45 Search Results

October 3, 2008 |
Casinos Continue to Be Vulnerable to Money Laundering

The conviction in August of two former Bank of China managers and their wives in Las Vegas for money laundering and other crimes illustrates the continuing vulnerability of casinos to money laundering.  U.S. v. Xu Chaofan, et al. (2:02-CR-0674-PMP (LRL)).  Over the course of several years, the defendants facilitated the theft of $482 million from the Bank of China, established offshore shell companies, and laundered funds, including through accounts at several U.S. banks.  They also deposited a total of $3.1 million to accounts at four Las Vegas casinos by check or with currency, including four checks totaling $2 million to an account maintained by one of the casinos in Hong Kong.  This is one of several cases in recent years where gaming patrons who had engaged in illegal activity, from drug trafficking to fraud, funneled their ill-gotten gains in one form or another to casinos. Casinos that engage in transactions involving the proceeds of crime run the risk of liability for violating the criminal money laundering laws, 18 U.S.C. §§ 1956 and 1957.  Under these provisions, it generally is a crime to engage in transactions with knowledge that the funds involved are the proceeds of illegal activity.  In some cases, foreign tax evasion or evasion of foreign currency control laws can figure in money laundering cases.  Knowledge can be based on deliberate indifference or willful blindness – failure to make appropriate inquiries when faced with red flags for suspicious activity.  If any red flags were present suggesting that a patron’s source of funds was illegal and the casino did not take appropriate steps to resolve the red flags, a federal prosecutor could take issue with the apparent position of the Chief of Enforcement at the Nevada Gaming Control Board.  The Chief of Enforcement was quoted in the Las Vegas Sun in connection with the Xu Chaofan case  as saying:  "If they’re playing with cash, and they’re considered a high roller, there’s no responsibility on the casinos’ part to find out where they got the cash." The best defense to potential liability for money laundering and related forfeiture actions for casinos and other "financial institutions" subject to the requirements of the Bank Secrecy Act ("BSA") is a comprehensive Anti-Money Laundering/Bank Secrecy Act compliance program with an emphasis on identifying and timely filing Suspicious Activity Reports as required by 31 C.F.R. § 103.21.  Regulatory compliance alone, however, may not be enough to insulate a casino against liability under the money laundering statutes.  The government may expect the financial institution to take steps to prevent additional transactions with the customer.  In light of this potential liability, it is essential that casinos train employees, especially those marketing to high rollers and facilitating deposits of front money or collecting gaming debts in the United States or abroad, to be alert to red flags that a patron’s funds may be from illegal activity and to report the concerns internally.  Foreign patrons, especially those whose business activities are not transparent or who come from a country that poses a high risk for money laundering, drug trafficking, or terrorism, may call for additional due diligence.  Payments from non-bank financial institutions or banks in locations not logical for the customer or third parties also should raise concerns.  Any criminal subpoena received for patron records should result in the casino’s review of the customer’s activities to determine whether there has been any unreported suspicious activity. While the BSA requirements do not extend per se to transactions outside the United States, suspicious deposits made by casino patrons abroad once drawn down in the United States would be reportable as suspicious under the BSA and may be reportable in the country where received.  They also could be the basis for a prosecution under U.S. or foreign money laundering laws if derived from illegal sources.  Following the identification of significant suspicious activity, reasonable steps to bar the patron from further activity may be necessary to stop the activity from continuing and to protect the casino from potential criminal liability under the money laundering laws for continuing to do business with a patron whom the casino suspects may be involved in illegal activity. Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, Amy G. Rudnick (202-955-8210, arudnick@gibsondunn.com) or Linda Noonan (202-887-3595, lnoonan@gibsondunn.com) in the firm’s Washington, D.C. office, or Nicola T. Hanna (949-451-4270, nhanna@gibsondunn.com) in Orange County.  © 2008 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 17, 2007 |
Internet Gambling Rules Would Enlist Banks to Fight Uphill Battle

Washington, D.C. Partner Amy Rudnick and New York Associate Anthony Mahajan are authors of “Internet Gambling Rules Would Enlist Banks to Fight Uphill Battle” [PDF] published in BNA’s Banking Report.

