#89 © Copyright 2005, all rights reserved worldwide Gambling and the Law® is a registered trademark of Professor I Nelson Rose, Whittier Law School, Costa Mesa, CA
If you think about it, legal gambling establishments would be the last places you would expect to be aiding terrorists. Casinos, race tracks and even bingo halls are more likely to be targets than supporters of Islamic fundamentalists out to overthrow our government. And state lotteries ARE the government.
But Congress and the federal bureaucracy are now seeing terrorist threats under every bridge and inside every slot machine.
Congress passed the Patriot Act in 2002 and the Treasury Department quickly followed with new regulations. The laudatory goal: “identifying, disrupting, and dismantling the financial infrastructure and sources of terrorist funding.”
This meant more than targeting the flow of money from Saudi Arabia and Syria to Palestinian suicide bombers.
Lawmakers found that terrorist groups are increasingly using “front companies,” legitimate businesses, to avoid suspicion. The fact that the front companies were usually Muslim charities and not licensed casinos does not matter. Casinos have lots of cash, and therefore are going to be treated as possible sources of terrorist funding.
The Treasury Department established a new working group following 9/11 – Operation Green Quest.
Green Quest now includes representatives from the IRS, FBI, ATF, DOJ, Customs, Secret Service, Post Office, Naval Criminal Investigative Service and Financial Crime Enforcement Network (FINCen), among others. If you do not know what all those initials mean, it does not matter – just remember the last one, FINCen.
As of March 26, 2003, FINCen is the mother of all government agencies for the casino industry. The metaphor is not a joke. Casinos are now supposed to snitch on their best friends, their largest patrons, if they see them do anything suspicious.
Nevada regulators tried, and failed, to win an exemption from the federal government, since Nevada already had its own regulations. Casinos that win more than $10 million a year have been filing forms titled Suspicious Activities Report by Casinos or SARCs with the Nevada Gaming Control Board for a few years.
The Gaming Control Board exempted smaller casinos, since they were unlikely to have many large cash transactions.
But the Treasury Department turned down the Nevada regulators’ request.
Now, any casino that wins more than $1 million annually has to file SARCs with the federal government’s Michigan-based FINCen. The Las Vegas Review-Journal reported that Gaming Control Board Chairman Dennis Neilander estimated, “About 140 casinos, grocery stores and small slot routes fall into the $1 million – $10 million range.”
Worse, the standard for when a casino has to file a SARC has been changed.
Under the Nevada regulations, casino employees could use their own common sense in deciding whether a transaction looks suspicious. The new test is much broader, and casinos now face the possibility of being fined if a federal agent later decides the incident should have been reported.
Under the regulations which went into effect on March 26, 2003, casinos must track a player, if it looks like the patron might be involved in a total of at least $5,000 in cash transactions. Once the total cash handled by a player reaches $5,000, the casino must report him to FINCen under circumstances which are obvious and no so obvious.
Obviously, if the casino knows the funds are derived from illegal activity, FINCen gets a SARC. But the casino is required to file a form even when it does not know, so long as it “has reason to suspect” that a crime was involved.
Similarly, a SARC is required if the casino has reason to suspect that the cash transaction is intended to hide funds derived from illegal activity to evade any federal law or regulation. “Illegal activity” includes hiding the source of the money.
Does this mean that every time you see someone walk in with $5,000 cash you have to report him to FINCen? Do you have reason to suspect that a person with that much cash must be involved in at least one illegal activity – tax evasion?
The new regulations require casinos to play private detective with their high rollers, or medium roller who aggregate $5,000. A SARC must be filed if a cash transaction “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, including the background and possible purpose of the transaction.”
The new, federal regulations do not tell you exactly how deeply you are supposed to dig into your patrons’ backgrounds and possible motives.
Casinos are encouraged to file SARCs even when these standards have not been met.
It is important to remember that SARCs are not CTRs, Cash Transaction Reports. Every time a casino patron is involved in a cash transaction over $10,000, a report is filed with the federal government. To fill out a CTR, a casino has to ask the patron for two forms of identification.
No patron I.D. is required for a SARC. SARC are secret. The idea is to catch people involved in illegal activities, so the government does not want the bad guys tipped off, even if most of them turn out to have done nothing wrong. SARCs are so secret that a casino will be fined if it lets the patron know that he has been spied upon and that a report has been filed on his “suspicious activities” with a little-known, but very powerful, federal agency.
The new regulations are not completely unreasonable. Casinos are given one exception:
“A casino is not required to file a SARC for a robbery or burglary committed or attempted that is reported to appropriate law enforcement authorities.”
So, the bad news is, you’ve been robbed of more than $5,000 cash. The good news is that this is one cash transaction where you don’t have to fill out a SARC.
Professor I Nelson Rose is recognized as one of the world’s leading authorities on gambling law. His website is www.GamblingAndTheLaw.com