The basis of money-laundering regulation in the U.S. is the Bank Secrecy Act (BSA) of 1970, as later modified. This act originally only established reporting requirements for certain cash transactions. It did not itself define or criminalize money laundering. But the various BSA reports have become the Argus-eyes of the Treasury's Financial Crimes Enforcement Network (FinCEN, created in April 1990) and the IRS' Criminal Investigation and Examination Divisions. These agencies maintain what is in effect a large distributed data base of financial information on U.S. citizens.
Despite its name, the BSA is not directed only at banks. Any business which handles large amounts of cash, such as a casino, is targeted by the legislation. Casinos are examples of "non-bank financial institutions", which were included under the BSA in 1985 if they had gross annual gaming revenue over $1 million.
The BSA rules are not the same for all businesses. They're not even the same for all casinos. For example, Nevada casinos, by agreement with the Treasury Department, have an exemption from certain BSA reporting requirements.
The main legal requirements for casinos are found in the BSA (P.L. 91- 508, 84 Stat. 1114 (1970)); the Treasury department's implementing legislation at 31 C.F.R., part 103; the Indian Gaming Regulatory Act (IGRA) of 1988; Nevada Gaming Commission Regulation 6A; and Section 6050I of the Internal Revenue Code.
Section 5313 of the BSA requires a Currency Transaction Report (CTR) of certain cash deposits or transactions of $10,000 and above, which is IRS Form 4789, and a Currency Transaction Report by Casinos (CTRC), which is IRS Form 8362. Section 5316 of BSA also requires a Currency or Monetary Instrument Report (CMIR) for transport of $10,000 or more of currency in or out of the U.S. This is Customs Form 4790. Section 5314(a) of BSA requires reporting of foreign bank or financial accounts whose value exceeds $10,000 at any time during the preceding year. This is called a Foreign Bank Account Report (FBAR) and is Treasury form TDR 90-22-1. Section 6050I of the IRS Code requires the reporting of business transactions involving more than $10,000 cash. These are reported on IRS Form 8300.
Casinos which fall under the BSA requirements (such as New Jersey and riverboat casinos) must identify customers who buy chips in cash amounts larger than $10,000. Nevada casinos do this also under Nevada Gaming Commission Regulation 6A, but unlike BSA casinos, they do not report identifying information on payouts over $10,000 in verified winnings. Nevada, on the other hand, has state requirements that prevent certain cash- for-cash transactions. The exchange of small bills for large bills over $2,500 is prohibited, for example. Tribal casinos under IRS regulations report cash amounts over $10,000 paid in, but do not report amounts paid out.
"Tribal casinos" are gaming casinos operated by Indians who belong to one of the federally-recognized tribes in the U.S.--such as the Cabazon Tribe near Indio, California, or the Mashantucket Pequot Tribe, who operate the Foxwoods Resort Casino in Ledyard, Connecticut. Foxwoods is the largest tribal casino in the U.S.
The Indian Gaming Regulatory Act (IGRA) of 1988 did not make tribal casinos subject to BSA. But they are subject to Section 6050I of the IRS Code which requires the reporting of business receipt of more than $10,000 cash on IRS Form 8300. Casino payouts, however, are not reported. The Money Laundering Suppression Act of 1994 redefined BSA "financial institutions" to include some tribal casinos, and future implementing legislation may therefore require cash payouts larger than $10,000 to be reported also.
These various reports are entered ultimately into a common database. Customs Form 4790 goes to Custom's San Diego Data Center, while the IRS and BSA forms go to the IRS Detroit Computing Center, where they are entered into a national database--the Currency and Banking Retrieval System (CBRS). Nevada casinos file reports with the Nevada Gaming Control Board, which also forwards the reports to the IRS Detroit Computing Center.
FinCEN makes much of this data available to law enforcement agencies in the 50 states and to all federal law enforcement agencies. Only the tribal casino forms, which include income tax information--and are thus subject to disclosure restrictions--are not generally available to law enforcement agencies.
Despite the various reporting requirements, prior to 1986 money laundering itself was not a crime in the U.S. But 18 U.S.C. 1956, which was enacted in 1986, and strengthened in 1988, 1990, 1992, and 1994, changed all that. This addition to the U.S. code set out three categories of criminal money-laundering offenses: transaction offenses, transportation offenses, and "sting" offenses.
