What Happens in Vegas . . . Is Reported to the IRS

© Copyright 2011 by Prof. I. Nelson Rose, Encino, California.  All rights reserved worldwide.  Gambling and the Law® is a registered trademark of Prof. I. Nelson Rose, www.GamblingAndTheLaw.com.

Agents of the Internal Revenue Service are meeting informally with casino employees, asking them to voluntarily report suspicious activity.

Liz Benston broke the story in the August 5, 2010 Las Vegas Sun.1  But, so far, the idea that the IRS would ask casinos to turn in some of their best customers has received little national attention.  Perhaps this is because gaming operators are already required to spy and report on their high-rollers.

Tax authorities dislike legal gambling.  They know that many players will not voluntarily report their winnings.

So, they enacted laws and regulations to require casinos, race tracks, bingo halls, card clubs and state lotteries to become agents of the federal government.  The U.S. Congress passed laws requiring gaming operators to withhold and forward to the IRS part of certain big winnings, to make sure taxes get paid.

But the IRS went even further, without specific authorization from Congress, requiring operators to report certain big winners, even when no taxes were withheld.

Tax revenue is still the number one priority of the IRS.  But federal prosecutors and investigators also know that businesses that routinely deal with large cash transactions can also be useful for spotting criminal activity.

This can be as simple as tax evasion unrelated to not reporting winnings.  For example, a restaurant owner who claims business is bad on his tax filings, but is reported betting frequently with large amounts of cash, is going to get audited.

Or it can be real money laundering.  Treasury wants to know about the drug dealer who arrives with suitcases of fives, tens and twenties, makes a few bets and then asks for a check or stacks of hundred dollar bills.  Of course, when was the last time that actually happened?

After 9/11, there is increased concern about Islamist terrorists.  Muslim extremists are not normally thought of as big gamblers, unless you count Palestinian suicide bombers who blow themselves up in the hope of getting 72 virgins in the afterlife.  But anti-gambling activists have argued that legal gaming commonly deals with cash, and terrorists use cash, so therefore there is the possibility that terrorists are somehow using casinos.

Over the last 26 years, the federal government has greatly expanded the duty of casinos to report large or suspicious transactions.  The result has been a turning on its head of American law.

Unlike many European countries, the United States does not have a history of “good Samaritan” laws.  Just as Americans are normally under no duty to rescue a person in trouble, they are not required to report crimes being committed, even when they can do so with no danger to themselves.

American law normally does not require sellers to know where their buyers got their money.  Without a special statute or regulation, a casino is under no duty to verify that a player is gambling with honestly obtained funds.  In fact, a casino executive would normally not be required to report a customer even if he knew the player was using ill-gotten gains.

Of course, intentionally helping a criminal is another matter.

It has always been against the law for a casino employee to help a high-roller launder money.  The crime is called conspiracy, usually a felony, and consists of agreeing with another person to commit some other crime.  There must be an actual agreement, although it need not be words on paper, or even words at all.  Certainly, a nod of the head would be enough.

The law also imposes criminal liability on anyone who intentionally helps another commit a crime.  This is commonly known as aiding and abetting, accomplice liability or complicity.  But where conspiracy is a separate crime, aiding and abetting is merely a way of making the accomplice liable for crimes someone else has committed.  So, helping a crook launder money makes the accomplice guilty of the crime of money laundering.

The feds sometimes have trouble separating true money laundering from gambling.  The examples used to impose currency reporting requirements on casinos included Antonio Cruz Vasquez, a major heroin distributor, who “lost almost $3 million at the gambling tables during a two-year period that ended in

December, 1977.”  As I wrote in my 1986 book, Gambling and the Law, “Losing $3 million shows that he was gambling: a money launderer only makes token bets to cover his exchange of dirty money for clean.”2

Ironically, it was the Administration of conservative Republican Ronald Reagan, who campaigned on getting government off the backs of citizens, which imposed those currency reporting requirements on casinos, in, appropriately, 1984.

Back in 1970, Congress decided it would be much easier to catch drug dealers and other nefarious types if records were kept of the financial transactions of every person in the United States.  The statute was given the ironic name, “The Bank Secrecy Act.”  Secrecy was not one of its concerns.  For example, every bank was required to photocopy and keep records which would enable the government to trace each check drawn for more than $100.  Since banks don’t read checks, this resulted in banks keeping permanent records of every check, no matter how small.

In addition, every “financial institution” had to file a report within 15 days of each transaction involving more than $10,000 in cash.  Of course, $10,000 was considered a lot of money, 41 years ago.

On January 1, 1985, Reagan’s Treasury Department issued regulations declaring that licensed casinos with gross gaming revenues of more than $1,000,000 per year were “financial institutions” under the SBA.  This had the immediate impact that large casinos had to file Currency Transaction Reports, later renamed Currency Transaction Reports Casinos (“CTRCs”), with Treasury.

