Casinos and money laundering – a quick primer

By Christine Duhaime | January 5th, 2011

Do Criminals Launder Money at Casinos?

Media and enforcement agencies are awash with statistics intended to describe the extent of money laundering at casinos in Canada and elsewhere around the world.  Due to the ubiquitous nature of the activity, it is nearly impossible to produce accurate statistics on the extent in which this activity actually occurs, or the amount of money involved.

We know that deposit-taking institutions (chartered banks, credit unions, caisse populaires and trust companies) present the greatest money laundering risk and outnumber all other laundering vehicles combined but little is known about the extent to which casinos are used for money laundering.

We also know that criminals tend to avoid places where they are easily detected or detectable and land-based casinos in Canada and the United States are not only heavily regulated, they have sophisticated security and surveillance systems in place 24/7 that act as a deterrent against money laundering.

Recent Cases of Money Laundering at Casinos

The following news articles connecting casinos with money laundering in the last three years is illustrative of the use of casinos as money laundering venues:

  • In April, 2008, five Chinese nationals were indicted (and subsequently convicted) in Nevada for stealing US$485 million from the Bank of China and laundering it through casinos in Canada and U.S.;
  • In May, 2008, the RCMP reported that it suspected that drug traffickers in Ontario laundered money at Casino Rama and Mohawk Racetrack.  The Ontario Lottery Corporation indicated that they believed that one of the alleged money launderer was a good customer and didn’t fit the profile of a money launderer;
  • In June, 2008, a convicted fraudster laundered US$5 million at several casinos over a two year period using funds from a mortgage fraud scheme;
  • In July, 2009, several registered casino gaming employees were charged with helping guests structure their gambling activities to avoid reporting transactions to FinCEN, the U.S. financial intelligence unit;
  • In October, 2009, Nevada gaming investigators found evidence of a recent trend by casino personnel conspiring with patrons to avoid the U.S. federal anti-money laundering reporting requirements;
  • In December, 2009, an Australian casino reported that crime gangs were laundering millions of dollars in casinos- one casino patron on welfare purchased over $13 million in chips at the Crown Casino; and
  • In January 2010, former Ontario lawyer Stanko Grmovsek was sentenced to 39 months in prison after pleading guilty to charges of money laundering and insider trading.  Grmovsek is believed to have laundered approximately US$9 million at Las Vegas casinos.

The Financial Action Task Force (FATF) reported the following cases of casino-based money laundering:

  • A number of registered casino employees (poker room supervisors and dealers) were charged with money laundering for their role in facilitating the operation of an illegal gambling ring in a casino that took in US$22 million in sports betting;
  • A compliance officer in Las Vegas was charged with failure to file approximately 15,000 reports to FinCEN over a three year period.  The compliance officer did not file the reports because he was having personal problems, was behind in his work, and the legal obligation to file was never explained to him;
  • A drug dealer pleaded guilty to distributing 100 pounds of crystal methamphetamine between Las Vegas and Hawaii and gambling millions of dollars in cash through Las Vegas casinos that he carried in to the casinos in duffle bags; and
  • Mexican authorities seized US$207 million in cash from the home of a drug kingpin in Mexico who had gambled between US$80 million to US$120 million at Las Vegas casinos.

The sum of money laundered through casinos from these case samples may appear staggering but is insignificant in the context of the vast sums of money that are transacted daily at casinos in Canada and the United States.

Increase in Suspicious Activity Reports Filed by Casinos

In the U.S., the number of suspicious activity reports (SARs) filed by casinos increased 16% during the first half of 2010 compared with the same period in 2009. Structuring continues to be the most cited type of suspicious activity reported by casinos in the U.S. and in the first half of 2010, gaming establishments in the U.S. reported a 28% increase in suspected structuring. Cashing out after minimal play, another frequently used money laundering method at casinos, was reported 11% more in SARs filed in the U.S. An increase in SARs filed by casinos is not evidence of an increase in money laundering at casinos but it does indicate that casino employees detected and reported an increase in suspicious transactions at U.S. casinos that they believed were relevant to a possible violation of law or regulation.

Appeal of Casinos as Money Laundering Venues

Despite heavy security and surveillance at land-based casinos, worldwide they remain a target for some criminals (who need to disguise the proceeds of crime) for the following reasons:

  • The cash intensive nature of their operations help criminal activities blend into the mix;
  • The international/tourist clientele allows for anonymity;
  • The presence of other criminal activity may attract criminals;
  • Historically, little AML regulatory oversight has allowed criminals to operate undetected but this has changed with the increased acceptance of the FATF standards; and
  • Complex money laundering legislation and regulatory regimes, especially in Canada, make it difficult for casino employees to understand and apply the AML rules.

Land-based casinos in Canada and the U.S., particularly those operated by public corporations, do a good job of complying with the anti-money laundering requirements. In Canada, when issues arise in connection with casinos and money laundering, they tend to be associated with the fact that there is an indirect reporting regime for casino money laundering in some jurisdictions (such as British Columbia) that is inefficient and inconsistent with the FATF standards that Canada committed to abide by.

Illegal Internet Casinos Pose Greater Risks of Money Laundering

Although it is not known precisely how much money is laundered at casinos annually, there is evidence that some money laundering does occur but it may be far less than suspected. The fact  is that Internet gambling sites that are operated in offshore jurisdictions and that provide services to Canadians contrary to the Criminal Code of Canada pose a far greater risk of money laundering and terrorist financing than land-based casinos. That is because they operate in foreign jurisdictions where they tend to be unregulated and where there are lax or no anti-money laundering standards applicable to their operations.

According to the FATF, there is evidence that criminals use illegal Internet casinos to commit crime and to launder the proceeds of crime. For example, according to the FBI’s 2008 Financial Crimes Report to the Public, PartyGaming PLC, an Internet gaming company incorporated in Gibraltar that provide Internet gambling services to persons residing in the U.S. several years ago, also provided money laundering services to members of Italian organized crime.

The inability to track foreign Internet addresses and the payment of transactions primarily through credit cards and electronic payment processors, and the offshore placement of many Internet gambling sites makes locating and prosecuting cases of suspected cyber-laundering difficult if not impossible.

The FATF has recommended that Canada enforce the Criminal Code prohibition against foreign based Internet casinos that provide services to Canadians to address the cyber-laundering and cyber-terrorist financing risks that they pose to Canadians.

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