Money laundering at casinos – setting the record straight

Media stories of apparent money laundering problems

In the past twelve months, the media in British Columbia have published a plethora of news stories alleging that money laundering is rampant at all British Columbia casinos and that no one in the industry is doing anything about it, including the casinos, the British Columbia Lottery Corporation and the provincial gaming regulator.

According to these news reports, millions of dollars are laundered at British Columbia casinos weekly in circumstances that are suspicious, and furthermore, not only are suspicious transaction reports not being filed but, according to one Ontario law professor, casinos are “hiding behind the law which clears them of any responsibility for preventing illicit money from passing through their businesses.”[1] Even British Columbia’s solicitor general, Rich Coleman, went on the record to say that casino staff need to be trained to report suspicious transactions at casinos “to the police” more quickly.

Most of the above statements that appeared in the media are, in one respect or another, inaccurate.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “PC(ML)TFA”) does not authorize casino staff to prevent criminals from laundering the proceeds of crime. What it does is require casinos to collect certain information in connection with prescribed transactions and report that information to the Financial Transactions Reports Analysis Centre (“FINTRAC”). Although it may seem odd, the reality is that if casino staff prevented criminals from laundering funds, there would be no reports submitted to FINTRAC from casinos, and criminal investigations in this country, which rely heavily on these secret reports, would be significantly hampered.

It is also not true that casinos are “hiding behind the law.” Rather, casinos  generally tend to properly report required transactions to FINTRAC. If anything, they tend to over-report certain transactions such as suspicious and attempted suspicious transactions, because few casino employees understand that the PC(ML)TFA only requires that they report suspicious transactions if they have reasonable grounds to suspect that the transaction is related to the commission of a money laundering offence or a terrorist financing offence under the Criminal Code of Canada.

One rarely meets a casino employee in Canada who, before AML training, knows what, in law, constitutes “reasonable grounds to suspect” or what a money laundering offence or terrorist activity financing offence is. Most are not familiar with terrorist activity financing generally and are not aware that there are lists of persons, entities and terrorist groups that they must consult, or how to locate those lists. Casino employees tend to report transactions to FINTRAC when they are suspicious of a casino patron and not, as required, when they suspect that the casino transaction is related to one of the more than one hundred different money laundering predicate offences.

What about Rich Coleman’s statement that casino staff in British Columbia will be trained to report suspicious transactions to the police? I suspect Minister Coleman was misquoted because the PC(ML)TFA does not authorize a casino employee to report suspicious transactions to the police[2]. All that it authorizes the employee to do is report the suspicious transaction to FINTRAC who then discloses such information to law enforcement if it has reasonable grounds to suspect that the information would be relevant to an investigation or prosecution of a money laundering or terrorist activity financing offence.

Does money laundering happen at casinos?

Studies show that deposit-taking institutions (e.g. chartered banks, credit unions, caisse populaires and trust companies) and not casinos, present the greatest money laundering risk and outnumber all other laundering vehicles combined.

Money laundering does take place at casinos in Canada but because of the ubiquitous nature of the activity, it is nearly impossible to produce accurate statistics on the extent in which it occurs, or the amount of money involved. The following recent news articles connecting casinos with money laundering in the last few 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 certain drug traffickers were laundering money at Casino Rama and Mohawk Racetrack. The Ontario Lottery Corporation indicated that they believed at the time that one of the alleged money launderers was a good customer because she 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 recently 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 merely from these examples may appear staggering but is not significant in the context of the vast sums of money that are transacted daily at casinos in Canada and the United States. And it is a drop in the bucket compared to the much larger problem of money laundering that occurs at more traditional venues (i.e. deposit-taking institutions and money services businesses).

Why does money laundering at casinos garner such negative media attention?

Money laundering issues in Canada become the focus of media attention when they affect casinos but rarely when they affect other FINTRAC reporting entities (e.g. banks, accountants, notaries, real estate, etc.). The disproportionately negative attention given to money laundering at casinos is the result of the combination of a number of factors:

  • Casinos are cash intensive businesses and examples of money laundering at casinos are much more exciting to report about than similar events at banks – readers prefer to read stories about criminals using slot machines to wash duffle bags of cash above stories describing how proceeds of crime are laundered through bank accounts by a multitude of electronic wires;
  • In British Columbia, FINTRAC designated the British Columbia Lottery Corporation as the “casino” and with it the attendant reporting obligations under the PC(ML)TFA, rather than the casino operators – this creates confusion in the media and among the public who don’t understand that the casinos are not reporting entities for the purposes of the PC(ML)TFA. In fact, under the PC(ML)TFA, there is no authority for FINTRAC to have made such a designation and the casinos should be the reporting entities as the legislation intended, not the Crown corporations;
  • In Canada, the gaming industry sometimes denies money laundering occurs in casinos – it does occur and we need to be forthright about it but also explain that the risks are contained; and
  • The gaming industry does not have a national concerted effort to manage media relations as it affects casino money laundering.

[1] “B.C. takes aim at money laundering,” The Province, January 9, 2011.

[2] In the case of terrorist activity financing, however, every person in Canada, including casino employees, must report terrorist property in their possession or control to the RCMP and CSIS but this obligation arises pursuant to the Criminal Code of Canada.