So, casinos outside of Nevada have been required to file CTRCs for more than 26 years, detailing the amount and the player’s name, address, occupation and Social Security number, every time a player bought or redeemed chips, or even won a slot machine jackpot, and more than $10,000 in cash was involved.  The currency reporting requirements were extended to tribal casinos effective August 1, 1996.

Nevada was able to win an exemption from the federal Treasury regulations only by putting in its own identical system, Regulation 6A.  And those CTRCs, filed with the Nevada Gaming Control Board, were made available to the Internal Revenue Service anyway.

In 1988 I made a request under the Freedom of Information Act and obtained a copy of the Treasury Department’s own estimate of how much time it expected casinos would be forced to spend each year on these new CTRCs.  Treasury predicted that there would be 200 casinos, filing 150 responses each per year.  It estimated that even the largest casino would spend no more than 50 hours per year.

I conducted a confidential survey of casinos in Nevada, Atlantic City and Puerto Rico.  The results showed that even back then, far more time was consumed than was predicted.  Smaller casinos, grossing under $20 million per year, typically filed no CTRCs.  Yet, each one expended approximately 50 hours each year in paid personnel time to comply with the regulations.  Larger casinos varied greatly in the number of CTRCs filed, from zero to 75 in a single month.  Yet, all agreed that the cash reporting regulations required not 50 hours per year, but about 60 hours every month.

And casinos take these regulations seriously, because violations lead to stiff criminal fines and even prison.

Waldemar and Loretta Ratzlaf, of Portland, Oregon were high rollers.  They had established lines of credit in 15 casinos in Atlantic City and Nevada.  On October 20, 1988, Waldemar had a bad night at what the court described as “the High Sierra casino in Reno.”3  The casino increased his credit line that day from $25,000 to $160,000, which he promptly lost playing blackjack.  The High Sierra gave them a week to come up with the $160,000.

The Ratzlafs had the cash, but they did not want to file CTRCs.  There is some dispute as to who said what, but it is clear that the High Sierra let the Ratzlafs have a casino limousine and driver so that they could go from bank to bank, purchasing cashiers checks in amounts less than $10,000.

The Ratzlafs were convicted of willfully structuring financial transactions to avoid currency reporting requirements.  Waldemar was sentenced to 15 months in federal prison and a $26,300 fine; Loretta received five years probation and a fine of $7,900.

On January 11, 1994, the Ratzlafs received an unexpected deliverance.  The U.S. Supreme Court ruled 5 – 4 that they had not “willfully” broken the law,

because they did not know that what they were doing was illegal!4

Congress acted immediately to close that loophole.  Today, “structuring” is a crime, punishable by a fine and up to five years in prison.  No one may purposely break cash transactions into pieces smaller than $10,000 to avoid reporting requirements.5  This includes casino employees.

This is especially bad news for high rollers.  It is clear that the IRS examines the federal tax returns of anyone whose name appears on a CTRC from a casino.

Obviously, the IRS wants to know where the gambler got the cash, and whether all income taxes were paid.  A typical case is Salvatore Barbiero.

In 1985 and ’86, Barbiero operated Phil’s Pizza Palace at U.S. Highway 130 and State Highway 33, in Robbinsville, New Jersey.  His tax returns reported adjusted gross income of $13,597 and $2,613.  Unfortunately, his many trips to Atlantic City included reported cash transactions, such as buying $14,000 in chips from Bally’s and $20,800 from the Golden Nugget.  Using the cash expenditures method, the IRS determined that Barbiero had unreported income of $39,600 in 1985 and $65,190 in 1986.6

For a while, Nevada had an exemption, Regulation 6A, which still required reports be filed with state officials.  Nevada’s representatives were able to convince the Reagan Administration that if a patron won, say, a $20,000 jackpot, than we know it is not drug money.  But Nevada gaming officials, apparently at the request of the federal government, changed the rules in 1997.  All currency transactions of more than $10,000, even slot jackpots paid out in cash, had to be reported.

After 9/11, the federal government took over completely.  But the federal bureaucracy is much larger, and slower to change, that Nevada state regulators.  It took years for Treasury to get rid of CTRCs on large slot machine jackpots, even though these were already being reported to the IRS for tax withholding.

And government investigators realized data from legal gaming could be mined for even more information.  The federal Financial Crime Enforcement Network (FinCEN) imposed a requirement that casinos act as police officers, and report mere suspicions that a crime had taken place.

The form is SARCs, Suspicious Activities Report by Casinos, and it differs significantly from CTRCs.

CTRCs require casinos to ask the patron for two forms of identification.  It is actually against the law for a casino to tell a patron that a SARC has been filed on him.

CTRCs are triggered by an actual cash transaction of more than $10,000.  There is normally a minimum of $5,000 for SARCs.  But the casino is required to file a SARC if it knows, or suspects, or even has reason to suspect, that a transaction involves funds derived from illegal activities.

A casino will be fined if no SARC is filed when an executive has an actual suspicion, or with 20/20 hindsight when the casino employee should have had a suspicion.