Briefly, a transaction offense is any attempt to make a financial transaction using the proceeds from any illegal activity. A transportation offense is the attempt to transfer money across the border when the money was obtained illegally or will be used for illegal purposes. A sting offense is the attempt to make a financial transaction with money that is legal, but which a federal law enforcement officer has lied about and claimed it has come from some illegal activity. More specifically:
Transaction Offenses: It is a money laundering transaction crime for any person to conduct, or to attempt to conduct, a financial transaction which, in fact, involves the proceeds of specified unlawful activity, knowing that the property involved in the transaction represents the proceeds of some crime, and, while engaging in the transaction, with either a) the intent to promote the carrying on of the specified unlawful activity, or b) the intent to commit certain tax crimes, or with the knowledge that the transaction is designed at least in part a) to conceal or disguise the nature, location, source, ownership, or control of the proceeds, or b) to avoid a cash reporting requirement.
Transportation Offenses: It is a money laundering transportation crime for any person to transport, transmit or transfer, or to attempt to transport, transmit or transfer, a monetary instrument or funds into or out of the U.S., and, while engaging in the act, with either a) the intent to promote the carrying on of specified unlawful activity, or b) the knowledge the monetary instrument or funds represent the proceeds of some crime, and the knowledge that the transportation, etc., is designed, at least in part, (i) to conceal or disguise the nature, location, source, ownership, or control of the proceeds, or (ii) to avoid a cash reporting requirement.
"Sting" Offenses: It is a money laundering crime for any person to conduct, or to attempt to conduct, a financial transaction which involves property represented to be the proceeds of specified unlawful activity, or property used to conduct or to facilitate specified unlawful activity, said representation being made by a law enforcement officer or by another person at the direction of, or with the approval of, a federal officer authorized to investigate or to prosecute 1956 crimes, and, while engaging in the transaction, with the intent to a) promote the carrying on of specified unlawful activity, or b) conceal or disguise the nature, location, source, ownership, or control of the property believed to be the proceeds of specified unlawful activity, or c) avoid a cash reporting requirement.
Thus, as originally defined, "money laundering" only took place if the financial transaction involved (or some law enforcement officer said it involved) some otherwise illegal activity. But the definition kept getting redefined to broaden its scope. Eventually the failure to fill out one of the BSA reports became, by legal definition, money laundering also.
But the expansion of law didn't stop there. Since some people attempted to evade the $10,000 threshold in the BSA reporting requirements, legislation was imposed that made "smurfing" or "structuring" a crime also. To divide a $10,000 cash payment into two $5,000 payments, in order to avoid filling out one of the BSA forms, is an example of structuring.
Structuring is defined in a 1991 amendment to the Bank Secrecy Act thusly: "Structure (structuring). . . . a person structures a transaction if that person, acting alone, or in conjunction with, or on behalf of other persons, conducts or attempts to conduct one or more transactions in currency in any amount, at one or more financial institutions, on one or more days in any manner, for the purpose of evading the reporting requirements . . . 'In any manner' includes, but is not limited to, the breaking down of a single sum of currency exceeding $10,000 into smaller sums, including sums at or below $10,000, or the conduct of a transaction or series of transactions, including transactions at or below $10,000. The transaction or transactions need not exceed the $10,000 reporting threshold at any single financial institution on any single day in order to constitute structuring within the meaning of this definition" (31 C.F.R. 103.11(p) (1991)).
Naturally all this paperwork made many cash-based businesses unhappy, and they complained to Congress. So the BSA was further modified to allow exemptions to the requirement to fill out currency transaction reports for businesses whose deposits or withdrawals of currency fall into any of the following categories (see 31 C.F.R. 103.22(b)(2)(1992)):
1) They are made from an existing bank account, and the business is an established U.S. depositor who operates a "retail type of business". This means that the business sells consumer goods for which payments are substantially in the form of currency, just as long as it is not an automobile, aircraft, or boat dealership. (Reporting is still mandatory for the latter, because it was claimed that drug dealers often buy cars, planes, or boats with cash.)