November 26, 2007 |
Treasury Issues New Bank Secrecy Act Guidance for Casinos and Card Clubs

On November 14, 2007, for the first time in several years, the Department of the Treasury, Financial Crimes Enforcement Network ("FinCEN"), issued Bank Secrecy Act ("BSA") compliance guidance for casinos and card clubs, Frequently Asked Questions:  Casino Recordkeeping, Reporting, and Compliance Program Requirements (FIN-2007-G005).  The guidance, which is in the form of twenty-three questions and answers, addresses questions about what types of gaming establishments are subject to the BSA requirements and questions about compliance with the BSA requirements by casinos and card clubs, including currency transaction reporting (31 C.F.R. § 103.22), recordkeeping (31 C.F.R. §§ 103.33 and 103.36), suspicious activity reporting (31 C.F.R. § 103.21), and maintenance of a BSA compliance program (31 C.F.R. § 103.64). Among the highlights of the guidance, FinCEN concludes that: If state (or tribal) law defines a slot machine or video lottery operation at a racetrack or "racino" as a "casino, gambling casino, or gaming establishment," and the gross annual gaming revenues of the slot machines and video lottery operation exceed $1 million, the operation would be a casino under the BSA subject to all of the BSA requirements for casinos. Establishments in Nevada and tribal jurisdictions that offer only off track betting are casinos under the BSA if the establishments offer "account wagering" and the gross annual gaming revenue exceeds $1 million. However, a horse racetrack that offers pari-mutuel or other wagering only on races at the track would not be considered a casino under the BSA. Unlike coin transactions, paper money transactions for slot club accountholders identified through slot monitoring systems must be aggregated with other "cash-in" transactions for currency transaction reporting ("CTR-C") purposes. If a casino were to "turn off the dollar counter" slot machine feature, it could be subject to an enforcement action under the BSA. Casinos are no longer required to file a CTR-C (FinCEN Form 103) to report slot jackpot wins paid in currency in excess of $10,000. In order to comply with the suspicious activity reporting requirement, as part of its internal controls, a casino or card club must develop procedures for using all available information, including information in its automated systems, surveillance system, and surveillance logs to identify transactions or patterns of suspicious activity. While not required, a casino should develop an internal control to document the basis for its determination that a transaction was determined not to be suspicious after investigation, i.e., a decision not to file a suspicious activity report.  The guidance can be accessed at FinCEN Casino FAQs Final.pdf. Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or Amy Rudnick (202-955-8210, arudnick@gibsondunn.com), Linda Noonan (202-887-3595, lnoonan@gibsondunn.com), in the firm’s Washington, D.C. office or Nicola T. Hanna (949-451-4270, nhanna@gibsondunn.com), in the firm’s Orange County office.  © 2007 Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071 Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 15, 2007 |
U.S. Treasury Department Formally Severs Ties Between U.S. Financial Institutions and Banco Delta Asia