The IRS is now pushing for more.  A SARC does not have to be filed for 30 days.  The IRS wants casino employees to call, now, when they think a patron is playing with stolen money.

Obviously, there is a conflict of interest, especially with casino hosts, whose livelihood depends on keeping high-rollers happy.  Reporting your best customers to the IRS is not a way to make friends.  But failure to do so could lead to being fired by casino bosses who don’t want fines, or even heat, from Treasury.

About the only good news for casino executives is that a federal law gives whistle-blowers complete protection from civil suits, even when they are wrong.  So, at least making that call on the whale with bundles of cash won’t result in a nasty lawsuit by the actually innocent high-roller.

It just means he will take his business to Macau or Singapore.

The following Notice has not been approved by any government official.  (In fact, some of them would probably be unhappy to see this warning published.)

WARNING TO ALL CASINO PATRONS:

If you win big, are a high roller, or do anything that a casino or the government regards as suspicious, you will be reported to the U.S. Treasury Department’s Financial Crimes Enforcement Network, commonly known as FinCEN.  The information will be made

available to the IRS and your local law enforcement agency.  Expect your taxes to be audited.  If you are ever involved in a messy lawsuit, your opponent may be able to obtain some of this information by subpoena, to show, for example, how much cash you used for gambling.  The casino will not always tell you when it files these reports; in fact, under some circumstances, it is not allowed to let you know that you have been reported to FinCEN.

All businesses are supposed to report cash transactions over $10,000.  But only “financial institutions” are required to file detailed reports and have compliance programs in place to make sure the reports get filed.  And only “financial institutions” have to report “suspicious activities” involving more than $3,000 to FinCEN.

It may come as a surprise to most players and even executives in the gaming industry that large casinos and card clubs have been defined as “financial institutions.”

It will certainly be a shock to most players to learn that they may be the subject of secret reports filed by casinos with the federal government.

All casinos and card clubs with gross annual gaming revenues in excess of $1 million must file CTRCs with the federal government every time a player has a cash transaction of more than $10,000.  This includes players using currency to buy chips, deposit front money, pay off markers, make large wagers or collect large winning bets.

The last is particularly interesting, because the original purpose of CTRCs was to track crooks who were using casinos for money laundering, like a drug dealer who bought gaming chips with $25,000 in small bills, made a few token bets, and then asked for a cashier’s check for his remaining chips.

The U.S. Congress, which is supposedly the body that actually makes the laws, had established complicated rules for withholding taxes of gambling winnings, but only under special circumstances.  For example, a sports book has to withhold 28 percent of the amount won, but only if it is more than $5,000 and at least 300 times as large as the amount bet.7

For years the IRS has gone further by requiring casinos to report big wins at bingo, slot machines and keno, even though no money was withheld for taxes.8

Today, a CTRC must be filed on every patron who cashes out for more than $10,000 in currency — no matter what the game and even if the player has lost money gambling.

The regulations also used to require that casinos obtain identification from the player before filing a CTRC.

Today, a casino does not have to ask for a player’s i.d. if it already has the patron’s name, address and similar information.  This eases the casinos’ workload and prevents disruptions.  But it also means high-rollers do not have to be told when the casino files CTRCs with the IRS.

The reason for the changes is simple:  The Treasury Department has admitted that one of its primary goals is to go after untaxed cash transactions that have nothing to do with money laundering.

But Treasury still wants to catch drug dealers.  So, it has taken the next step:  “Suspicious Activity Reports – Casinos” or SARCs, to be filed with FinCEN.

What exactly is a “suspicious activity”?

The amount does not have to be more than $10,000; a total of $3,000 or less can trigger a report.  Nor does it have to involve any currency.

FinCEN likes to say the standard is “know your patron.”  But the actual regulation is more vague, including phrases like a casino employee “has reason to suspect” that the transaction “has no business or apparent lawful purpose.”

Casinos face large fines if they fail to report suspicious transactions, and they cannot be sued for filing SARCs when players were doing nothing wrong.  So, when in doubt, casinos will err on the side of filing reports on their patrons.

It is against the law for a casino to tell a player that it has reported his suspicious activity to FinCEN.

This might catch more crooks.  But it is hard to picture casino executives as secret police.

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.

After 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 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.”9

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 not 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 federal 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 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.

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.

NEW FINAL RULE

FinCEN issued a Final Rule on October 26, 2010 of all its regulations under the Bank Secrecy Act.10  Here are the regulations under 31 CFR Chapter X (75 FR 65806 on) that are of most concern for casinos:

Definitions:

(5)(i) Casino. A casino or gambling casino that: Is duly licensed or authorized to do business as such in the United States, whether under the laws of a State or of a Territory or Insular Possession of the United States, or under the Indian Gaming Regulatory Act or other Federal, State, or tribal law or arrangement affecting Indian lands (including, without limitation, a casino operating on the assumption or under the view that no such authorization is required for casino operation on Indian lands); and has gross annual gaming revenue in excess of $1 million. The *65814 term includes the principal headquarters and every domestic branch or place of business of the casino.

