from Oklahoma (-51%), Washington (-46%), and Ohio (-45%).
In terms of suspicious activity being reported so far in 2019, Minimal Gaming with Large Transactions is the highest reported activity with more than 5,000 SARs reflecting this activity.
Reports of Chip Walking have dramatically increased since this was added to the SAR form in the summer of 2018. Chip Walking is now the second most selected suspicious activity on the SAR form, with more than 4,400 reports being cited this year to date.
The other frequently cited suspicious activities include:
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Transaction(s) below CTR Threshold
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Unknown Source of Chips
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Two or More Individuals Working Together
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Alters or Cancels Transaction to Avoid CTR Requirement
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Suspicion Concerns Source of Funds
Additional analysis of trends reported by casinos checking the “other” box on the SAR form includes reports of suspicious activity involving sports betting, abandoned jackpot, and bill stuffing.
I wanted to provide these insights because when casinos report their suspicions about illicit activity, they are providing incredibly valuable leads and ongoing support for law enforcement investigations and, importantly, they make it much harder for criminals to move or hide their illicit proceeds in the financial system.
BSA data also aids investigations tied to bulk cash smuggling, gang activity, significant fraud, transnational organized crime, bribery, health care fraud, corruption, embezzlement, kleptocracy, and third-party money laundering, among other crimes.
All FBI subject names are run against the BSA database. More than 21 percent of FBI investigations use BSA data, and for some types of crime, like organized crime, nearly 60 percent of FBI investigations use BSA data. Roughly 20 percent of FBI international terrorism cases utilize BSA data.
The Internal Revenue Service-Criminal Investigation section alone conducts more than 126,000 BSA database inquiries each year. And as much as 24 percent of its investigations involving criminal tax, money laundering, and other BSA violations are directly initiated by, or associated with, a BSA report.
In addition to providing controlled access to the data to law enforcement, FinCEN also proactively pushes certain information to them on critical topics. On a daily basis, FinCEN takes the suspicious activity reports and we run them through several categories of business rules or algorithms to identify reports that merit further review by our analysts.
Our terrorist financing-related business rules alone generate over 1,000 matches each month for review and further dissemination to our law enforcement and regulatory partners in what we call a Flash report. These Flash reports enable the FBI, for example, to identify, track, and disrupt the activities of potential terrorist actors. It is incredibly valuable information.
For more information about all the ways law enforcement uses FinCEN’s data, I encourage you to go to our website, www.fincen.gov, where we have listed over 500 specific examples of how financial institution reporting has aided law enforcement cases.
Also, in May, FinCEN honored a number of law enforcement professionals from around the country who used BSA data to successfully investigate and prosecute criminal cases that posed a threat to our financial system and our national security.
In reviewing the cases, you will see that the BSA reporting for these cases aided investigations tied to weapons trafficking, bulk cash smuggling, gang activity, significant fraud, transnational organized crime, bribery, corruption, embezzlement, narcotics, and third-party money laundering.
I would like to conclude my remarks by sharing details of one of this year’s award recipient cases, which was made possible by the BSA filings of SIX casinos, THREE of which are in this room today.
This case was in the Transnational Organized Crime category, and the award recipients were from the U.S. Attorney’s Office for the Southern District of New York and the Drug Enforcement Administration (DEA). The award was presented by Bess Michael from FinCEN, and Elizabeth Cronan representing the American Gaming Association.
Members of DEA Las Vegas District Office initiated this operation that targeted a criminal organization operating across the United States, Europe, Asia, South America, and Central America. The case was initiated as a result of sensitive information investigators obtained regarding the money laundering activities of over a dozen individuals. The information indicated that these subjects were responsible for laundering millions of dollars throughout the world, utilizing many different methods to carry out their illicit operations.
Through financial data analysis and surveillance operations, law enforcement investigators learned that this large-scale criminal operation was involved in the distribution of cocaine and heroin, along with laundering the illicit proceeds, both domestically and internationally.
As a result of the intercepts associated with several of the targets identified in the financial data, DEA agents seized over 2,500 kilograms of cocaine, 25 kilograms of heroin, 8.5 kilograms of methamphetamines, and over $570,000 in cash in the United States, Colombia, Panama, the Dominican Republic, Spain, and Costa Rica. Investigators were also able to link the targets to the Gulf Cartel, Sinaloa Cartel, and the Italian criminal organization Ndrangheta.
Further investigative efforts, which included financial data analysis, grand jury subpoena results, search warrants results, and interviews with confidential sources, revealed that this organization engaged in a wide range of techniques and business operations to conduct its criminal activity.
Its techniques included structuring, casino gaming schemes, fraudulent investment funds, false invoicing, fictitious business fronts, public corruption, and trade based money laundering schemes. The business operations they utilized included movie companies, jewelry stores, money exchange houses, and armored car companies.
Throughout the course of this multi-year investigation, agents seized more than $5.5 million in currency and assets, including a $750,000 airplane. Coordinated efforts with U.S. and foreign law enforcement agencies and financial intelligence units led to indictments and arrest warrants for numerous members of this criminal organization on various money laundering, narcotics distribution, and conspiracy charges. Several extraditions on additional subjects are pending and several other individuals remain international fugitives. One of the primary targets has already pled guilty and was sentenced to a 30-year prison term and ordered to forfeit $284 million in criminal proceeds. The remaining targets are pending trial.
Again, it was the reporting of six casinos that made this successful prosecution possible. Make no mistake: The work you are doing makes a profound difference in peoples’ lives. The information provides leads, helps expand cases, identifies networks of criminals and other bad actors, and often helps to alert the regulatory and law enforcement communities to trends in illicit activity, making our communities safer—it protects our families from harm.
What you do saves lives.
It is a national security issue.
As I close today, I want to mention a very important national security issue—beneficial ownership information. Its importance to our national security cannot be understated.
Criminals of all kinds, including terrorists, establish domestic shell companies to mask and further their criminal activity, to invest and buy assets with illicit proceeds, and to prevent law enforcement and others from efficiently and effectively investigating tips or leads, thus allowing these bad actors to hide from justice and continue their bad acts.
FinCEN’s recent Customer Due Diligence Final Rule, which requires the collection of beneficial ownership information for legal entities when opening an account at a bank or other financial institution, is but one critical step toward closing this national security gap.
The second critical step in closing this national security gap is collecting beneficial ownership information at the corporate formation stage. We are committed to working with Congress to find the best way to address this serious gap.
Conclusion
I know you have a full few days ahead of you, so in concluding I want to mention that Tom Ott, FinCEN’s Associate Director for Enforcement, and Kevin O’Connor, one of our compliance and enforcement officers, will be participating on several panels over the course of the next two days where they will further discuss many of the issues I have raised this morning. Please do not hesitate to seek them out if you have any questions or feedback for us.
Thank you again for your time and attention this morning.
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