On March 14, 2007, Stuart Levey, the Undersecretary for Terrorism and Financial Intelligence at the U.S. Treasury Department, announced the issuance of a final rule under Section 311 of the USA PATRIOT Act that, in 30 days, will bar U.S. banks and certain other financial institutions from opening, maintaining, or managing correspondent accounts for Macau-based Banco Delta Asia and its subsidiaries (collectively, "BDA"). BDA also will be prohibited from directly or indirectly accessing the U.S. financial system. These measures are identical to the measures imposed against the Commercial Bank of Syria (Syria) and the Syrian Lebanese Commercial Bank (Lebanon) last April.  The announcement follows an 18-month investigation that began when the Treasury Department designated BDA as a financial institution of "primary money laundering concern" in 2005 because of some of its dealings with North Korean clients. Additionally, press reports indicate that the results of this investigation may enable overseas regulators to release some of the approximately $24 million that was frozen following the 2005 designation. Those frozen funds have recently become a major stumbling block in the United States’ negotiations with North Korea regarding its nuclear program.  In September 2005, the Treasury Department designated BDA as a financial institution of "primary money laundering concern" based on its determination that BDA is used to facilitate and promote money laundering and other financial crimes, particularly in connection with alleged North Korean counterfeiting, smuggling, and drug trafficking. At the same time, the Treasury Department issued a Notice of Proposed Rulemaking proposing that U.S. banks and other financial institutions prohibit BDA from directly or indirectly opening or maintaining correspondent accounts in the United States. Following the Treasury Department’s action, many U.S. and foreign banks began voluntarily terminating their relationships with BDA, and the Macanese government intervened, froze all funds held by the bank in accounts relating to North Korea, and cooperated with the Treasury Department’s investigation. The Macanese authorities also took substantial steps to strengthen Macau’s anti-money laundering and anti-terrorist regime.  This issue resurfaced recently when North Korea reportedly linked the release of the frozen funds to its willingness to enter into and abide by an agreement to halt development of its nuclear weapons program.  Undersecretary Levey said that the Treasury Department decided to isolate BDA from the entire U.S. financial system because the investigation confirmed that BDA was willing to turn a blind eye to the illegal activities of some of its clients and that its client due diligence practices were grossly inadequate. The final rule does not target Macau as a jurisdiction of primary money laundering concern; it only targets BDA as a financial institution. The rule applies to U.S. banks, securities broker-dealers, futures commission merchants and introducing brokers, and mutual funds. Because nearly all U.S. financial institutions have already voluntarily terminated their relationships with BDA, the Treasury Department’s action merely should formalize the current situation. However, the covered U.S. financial institutions now also will have to take reasonable due diligence measures, consistent with the regulations, to ensure that the correspondent accounts of other foreign financial institution clients are not being used to conduct transactions on behalf of BDA. In addition, press reports indicate that the conclusion of the investigation and the Treasury Department’s action may pave the way for the Macanese government to release between $8 million and $12 million of the frozen funds because the information gathered during the investigation may assist Macanese authorities in identifying some of the frozen accounts as unlikely to have a connection to illicit activities. This action, in turn, should remove one of the stumbling blocks to reaching an agreement to halt development of North Korea’s nuclear program. Undersecretary Levey did leave open the possibility that the rule could be rescinded in the future if BDA were to address the concerns of the Department and demonstrate responsible management and business practices. * * * * * Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. For further information, please contact the Gibson Dunn attorney with whom you work or  Judith A. Lee (202-887-3591, jalee@gibsondunn.com) Daniel J. Plaine (202-955-8286, dplaine@gibsondunn.com)Amy G. Rudnick (202-955-8210, arudnick@gibsondunn.com)Linda Noonan (202-887-3595, lnoonan@gibsondunn.com)Jill S. Henderson (202-955-8220, jhenderson@gibsondunn.com)Patrick Speice (202-887-3776, pspeiceJr@gibsondunn.com) © 2007 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 11, 2006 |
2006 Bank Secrecy Act/Anti-Money Laundering Examination Manual Clarifies Elements of Effective OFAC Compliance Program for ACH Transactions

On July 28, 2006, the Federal Financial Institutions Examination Council (FFIEC) released the 2006 Bank Secrecy Act/Anti-Money Laundering Manual ("BSA/AML Manual"). The section addressing compliance with economic and trade sanctions programs administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC) has been revised to provide expanded guidance regarding automated clearing house (ACH) transactions. Additional guidance is found in the section of the BSA/AML Manual dedicated to ACH transactions. A critical component of an OFAC compliance program is a procedure for screening ACH transactions to identify blocked parties. When developing that procedure, it is helpful to know which financial institution involved in a transaction is responsible for verifying that a party is not blocked. In screening domestic ACH transactions, the Originating Depository Financial Institution (ODFI) is responsible for confirming that the Originator is not a blocked party, and must make a good faith effort to ensure that the Originator is not sending blocked funds. Similarly, the Receiving Depository Financial Institution (RDFI) is responsible for verifying that the Receiver is not a blocked party. FFIEC has stated that, in the context of a domestic ACH transaction, the ODFI and RDFI may, in effect, rely on each other to ensure OFAC compliance. However, the ODFI and RDFI may not rely on each other in the context of cross-border ACH transactions. For outbound transactions, the ODFI may not rely on the RDFI outside the United States. The ODFI is responsible for verifying that none of the parties to the transaction is blocked, and that the underlying purpose of the transaction does not violate OFAC regulations. The RDFI similarly is responsible for ensuring that transactions in-bound to the United States comply with OFAC regulations. The OFAC section of the BSA/AML Manual describes the understanding of federal agencies regarding screening obligations. Incorporating that insight into an OFAC compliance program could result in a more effective program. Moreover, the level of care demonstrated by such an action could serve to mitigate penalties in the event of a violation..  Gibson, Dunn & Crutcher’s International Trade Regulation and Compliance Practice Group is available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn attorney with whom you work or Judith A. Lee (202-887-3591, jalee@gibsondunn.com), Amy G. Rudnick (202-955-8210, arudnick@gibsondunn.com) or Andrea Farr (202-955-8680, afarr@gibsondunn.com) in the firm’s Washington, D.C. office. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.