(ii) For purposes of this paragraph (t)(5), “gross annual gaming revenue” means the gross gaming revenue received by a casino, during either the previous business

year or the current business year of the casino. A casino or gambling casino which is a casino for purposes of this chapter solely because its gross annual gaming revenue exceeds $1,000,000 during its current business year, shall not be considered a casino for purposes of this chapter prior to the time in its current business year that its gross annual gaming revenue exceeds $1,000,000.

(iii) Any reference in this chapter, other than in this paragraph (t)(5) and in paragraph (t)(6) of this section, to a casino shall also include a reference to a card club, unless the provision in question contains specific language varying its application to card clubs or excluding card clubs from its application;

(6)(i) Card club. A card club, gaming club, card room, gaming room, or similar gaming establishment that is duly licensed or authorized to do business as such in the United States, whether under the laws of a State, of a Territory or Insular Possession of the United States, or of a political subdivision of any of the foregoing, or under the Indian Gaming Regulatory Act or other Federal, State, or tribal law or arrangement affecting Indian lands (including, without limitation, an establishment operating on the assumption or under the view that no such authorization is required for operation on Indian lands for an establishment of such type), and that has gross annual gaming revenue in excess of $1,000,000. The term includes the principal headquarters and every domestic branch or place of business of the establishment. The term “casino,” as used in this chapter shall include a reference to “card club” to the extent provided in paragraph (t)(5)(iii) of this section.

(ii) For purposes of this paragraph (t)(6), “gross annual gaming revenue” means the gross revenue derived from or generated by customer gaming activity (whether in the form of per-game or per-table fees, however computed, rentals, or otherwise) and received by an establishment, during either the establishment’s previous business year or its current business year. A card club that is a financial institution for purposes of this chapter solely because its gross annual revenue exceeds $1,000,000 during its current business year, shall not be considered a financial institution for purposes of this chapter prior to the time in its current business year when its gross annual revenue exceeds $1,000,000…

(bbb) Transaction. (1) Except as provided in paragraph (bbb)(2) of this section, transaction means a purchase, sale, loan, pledge, gift, transfer, delivery, or other disposition, and with respect to a financial institution includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, security, contract of sale of a commodity for future delivery, option on any contract of sale of a commodity for future delivery, option on a commodity, purchase or redemption of any money order, payment or order for any money remittance or transfer, purchase or redemption of casino chips or tokens, or other gaming instruments or any other payment, transfer, or delivery by, through, or to a financial institution, by whatever means effected.11

PART 1021–RULES FOR CASINOS AND CARD CLUBS
Subpart A–Definitions
Sec. 1021.100 Definitions.
Subpart B–Programs
1021.200 General.
1021.210 Anti-money laundering program requirements for casinos.
Subpart C–Reports Required To Be Made By Casinos and Card Clubs
1021.300 General.
1021.310 Reports of transactions in currency.
1021.311 Filing obligations.
1021.312 Identification required.
1021.313 Aggregation.
1021.314 Structured transactions.
1021.315 Exemptions.
1021.320 Reports by casinos of suspicious transactions.
1021.330 Exceptions to the reporting requirements of 31 U.S.C. 5331.

Subpart D–Records Required To Be Maintained By Casinos and Card Clubs
1021.400 General.
1021.410 Additional records to be made and retained by casinos.
Subpart E–Special Information Sharing Procedures To Deter Money Laundering and Terrorist Activity for Casinos and Card Clubs
1021.500 General.
1021.520 Special information sharing procedures to deter money laundering and terrorist activity for casinos and card clubs.
1021.540 Voluntary information sharing among financial institutions.
Subpart F–Special Standards of Diligence; Prohibitions, and Special Measures for Casinos and Card Clubs
1021.600 General.
1021.610 Due diligence programs for correspondent accounts for foreign financial institutions.
1021.620 Due diligence programs for private banking accounts.
1021.630 Prohibition on correspondent accounts for foreign shell banks; records concerning owners of foreign banks and agents for service of legal process.
1021.670 Summons or subpoena of foreign bank records; Termination of correspondent relationship.
Subpart A–Definitions
31 CFR § 1021.100
§ 1021.100 Definitions.

Refer to § 1010.100 of this Chapter for general definitions not noted herein. To the extent there is a differing definition in § 1010.100 of this Chapter, the definition in this Section is what applies to Part 1021. Unless otherwise indicated, for purposes of this Part:

(a) Business year means the annual accounting period, such as a calendar or fiscal year, by which a casino maintains its books and records for purposes of subtitle A of title 26 of the United States Code.

(b) Casino account number means any and all numbers by which a casino identifies a customer.

(c) Customer includes every person which is involved in a transaction to which this chapter applies with a casino, whether or not that person participates, or intends to participate, in the gaming activities offered by that casino.

(d) Gaming day means the normal business day of a casino. For a casino that offers 24 hour gaming, the term means that 24 hour period by which the casino keeps its books and records for business, accounting, and tax purposes. For purposes of the regulations contained in this chapter, each casino may have only one gaming day, common to all of its divisions.