2) They are made from an existing bank account, and the business is an established U.S. depositor who operates a sports arena, race track, amusement park, restaurant, hotel, check cashing service licensed by state or local government, vending machine company, theater, regularly scheduled passenger carrier, or public utility. (This exemption means, of course, that race tracks and sports stadiums now provide important mechanisms for laundering cash.)
3) They are made by a local, state or United States governmental agency or instrumentality. (Government agencies who handle large amounts of cash thus frequently become venues for money laundering activity.)
4) They are made from an existing bank account, and the business is an established U.S. depositor who regularly withdraws more than $10,000 to pay its employees in currency.
Also exempt from CTR reporting are currency transactions made with Federal Reserve Banks or Federal Home Loan Banks, transactions between domestic banks, or transactions between commercial banks and nonbank financial institutions.
Of course, despite these convenient alternatives, money laundering also takes place through casinos. The relative size of different casino sectors can be ascertained through their gross annual gaming revenue (GAGR). In 1994 Nevada casinos had $6.8 billion GAGR, New Jersey casinos (who fall under the BSA) $3.4 billion, the 60 or so riverboat casinos $3.3 billion, and tribal casinos about $3 billion.
In the old days casino money laundering was as simple as walking into a casino with cash, buying casino chips, doing little or no gaming, and then turning in the chips for larger bills or a cashier's check. But now such cash purchases of chips in amounts larger than $10,000 are subject to the various reporting requirements if done all at once.
Smaller amounts are also aggregated under certain circumstances. Purchases in the same gaming area of less than $10,000 in BSA and Nevada casinos are aggregated if they take place within the same 24 hour period ("gaming day"), and are reported on IRS Form 8362 if the aggregate total exceeds $10,000. BSA, but not Nevada, casinos also aggregate across gaming areas. (This means, for example, that chip purchases at the blackjack tables are aggregated with the crap tables in BSA casinos.) Tribal casinos under IRS regulations have to aggregate chip purchases over a year's time. (A $6,000 purchase in January and a $5,000 purchase in August is supposed to result in the $11,000 total being reported on IRS Form 8300.)
The degree of casino compliance with the reporting requirements is not always clear. There has been virtually no IRS auditing of tribal casinos, for example.
In any case, cash in amounts smaller than $10,000 may be conveniently laundered through any of the casinos. Larger amounts may also be laundered, but will have to be spread across different gaming areas (in Nevada casinos), or different gaming days (in BSA or Nevada casinos), or divided up and laundered across several BSA, Nevada, or tribal casinos.
Another alternative available in Nevada casinos is to produce revenue through "verified winnings". ("Verified" means a casino employee signs his name to a form that the money was won in the casino.) You may have noticed that slot machine payoffs of $1 million and more tend to take place on casino gala opening nights with plenty of photogenic "beautiful people" in attendance and extensive press coverage. This is not surprising given that some slot machines are controlled by software that has certain override features--"back doors" which give casino managers the ability to force payment of a jackpot. The same back door can also be a convenient money laundering mechanism, since payouts of verified winnings are not matched against personal identifying information under Nevada gaming law. Naturally, the existence of these software back doors is a secret guarded as carefully as the existence of back doors in banking software.
Verified winnings in amounts greater than $10,000 are reported by Nevada casinos on state Currency Transaction Incidence Reports (CTIRs). These are also forwarded to the IRS Detroit Computing Center, but are not entered into the Currency and Banking Retrieval System, since the forms do not include customer names or any identifying customer identification. The IRS considers them useless.
The future will see virtual casinos and, logically, virtual money laundering. For example, Las Vegas- based Alliance Gaming Corporation, which recently acquired Bally Gaming International, wants to establish a dominant role in Internet gaming. It clearly has all the right ingredients.
First is Internet expertise. Alliance Gaming's Vice Chairman, Craig Fields, was formerly the Director of the Defense Advanced Research Projects Agency (DARPA), which created the Internet.
Second is gambling expertise. Bally, and by reflection Alliance, is a household name to the average gambler.
Third, well . . . According to some Nevada law enforcement officials I've spoken to, Alliance Gaming currently launders money for the CIA. That should give Alliance the experience it needs to expand the concept to cyberspace.
March 13, 1997
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