Casino Compliance: How Is The Bank Secrecy Act Relevant To Casinos And Why Does It Matter?

May 4, 2021

By a Biometrica Staffer

Every now and then, on Tuesdays, we’ll delve into the rather arcane world of casino regulations and compliance, look at some of the more frequently asked questions that apparently come up with the Financial Crimes Enforcement Network (FinCEN), and attempt to get to the gist of their answers, so you don’t have to. For instance, two weeks ago, we looked at Suspicious Activity Reports (SARs) filed by casinos in Q1 2021, to determine if the world of American gaming was trending back to business.

This time, we thought we’d look at the basics of what you need to know when you’re dealing with the BSA. First, though, if you’re wondering what the BSA is, it’s the Bank Secrecy Act.

Yes, but what exactly is the BSA all about?

In 1970, the United States Congress passed the Currency and Foreign Transactions Reporting Act, now called the Bank Secrecy Act. It required financial institutions in the U.S. to help government agencies identify and prevent money laundering, with a specific focus on the recording and reporting of cash purchases of things like bank notes, checks, demand drafts etcetera (collectively referred to as negotiable instruments) of more than $10,000 (as a daily aggregate amount). Institutions were also required to report any suspicious activity that might be indicative of money laundering, tax evasion, or other criminal transactions or events.

Got it, but how does it all work?

The FinCEN administers the BSA, which requires depository institutions and other industries vulnerable to money laundering to take several precautions against financial crime. This includes filing and reporting certain data about financial transactions that might possibly indicate money laundering. In fiscal year 2019, more than 20 million BSA reports were filed by more than 97,000 U.S. financial institutions, providing potentially useful information to agencies focused on detecting and preventing money laundering, other financial crimes, and terrorism. According to FinCEN, just filing these reports is a major deterrent to money laundering, if they’re accessible to law enforcement, counter-terrorism agencies, financial regulators, and the intelligence community.

What does this have to do with casinos? They’re not banks.

No, but they deal in financial transactions. Remember Casino, the movie? It was based on a fictionalized account of the time the Italian mob, or more specifically, the Chicago Outfit, skimmed money from a bunch of Las Vegas casinos. Businessman and gangster Al Capone, who was finally jailed in 1931 — not for running illegal gambling rackets or prostitution rings or murder, but for tax evasion, incidentally — once led the Chicago Outfit. There’s perhaps a lesson there. In any case, several, if not most, casinos are considered non-bank financial institutions (NBFIs) under law.

Ok. But what are NBFIs?

Essentially NBFIs are institutions that aren’t banks or don’t have a banking license but do offer financial services or conduct financial transactions. The Federal Financial Institutions Examination Council (FFIEC) has a more complete definition here.

Are all casinos NBFIs?

Well, no. Most are, though.

What do you mean by saying “most” casinos are considered NBFIs?

According to the IRS, casinos and card clubs licensed to do business as casinos or card clubs, which have Gross Annual Gaming Revenues (GAGR) of more than $1,000,000, are considered financial institutions subject to the requirements of the BSA, which is codified in part in what is known as Title 31 of the United States Code (USC). Under this, some financial institutions, and individuals (defined by the Secretary of the Treasury), are required to keep records and file reports on certain kinds of financial transactions. Which means they have to follow all reporting procedures under what’s called Title 31, or face the consequences of failure to report suspicious activity or a pattern of suspicious activity.

Are two separately licensed, but jointly owned tribal gaming operations, one of which is a bingo hall and the other offering casino games, both treated as casinos under the BSA regulations?

No. Here’s what the FinCEN has to say about this. If a tribal government issues two separate licenses, one for a tribal gaming operation that only offers traditional bingo, and one for a tribal gaming operation that offers casino games, then the one offering traditional bingo is not treated as a casino under BSA regulations, while the latter is treated as a casino. Joint ownership is not relevant to the determination. However, If the bingo hall engages in any of the activities described in 31 C.F.R. § 1010.100, then the bingo hall would qualify as a “money services business” under that provision and a “financial institution” under 31 C.F.R. § 1010.100 (subpart t).

What is a money services business (MSB)?

The term “money services business” includes any person (where the person could be an individual, a corporation, a partnership, a trust or estate, a joint stock company, an association, a syndicate, joint venture, or other unincorporated organization or group, an Indian Tribe — as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:

  • Currency dealer or exchanger. 
  • Check casher. 
  • Issuer of traveler’s checks, money orders or stored value. 
  • Seller or redeemer of traveler’s checks, money orders or stored value. 
  • Money transmitter.
  • U.S. Postal Service.

An activity threshold of greater than $1,000 per person per day in one or more transactions applies to the definitions of: currency dealer or exchanger; check casher; issuer of traveler’s checks, money orders or stored value; and seller or redeemer of travelers’ checks, money orders or stored value. The threshold applies separately to each activity — if the threshold is not met for the specific activity, the person engaged in that activity is not an MSB based on that activity. However, there is no activity threshold applied to the definition of “money transmitter.” Therefore, a person that engages as a business involved in the transfer of funds is an MSB as a money transmitter, regardless of the amount of money transmission activity. Each MSB is considered a financial institution.

Just a quick note here. As mentioned above, a casino or a card club that is duly licensed or authorized to do business as such and has gross annual gaming revenue more than $1 million, is subject to the requirements applicable to casinos and card clubs, even if a casino or card club does its own check cashing. A casino or a card club is not required to comply with rules specific to MSBs.

Next time: Red flags for casinos when it comes to money laundering and terrorist financing.