Card Club Will Pay $900,000 and Undertake AML Program Review
The Financial Crimes Enforcement Network (“FinCEN”) has entered into a Consent Order with the Sahara Dunes Casino, doing business as the Lake Elsinore Hotel and Casino (“Lake Elsinore”). The Consent Order describes Lake Elsinore, located in California, as a “medium-sized card club” with 22 tables offering card games such as poker.
In the Consent Order, Lake Elsinore has admitted to willful violations of the Bank Secrecy Act (“BSA”), including failing to implement and maintain an effective Anti-Money Laundering (“AML”) compliance program, failing to file Currency Transaction Reports (“CTRs”) and Suspicious Activity Reports (“SARs”), and recordkeeping failures involving a negotiable instruments log, which is supposed to list each transaction between a casino or card club and its customers involving certain monetary instruments with a face value of $3,000 or more. Lake Elsinore has agreed to pay a $900,000 penalty and be subject to an AML program review.
The conduct at issue in the Consent Order is old: it occurred from about September 2014 through February 2019. The enforcement action arose from a 2017 examination of Lake Elsinore by the California Bureau of Gambling Control (“CABGC”). The Consent Order illustrates how a federal enforcement action can flow from a state regulatory agency working with FinCEN – as well as just how long that process can take. The Consent Order further illustrates that some BSA-covered institutions will operate with little to no day-to-day AML compliance until an exam occurs.
The Consent Order
The alleged AML compliance failures appear to have been systemic. Lake Elsinore’s written AML compliance program seems to have been a generic cut-and-paste “off the shelf” document that was neither tailored to Lake Elsinore nor actually implemented in practice. For example:
[T]he discussion in its 2018 AML program under “Risk Assessment and Profile” (Risk Assessment) consisted primarily of a random list of factors that had little relevance to Lake Elsinore or any other gaming establishment. Furthermore, the Risk Assessment noted, without explanation, that Lake Elsinore did not engage in asset or trust management, maintain correspondent accounts for foreign financial institutions, engage in trade finance, interact with dealers in precious metals or with foreign deposit brokers or provide professional services—activities that are typical of banks and that would not have been conducted at Lake Elsinore. The discussion included an unexplained reference to the fact that Lake Elsinore was not a “defined cash-intensive business,” although, as a card club, Lake Elsinore dealt in large amounts of cash. The Risk Assessment made no mention of services typical of card clubs, such as backline betting, pooled banking and wagering arrangements, or the use of propositional players. In sum, the Risk Assessment did not identify key risks associated with Lake Elsinore’s business and offerings.
Similarly, a purported compliance policy designed for use by the Cash Cage (where customers exchange currency for chips, and vice-versa) stated that SARs were not mandatory for casinos yet, although SARs have been required for casinos and card clubs since 1998.
Other alleged failures include:
- Failing to ensure that patrons utilized the Cash Cage and failing to track chip cashing throughout the card club.
- The BSA Compliance Committee consisted of only the General Manager and the Chief Operations Officer. “It remains unclear whether the Compliance Committee ever met.”
- Independent testing was “infrequent and insufficient.” For example, “[t]he 2016 annual test was conducted by a consultant who was retained by Lake Elsinore in 2007 to advise on compliance matters generally, including compliance with the BSA. The Cage Manager conducting the quarterly tests was not independent as they were responsible for the maintenance of a multiple currency transaction log and the preparation of BSA reports filed with FinCEN.”
- “As of 2017, no employee of Lake Elsinore had received AML training as a new hire or on an annual basis since at least September 2014. Lake Elsinore staff were unaware that a regulatory requirement to train employees even existed.”
- Lake Elsinore had no in-house BSA Compliance Officer until 2017, when it “assigned the title of Chief Compliance Officer to an individual who, since October 2015, had been serving as its Chief Operations Officer. The individual continued to perform the role of Chief Operations Officer after the appointment to Chief Compliance Officer and had no professional or educational experience, or training, related to compliance with the BSA.”
- “Written procedures for the use of available information to detect suspicious transactions, set forth in a section of the AML program entitled ‘Reporting Requirements,’ consisted primarily of an unexplained list of resources, including ‘security and surveillance logs,’ that must be ‘diligently reviewed.’” Likewise, “[a] manual for security personnel failed to mention the BSA or the reporting of suspicious transactions and focused instead on crimes committed within the gaming establishment, ‘problem gambling’ and incidents of a physical nature that impacted gaming operations.” Further, “[u]ntil early 2017, Lake Elsinore collected no information relevant to determining if transactions were suspicious.”
- “[P]rocedures for ensuring the completeness and accuracy of [currency transaction] logs were themselves inadequate. For example, patrons could make large chip purchases with currency on the gaming floor. While purchases made on the gaming floor were supposed to be recorded in a separate multiple currency transaction log kept in the main gaming floor podium, that log contained no entries on inspection.”
- Failing to file CTRs. “The significant deficiencies in Lake Elsinore’s AML program and record-keeping make it difficult to assess the scope of Lake Elsinore’s [CTR] filing deficiencies.”
- Failing to adequately monitor, detect, and timely report suspicious activity. Lake Elsinore did not file any SARs from September 2014 until after the 2017 CABGC examination. “While FinCEN has identified dozens of instances in which Lake Elsinore failed to file a SAR, or filed a report late, the severity of the deficiencies in Lake Elsinore’s AML program has made it difficult to determine the full extent to which suspicious activity reports were not filed, or were not timely filed[.]”
The Consent Order provides that Lake Elsinore reduced the potential penalty in part by undertaking remedial measures. Specifically:
Lake Elsinore implemented a new AML program and has also completed several external independent reviews—including an expansive transactional analysis—after FinCEN opened its investigation. These independent tests, conducted after the Relevant Time Period, indicated significant improvement in, or remediation of, many of the deficiencies identified by FinCEN’s investigation. Lake Elsinore implemented several remedial corrective actions including providing training to its staff and hiring outside qualified third parties to supplement and support the work conducted by the compliance department. FinCEN observed an increase in CTR and SAR filing volumes after the Relevant Time Period.
Finally, Lake Elsinore must hire a qualified independent consultant, approved by FinCEN, to review the effectiveness of its AML compliance program and recommend enhancements and modifications in a report submitted to Lake Elsinore and FinCEN. Lake Elsinore then must either adopt and implement these recommendations or propose alternatives within 30 days.
[View source.]
Source: JD Supra
https://www.jdsupra.com/legalnews/fincen-issues-consent-order-against-5527835/
