What Is Suspicious Activity In A Casino?

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Many years ago, rightly or wrongly, casinos were deemed financial institutions for the purposes of the Bank Secrecy Act (BSA) aka Title 31. Back then Nevada enjoyed an exemption from reporting under the act as we had something commonly referred to as 6A, which required similar reporting for Currency Transaction Reports (CTR) and the logging of certain transactions as the current rules, but it also prohibited certain cash transactions and was a good anti-money laundering tool.

As time passed Nevada gave up its 6A exemption from Title 31 and as of July 1, 2007 had to become fully compliant with the BSA reporting standards. The net affect was that the prohibited transactions went away and expanded Suspicious Activity Reporting for Casinos (SARC) came to life in Nevada casinos.

But what is a suspicious activity? What appears suspicious to one person may seem business as usual to another; yet as the government started applying pressure, conducting audits, setting definitive guidelines and nailing casinos with material fines, and the sense of suspicion around patron activity has risen.

To provide you a sense of this, according to the Department of Treasury’s Financial Crimes Enforcement Network (FINCEN): Nationwide, in 2012 there were 2,119 SARCs filed by casinos, 27,505 SARCs were filed in 2013, 46,575 SARC’s were filed in 2014, and 2015 seems to be pacing to see 57,000 filings by year end.

BSA regulations basically require a SARC be filed for any transaction that is conducted or attempted at a casino that involves in aggregate “at least $5,000 in cash or other assets that the casino knows, suspects, or has reason to suspect:” 1) involves funds from illegal activities or is intended to hide funds from illegal activity (money laundering); 2) is designed to avoid reporting requirements of the BSA (structuring) 3) has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the casino knows of no reasonable explanation for the transaction after examining the available facts; 4) involves use of the casino to facilitate criminal activity.

From this requirement the government has developed 16 specific types of suspicious activities that broadly range from Bribery to Fraud to Money Laundering to Large Cash Exchanges to Structuring, to avoid reporting, to Unusual Transactions to Terrorist Financing.

Here are some easy examples of when customer transactions would trigger a SARC:

• Customer buys into a blackjack game with $6,000 in cash that reeks of marijuana, plays a few nominal hands then takes the chips to the cage and either cashes out or asks for a check. Large game buy in, suspicious odor on currency, nominal gambling activity, quick cash out – this should trigger a SARC;

• Customer goes to various slot machines putting cash in the bill acceptors, collects cash-out tickets totaling $5,000 or more with nominal gaming activity, then cashes out at the casino cage or asks for a check. (This is often known as “bill stuffing.”) Again, large cash transactions with little gaming activity will trigger a SARC;

• Customer wires in $2 million to play as front money, plays very little, takes a large cash-out then asks that the balance be wired to another bank, other than where the funds originated. Nominal gaming play, large cash out, wire transfer to a bank other than the originating bank will likely trigger a SARC.

Interestingly, according to FINCEN statistics, the majority of SARCs filed are reporting some form of effort to avoid reporting transactions via CTRs or other BSA required reporting, followed by “minimal gaming with large transactions.

Not unsurprising is that Nevada leads the nation in SARC filings; FINCEN reported that for the period March 1, 2012 to March 31, 2015 Nevada filed 21,772 SARCs or 24.5 percent of the nation’s total. To some that may seem a huge number but in that same time period Nevada had roughly 140 million casino patrons, so in context it is not a statistically meaningful.

However, as our friends at Caesars found out, the regulators are very serious about capturing this information and have been leveling hefty fines for failings in reporting obligations. While I fully support efforts to catch the “bad guys,” I fear an unintended consequence of such expanding enforcement will be a surge of excessive reporting that leads to undo grief for legitimate customers and chills their future patronage.

The Analyst is an experienced gaming industry executive who offers insight each week on events and issues affecting the industry. Email: [email protected].

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