(e) Machine-readable means capable of being read by an automated data processing system.

Subpart B–Programs
31 CFR § 1021.200
§ 1021.200 General.

Casinos and card clubs are subject to the program requirements set forth and cross referenced in this subpart. Casinos and card clubs should also refer to Subpart B of Part 1010 of this Chapter for program requirements contained in that subpart which apply to casinos and card clubs.

31 CFR § 1021.210
§ 1021.210 Anti-money laundering program requirements for casinos.
(a) Requirements for casinos. A casino shall be deemed to satisfy the requirements of 31 U.S.C. 5318(h)(1) if it implements and maintains a compliance program described in paragraph (b) of this section.

(b) Compliance programs. (1) Each casino shall develop and implement a written program reasonably designed to assure and monitor compliance with the requirements set forth in 31 U.S.C. *65851 chapter 53, subchapter II and the regulations contained in this chapter.

(2) At a minimum, each compliance program shall provide for:

(i) A system of internal controls to assure ongoing compliance;

(ii) Internal and/or external independent testing for compliance. The scope and frequency of the testing shall be commensurate with the money laundering and terrorist financing risks posed by the products and services provided by the casino;

(iii) Training of casino personnel, including training in the identification of unusual or suspicious transactions, to the extent that the reporting of such transactions is required by this chapter, by other applicable law or regulation, or by the casino’s own administrative and compliance policies;

(iv) An individual or individuals to assure day-to-day compliance;

(v) Procedures for using all available information to determine:

(A) When required by this chapter, the name, address, social security number, and other information, and verification of the same, of a person;

(B) The occurrence of any transactions or patterns of transactions required to be reported pursuant to § 1021.320;

(C) Whether any record as described in subpart D of Part 1010 of this Chapter or subpart D of this Part 1021 must be made and retained; and

(vi) For casinos that have automated data processing systems, the use of automated programs to aid in assuring compliance.

Subpart C–Reports Required To Be Made By Casinos and Card Clubs

31 CFR § 1021.300

§ 1021.300 General.

Casinos and card clubs are subject to the reporting requirements set forth and cross referenced in this subpart. Casinos and card clubs should also refer to Subpart C of Part 1010 of this Chapter for reporting requirements contained in that subpart which apply to casinos and card clubs.

31 CFR § 1021.310

§ 1021.310 Reports of transactions in currency.

The reports of transactions in currency requirements for casinos are located in subpart C of Part 1010 of this Chapter and this subpart.

31 CFR § 1021.311

§ 1021.311 Filing obligations.

Each casino shall file a report of each transaction in currency, involving either cash in or cash out, of more than $10,000.

(a) Transactions in currency involving cash in include, but are not limited to:
(1) Purchases of chips, tokens, and other gaming instruments;
(2) Front money deposits;
(3) Safekeeping deposits;
(4) Payments on any form of credit, including markers and counter checks;
(5) Bets of currency, including money plays;
(6) Currency received by a casino for transmittal of funds through wire transfer for a customer;
(7) Purchases of a casino’s check;
(8) Exchanges of currency for currency, including foreign currency; and
(9) Bills inserted into electronic gaming devices.
(b) Transactions in currency involving cash out include, but are not limited to:
(1) Redemptions of chips, tokens, tickets, and other gaming instruments;
(2) Front money withdrawals;
(3) Safekeeping withdrawals;
(4) Advances on any form of credit, including markers and counter checks;
(5) Payments on bets;
(6) Payments by a casino to a customer based on receipt of funds through wire transfers;
(7) Cashing of checks or other negotiable instruments;
(8) Exchanges of currency for currency, including foreign currency;
(9) Travel and complimentary expenses and gaming incentives; and
(10) Payment for tournament, contests, and other promotions.

(c) Other provisions of this chapter notwithstanding, casinos are exempted from the reporting obligations found in this section and § 1021.313 for the following transactions in currency or currency transactions:

(1) Transactions between a casino and a currency dealer or exchanger, or between a casino and a check casher, as those terms are defined in § 1010.100(ff) of this Chapter, so long as such transactions are conducted pursuant to a contractual or other arrangement with a casino covering the financial services in paragraphs (a)(8), (b)(7), and (b)(8) of this section;

(2) Cash out transactions to the extent the currency is won in a money play and is the same currency the customer wagered in the money play, or cash in transactions to the extent the currency is the same currency the customer previously wagered in a money play on the same table game without leaving the table;

(3) Bills inserted into electronic gaming devices in multiple transactions (unless a casino has knowledge pursuant to § 1021.313 in which case this exemption would not apply); and

(4) Jackpots from slot machines or video lottery terminals.

31 CFR § 1021.312

§ 1021.312 Identification required.

Refer to § 1010.312 of this Chapter for identification requirements for reports of transaction in currency filed by casinos and card clubs.

31 CFR § 1021.313

§ 1021.313 Aggregation.

