October 3, 2008
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, [email protected]) or Linda Noonan (202-887-3595, [email protected]) in the firm’s Washington, D.C. office, or Nicola T. Hanna (949-451-4270, [email protected]) in Orange County.
© 2008 Gibson, Dunn & Crutcher LLP
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