Title 31 Compliance for Casinos and Money Laundering
Title 31, a crucial component of the Bank Secrecy Act (BSA), was enacted in 1970 to combat money laundering and other illicit financial activities associated with organized crime or terrorist funding. Its significance cannot be overstated. While Title 31 has broad application across various sectors, it is particularly significant in the Casino and Gaming Industry.
One of the most well-known Title 31 requirements is that casinos and card clubs must record and report the identity of individuals who conduct more than $10,000 in a transaction or transactions within 24 hours by obtaining a current photo ID and Social Security number.
Failure to adhere to Title 31 regulations, which include stringent reporting requirements and other regulatory measures, can lead to severe penalties. For instance, if your casino or card club generates over $1 million in gambling revenue, noncompliance could result in substantial fines and even imprisonment.
The Financial Crimes Enforcement Network (FinCEN) requires mandatory use of the BSA E-Filing System for filing Currency Transaction Reports and Suspicious Activity Reports.
FinCEN announced a final rule that exempts casinos from the requirement to file CTRs on jackpots from slot machines and video lottery terminals.
The final rule also exempts reportable currency transactions involving certain money plays and bills inserted into electronic gaming devices under certain conditions.
31 CFR Chapter X restructured and renumbered the regulations from 31 CFR 103 so that each regulation can be distinguished as either a regulation that applies to a specific industry or a regulation that applies to all sectors that fall under BSA compliance.
How Does Title 31 Apply to Casinos and Card Clubs?
The Bank Secrecy Act, initially designed to thwart illegal activities like drug trafficking and tax evasion, has now become a vital tool in the fight against terrorist financing. You play a crucial role in this mission as owners, managers, and employees of casinos and card clubs.
In 1985, the United States Department of Treasury amended Title 31 to include casinos and card clubs as "financial institutions." This amendment addressed concerns that these establishments were being used for large-scale money laundering operations.
Under Title 31, casinos must report any suspicious transactions involving money laundering or other criminal activities. Specifically, they must provide identifying information on any individual in the casino who conducts more than $10,000 in transactions within 24 hours.
These reports must be filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Treasury Department.
On March 1, 2011, FinCEN transferred its regulations from 31 CFR Part 103 to 31 CFR Chapter X as part of an ongoing effort to increase the efficiency and effectiveness of its regulatory oversight.
Title 31 Compliance Requirements for Casinos and Card Clubs
Casinos and card clubs are considered financial institutions under Title 31, which subjects them to rigorous compliance requirements. These establishments must adhere to several vital regulations to prevent money laundering activities:
Currency Transaction Reports (CTRs)
Casinos must file a Currency Transaction Report (CTR) for any transaction or series of transactions that exceeds $10,000 within a single day. This includes both cash-in and cash-out activities. The purpose of the CTR is to create a paper trail that can be used to detect and investigate suspicious activities.
Suspicious Activity Reports (SARs)
In addition to CTRs, casinos must file Suspicious Activity Reports (SARs) if they detect any activity that might suggest money laundering or other financial crimes. SARs must be filed within 30 days of identifying suspicious behavior, and the information must be kept confidential to avoid tipping off potential criminals.
Anti-Money Laundering (AML) Programs
Casinos are required to implement and maintain robust Anti-Money Laundering (AML) programs. These programs must include internal policies, procedures, and controls to detect and prevent money laundering activities. Regular employee training and independent audits are essential to an effective AML program.
Recordkeeping Requirements
Under Title 31, casinos must keep detailed records of transactions, customer identification details, and any reports filed. These records must be maintained for at least five years and be readily available for review by regulatory authorities.
What are Common Money Laundering Techniques in Casinos?
Despite stringent regulations, some individuals and organizations still find workarounds to exploit casinos to launder illicit funds. Here are some standard techniques used in violation of Title 31:
- Structuring Transactions. Structuring involves breaking up large sums of money into smaller, less noticeable amounts, each below the reporting threshold of $10,000. These smaller transactions are conducted over several days or at different locations to avoid triggering CTR requirements.
- Chip Washing/Minimal Gambling. Also known as the "cash-in, cash-out" technique, chip washing involves a money launderer purchasing casino chips with illicit cash, gambling minimally, and then cashing out the chips. By doing so, the criminal can claim the funds are legitimate gambling winnings, thus disguising their true origin.
- Front Money Accounts. Some casinos offer front money accounts where patrons deposit cash in advance and draw against it while gambling. Money launderers can deposit large sums of money, gamble a little, and then withdraw the remainder, portraying illicit funds as gambling winnings.
- Third-Party Transactions. Money launderers might use intermediaries to conduct transactions on their behalf, making it harder to trace the money back to its illicit source. This can involve having multiple people make smaller deposits or withdrawals.
What Are the Criminal Penalties for Title 31 Noncompliance?
Casinos and card clubs who fail to report under Title 31 can face significant financial penalties. If the compliance failure is unintentional or due to negligence, the penalties will typically be civil fines of up to $50,000 (or $25,000 a day if the casino fails to have an AML).
However, if the negligence to report is deemed willful, the government may file criminal charges against the organization and its leaders. If you are charged and convicted of Title 31 violations, you could face the following in addition to the civil penalties mentioned above:
- Up to 5 years in federal prison and
- Up to $250,000 in fines.
If it is found that the violation occurred in tandem with other illegal financial activities exceeding $100,000 in 12 months, the criminal fines may be upped to $500,000. For additional information, contact our federal criminal defense attorneys at Eisner Gorin LLP, based in Los Angeles, California.
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