In the case of a casino, multiple currency transactions shall be treated as a single transaction if the casino has knowledge that they are by or on behalf of any person and result in either cash in or cash out totaling more than $10,000 during any gaming day. For purposes of this section, a casino shall be deemed to have the knowledge described in the preceding sentence, if: Any sole proprietor, partner, officer, director, or employee of the casino, acting within the scope of his or her employment, has knowledge that such multiple currency transactions have occurred, including knowledge from examining the books, records, logs, information retained on magnetic disk, tape or other machine-readable media, or in

any manual system, and similar documents and information, which the casino maintains pursuant to any law or regulation or within the ordinary course of its business, and which contain information that such multiple currency transactions have occurred.

31 CFR § 1021.314

§ 1021.314 Structured transactions.

Refer to § 1010.314 of this Chapter for rules regarding structured transactions for casinos.

31 CFR § 1021.315

§ 1021.315 Exemptions.

Refer to § 1010.315 of this Chapter for exemptions from the obligation to file reports of transactions in currency for casinos.

31 CFR § 1021.320

§ 1021.320 Reports by casinos of suspicious transactions.

(a) General. (1) Every casino shall file with FinCEN, to the extent and in the manner required by this section, a report of any suspicious transaction relevant to a possible violation of law or regulation. A casino may also file with FinCEN, by using the form specified in paragraph (b)(1) of this section, or otherwise, a report of any suspicious transaction that it believes is relevant to the possible violation of any law or regulation but whose reporting is not required by this section.

(2) A transaction requires reporting under the terms of this section if it is conducted or attempted by, at, or through a casino, and involves or aggregates at least $5,000 in funds or other assets, and the casino knows, suspects, or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part):

*65852 (i) Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation;

(ii) Is designed, whether through structuring or other means, to evade any requirements of this chapter or of any other regulations promulgated under the Bank Secrecy Act;

(iii) 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; or

(iv) Involves use of the casino to facilitate criminal activity.

(b) Filing procedures–(1) What to file. A suspicious transaction shall be reported by completing a Suspicious Activity Report by Casinos (“SARC”), and collecting and maintaining supporting documentation as required by paragraph (d) of this section.

(2) Where to file. The SARC shall be filed with FinCEN in a central location, to be determined by FinCEN, as indicated in the instructions to the SARC.

(3) When to file. A SARC shall be filed no later than 30 calendar days after the date of the initial detection by the casino of facts that may constitute a basis for filing a SARC under this section. If no suspect is identified on the date of such initial detection, a casino may delay filing a SARC for an additional 30 calendar days to identify a suspect, but in no case shall reporting be delayed more than 60 calendar days after the date of such initial detection. In situations involving violations that require immediate attention, such as ongoing money laundering schemes, the casino shall immediately notify by telephone an appropriate law enforcement authority in addition to filing timely a SARC. Casinos wishing voluntarily to report suspicious transactions that may relate to terrorist activity may call FinCEN’s Financial Institutions Hotline at 1-866-556-3974 in addition to filing timely a SARC if required by this section.

(c) Exceptions. 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.

(d) Retention of records. A casino shall maintain a copy of any SARC filed and the original or business record equivalent of any supporting documentation for a period of five years from the date of filing the SARC. Supporting documentation shall be identified as such and maintained by the casino, and shall be deemed to

have been filed with the SARC. A casino shall make all supporting documentation available to FinCEN, any other appropriate law enforcement agencies or Federal, State, local, or tribal gaming regulators upon request.

(e) Confidentiality of reports; limitation of liability. No casino, and no director, officer, employee, or agent of any casino, who reports a suspicious transaction under this chapter, may notify any person involved in the transaction that the transaction has been reported. Thus, any person subpoenaed or otherwise requested to disclose a SARC or the information contained in a SARC, except where such disclosure is requested by FinCEN or another appropriate law enforcement or regulatory agency, shall decline to produce the SARC or to provide any information that would disclose that a SARC has been prepared or filed, citing this paragraph (e) and 31 U.S.C. 5318(g)(2), and shall notify FinCEN of any such request and its response thereto. A casino, and any director, officer, employee, or agent of such casino, that makes a report pursuant to this section (whether such report is required by this section or made voluntarily) shall be protected from liability for any disclosure contained in, or for failure to disclose the fact of, such report, or both, to the extent provided by 31 U.S.C. 5318(g)(3).

(f) Compliance. Compliance with this section shall be audited by the Department of the Treasury, through FinCEN or its delegees, under the terms of the Bank Secrecy Act. Failure to satisfy the requirements of this section may constitute a violation of the reporting rules of the Bank Secrecy Act and of this chapter.

(g) Applicability date. This section applies to transactions occurring after March 25, 2003.

31 CFR § 1021.330

§ 1021.330 Exceptions to the reporting requirements of 31 U.S.C. 5331.

