In a recent post we described a number of steps taken over the last year by the primary federal regulator for casinos – the Financial Crimes Enforcement Network (FinCEN) – that should cause casino operators to have Title 31 and Bank Secrecy Act (BSA) compliance among their top priorities. Based on this FinCEN activity, the threat of a protracted investigation and / or enforcement action appears to be growing. Recent remarks by FinCEN’s Associate Director for Enforcement underscore FinCEN’s commitment to policing casino compliance.
Associate Director Brooker’s Remarks
Stephanie Brooker, FinCEN’s Associate Enforcement Director, delivered her remarks at the Bank Secrecy Act Conference in Las Vegas on June 18, 2015. As she acknowledged throughout her presentation, her remarks echoed those of FinCEN Director Jennifer Shasky Calvery at last year’s BSA Conference. Brooker addressed three topics:
1. BSA Filing Trends
Brooker emphasized the importance to FinCEN of casino suspicious activity report (SARC) filings and lauded the continued growth of such activity. Between 2013 and 2014, SARC filings increased 69 percent to nearly 50,000. The highest reported categories of suspicious activity were minimal gaming and structuring to avoid currency transaction reporting. This reporting trend − and FinCEN’s encouragement of it − further cements the role of casinos as law enforcement deputies.
Acknowledging the “significant amount of time and resources” expended in the “SAR process,” Brooker sought to articulate its value to law enforcement. FinCEN uses such data to expand the scope of ongoing investigations, expose accounts or hidden financial relationships and, more fundamentally, provide basic contact information. In 2014, BSA data was used by the FBI in about 16 percent of total pending cases and 42 percent of pending drug cases. In addition to providing this information to law enforcement, Brooker “strongly encourage[d]” all financial institutions to share information as provided by Section 314(b) of the USA PATRIOT Act, which now includes 98 casinos and card clubs. This provision permits financial institutions to share information without fear of liability.
2. FinCEN’s Enforcement Approach
Noting FinCEN’s “broad supervisory and enforcement authority” that permit it to impose civil penalties against not only financial institutions but also individuals associated with those institutions, Brooker aimed to share the agency’s “core principles” of enforcement, which include:
- Transparency in FinCEN’s Rationale. FinCEN enforcement is not based on a “gotcha” principle. Instead, FinCEN tries to “clearly explain” the facts and violations that led to an action, which should provide industry guidance.
- Accountability. Over the last two years, FinCEN has adopted a “presumption” that any settlement of an enforcement action will include an admission to both the facts and a violation of the law. In other words, FinCEN will resist “neither admit nor deny” language in consent decrees, which of course could expose an institution to collateral civil liability.
- Credit Where Credit is Due. When considering a penalty or whether to take an enforcement action at all, FinCEN “seriously consider[s] documented improvements in AML compliance.”
- Recidivism. The corollary to the above is that FinCEN will “heavily weight” an institution’s failure to address documented compliance deficiencies or failure to cooperate with IRS SB/SE examinations when considering an enforcement action.
- Remedial Framework. Highlighting its injunctive authority, FinCEN essentially announced an “if you don’t do it yourself, we will do it for you” approach. In other words, if violations are detected, FinCEN may order a corporate monitor arrangement, more stringent independent testing, demonstrated training improvements, or updates to written policies and procedures.
3. The Importance of a “Culture of Compliance”
Referring to a 2014 FinCen Advisory urging U.S. financial institutions to promote a “culture of compliance,” Brooker noted that such a culture must emanate from the top of the house, and business interests should never compromise an institution’s AML program. In other words, the business must invest in compliance and empower compliance personnel with “sufficient authority, independence, and the tools you need to effectively implement the AML program.”
What Should Operators Take Away from these Remarks and Recent FinCEN Activity?
The message − based both on these remarks and FinCEN’s regulatory and enforcement activity over the past two years − is clear: Casinos must develop an AML program that demonstrably satisfies the requirements of 31 C.F.R. § 1021 or risk enforcement that may well include injunctive relief that imposes a program of FinCEN’s design. Stated bluntly, those who fail to invest in an AML compliance program now can expect to pay later.
Given FinCEN’s commitment to consider remedial measures, casinos have every incentive to evaluate their compliance programs and shore up any perceived deficiencies. This could include enlisting the assistance of competent outside counsel or other experts to perform “external independent testing for compliance” as contemplated by 31 C.F.R. § 1021.210(b)(2)(ii). Absent such a review, casinos run the risk that deficiencies will be exposed by FinCEN during an examination or investigation.