(a) Receipt of currency by certain casinos having gross annual gaming revenue in excess of $1,000,000–In general. If a casino receives currency in excess of $10,000 and is required to report the receipt of such currency directly to the Treasury Department under § 1010.306, § 1021.311, or § 1021.313 and is subject to the recordkeeping requirements of § 1021.410, then the casino is not required to make a report with respect to the receipt of such currency under 31 U.S.C. 5331 and this section.

(b) Casinos exempt under § 1010.970(c). Pursuant to § 1010.970, the Secretary may exempt from the reporting and recordkeeping requirements under § 1010.306, § 1021.311, § 1021.313 or § 1021.410 casinos in any state whose regulatory system substantially meets the reporting and recordkeeping requirements of this chapter. Such casinos shall not be required to report receipt of currency under 31 U.S.C. 5331 and this section.

(c) Reporting of currency received in a non-gaming business. Non-gaming businesses (such as shops, restaurants, entertainment, and hotels) at casino hotels and resorts are separate trades or businesses in which the receipt of currency in excess of $10,000 is reportable under section 5331 and these regulations. Thus, a casino exempt under paragraph (a) or (b) of this section must report with respect to currency in excess of $10,000 received in its non-gaming businesses.

(d) Example. The following example illustrates the application of the rules in paragraphs (a) and (c) of this section:

Example. A and B are casinos having gross annual gaming revenue in excess of $1,000,000. C is a casino with gross annual gaming revenue of less than $1,000,000. Casino A receives $15,000 in currency from a customer with respect to a gaming transaction which the casino reports to the Treasury Department under §§ 1010.306, 1021.311, and 1021.313. Casino B receives $15,000 in currency from a customer in payment for accommodations provided to that customer at Casino B’s hotel. Casino C receives $15,000 in currency from a customer with respect to a gaming transaction. Casino A is not required to report the transaction under 31 U.S.C. 5331 or this section because the exception for certain casinos provided in paragraph (a) of this section (“the casino exception”) applies. Casino B is required to report under 31 U.S.C. 5331 and this section because the casino exception does not apply to the receipt of currency from a nongaming activity. Casino C is required to report under 31 U.S.C. 5331 and this section because the casino exception does not apply to casinos having gross annual gaming revenue of $1,000,000 or less which do not have to report to the Treasury Department under §§ 1010.306, 1021.311, and 1021.313.

Subpart D–Records Required To Be Maintained By Casinos and Card Clubs

31 CFR § 1021.400

§ 1021.400 General.

Casinos and card clubs are subject to the recordkeeping requirements set forth and cross referenced in this subpart. Casinos and card clubs should also refer to Subpart D of Part 1010 of this Chapter *65853 for recordkeeping requirements contained in that subpart which apply to casinos and card clubs.

31 CFR § 1021.410

§ 1021.410 Additional records to be made and retained by casinos.

(a) With respect to each deposit of funds, account opened or line of credit extended after the effective date of these regulations, a casino shall, at the time the funds are deposited, the account is opened or credit is extended, secure and maintain a record of the name, permanent address, and social security number of the person involved. Where the deposit, account or credit is in the names of two or more persons, the casino shall secure the name, permanent address, and social security number of each person having a financial interest in the deposit, account or line of credit. The name and address of such person shall be verified by the casino at the time the deposit is made, account opened, or credit extended. The verification shall be made by examination of a document of the type described in § 1010.312 of this Chapter, and the specific identifying information shall be recorded in the manner described in § 1010.312 of this Chapter. In the event that a casino has been unable to secure the required social security number, it shall not be deemed to be in violation of this section if it has made a reasonable effort to secure such number and it maintains a list containing the names and permanent addresses of those persons from who it has been unable to obtain social security numbers and makes the names and addresses of those persons available to the Secretary upon request. Where a person is a nonresident alien, the casino shall also record the person’s passport number or a description of some other government document used to verify his identity.

(b) In addition, each casino shall retain either the original or a microfilm or other copy or reproduction of each of the following:

(1) A record of each receipt (including but not limited to funds for safekeeping or front money) of funds by the casino for the account (credit or deposit) of any person. The record shall include the name, permanent address and social security number of the person from whom the funds were received, as well as the date and

amount of the funds received. If the person from whom the funds were received is a non-resident alien, the person’s passport number or a description of some other government document used to verify the person’s identity shall be obtained and recorded;

(2) A record of each bookkeeping entry comprising a debit or credit to a customer’s deposit account or credit account with the casino;

(3) Each statement, ledger card or other record of each deposit account or credit account with the casino, showing each transaction (including deposits, receipts, withdrawals, disbursements or transfers) in or with respect to, a customer’s deposit account or credit account with the casino;

(4) A record of each extension of credit in excess of $2,500, the terms and conditions of such extension of credit, and repayments. The record shall include the customer’s name, permanent address, social security number, and the date and amount of the transaction (including repayments). If the customer or person for whom the credit extended is a non-resident alien, his passport number or description of some other government document used to verify his identity shall be obtained and recorded;

(5) A record of each advice, request or instruction received or given by the casino for itself or another person with respect to a transaction involving a person, account or place outside the United States (including but not limited to communications by wire, letter, or telephone). If the transfer outside the United States is on behalf of a third party, the record shall include the third party’s name, permanent address, social security number, signature, and the date and amount of the transaction. If the transfer is received from outside the United States on behalf of a third party, the record shall include the third party’s name, permanent address, social security number, signature, and the date and amount of the transaction. If the person for whom the transaction is being made is a non-resident alien the record shall also include the person’s name, his passport number or a description of some other government document used to verify his identity;

(6) Records prepared or received by the casino in the ordinary course of business which would be needed to reconstruct a person’s deposit account or credit account with the casino or to trace a check deposited with the casino through the casino’s

records to the bank of deposit;

(7) All records, documents or manuals required to be maintained by a casino under state and local laws or regulations, regulations of any governing Indian tribe or tribal government, or terms of (or any regulations issued under) any Tribal-State compacts entered into pursuant to the Indian Gaming Regulatory Act, with respect to the casino in question.

(8) All records which are prepared or used by a casino to monitor a customer’s gaming activity.

(9)(i) A separate record containing a list of each transaction between the casino and its customers involving the following types of instruments having a face value of $3,000 or more:

(A) Personal checks (excluding instruments which evidence credit granted by a casino strictly for gaming, such as markers);

(B) Business checks (including casino checks);

(C) Official bank checks;

(D) Cashier’s checks;

(E) Third-party checks;

(F) Promissory notes;

(G) Traveler’s checks; and

(H) Money orders.

(ii) The list will contain the time, date, and amount of the transaction; the name and permanent address of the customer; the type of instrument; the name of the drawee or issuer of the instrument; all reference numbers (e.g., casino account number, personal check number, etc.); and the name or casino license number of the casino employee who conducted the transaction. Applicable transactions will be placed on the list in the chronological order in which they occur.

(10) A copy of the compliance program described in § 1021.210(b).

(11) In the case of card clubs only, records of all currency transactions by customers, including without limitation, records in the form of currency transaction

logs and multiple currency transaction logs, and records of all activity at cages or similar facilities, including, without limitation, cage control logs.

(c)(1) Casinos which input, store, or retain, in whole or in part, for any period of time, any record required to be maintained by § 1010.410 of this Chapter or this section on computer disk, tape, or other machine-readable media shall retain the same on computer disk, tape, or machine-readable media.

(2) All indexes, books, programs, record layouts, manuals, formats, instructions, file descriptions, and similar materials which would enable a person readily to access and review the records that are described in § 1010.410 of this Chapter and this section and that are input, stored, or retained on computer disk, tape, or other machine-readable media shall be retained for the period of time such records are required to be retained.

*65854 Subpart E–Special Information Sharing Procedures To Deter Money Laundering and Terrorist Activity for Casinos and Card Clubs

31 CFR § 1021.500

§ 1021.500 General.

Casinos and card clubs are subject to the special information sharing procedures to deter money laundering and terrorist activity requirements set forth and cross referenced in this subpart. Casinos and card clubs should also refer to Subpart E of Part 1010 of this Chapter for special information sharing procedures to deter money laundering and terrorist activity contained in that subpart which apply to casinos and card clubs.12

END

I. NELSON ROSE

Professor I. Nelson Rose is a Distinguished Senior Professor at Whittier Law School and Visiting Professor at the University of Macau, an internationally known scholar, author and public speaker, and is recognized as one of the world’s leading experts on gaming law.

Prof. Rose is best known for his internationally syndicated column and 1986 landmark book, “Gambling and the Law®.”  He is the co-author of Internet Gaming Law (1st and 2nd editions), Blackjack and the Law, and the first casebook on the subject, Gaming Law: Cases and Materials (LexisNexis).  Prof. Rose is co-editor-in-chief of the Gaming Law Review and Economics.

Harvard Law School educated, Prof. Rose is a consultant to governments and industry.  He has testified as an expert witness in administrative, civil and criminal cases throughout the United States, in Australia and New Zealand, including the first NAFTA tribunal on gaming issues.  Prof. Rose has acted as a consultant to major law firms, international corporations, licensed casinos, Indian tribes, and local, state and national governments, including the provinces of Québec, Ontario, the states of Arizona, California, Delaware, Florida, Illinois, Michigan, New Jersey, Texas, and the federal governments of Canada, Mexico and the United States.

With the rising interest in gambling throughout the world, Prof. Rose has addressed such diverse groups as the National Conference of State Legislatures, Congress of State Lotteries of Europe and the National Academy of Sciences.  He has taught classes on gaming law to the F.B.I., at the University of Ljubljana in Slovenia, Sun Yat-sen University in China, the Universidad de Cantabria in Spain, Université de Toulouse in France, and as a Visiting Scholar for the University of Nevada-Reno’s Institute for the Study of Gambling and Commercial Gaming.  Prof. Rose has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, Canada, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic.

Prof. Rose can be reached through his website: www.GamblingAndTheLaw.com.