In the eyes of financial watchdogs, there’s no difference between cold hard cash, credit card funds, and digital currencies.
As far as America’s federal financial crimes agency is concerned, there should be no difference in how gaming operators monitor gambling transactions, whether they’re made at a mobile sportsbook with bitcoin or at a slot machine with pocket change.
At the 12th annual Anti-Money Laundering Conference in Las Vegas on August 13, Kenneth Blanco, director of the Washington, D.C.-based Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury, said the body has noted “a gap” in the reporting of suspicious transactions involving digital currencies, which are more prevalent in the sports-betting realm, and in transactions conducted online.
“FinCEN expects that your casino or card club is monitoring your sports betting programs for potentially suspicious activity,” Blanco said. “This includes offering sports betting through a mobile app.”
He warned operators to use all available information “to detect and report suspicious transactions…and ensure that this is accounted for in your policies, procedures, internal controls and risk assessments.”
Lasa Vegas-based gaming attorney Jeffrey Silver advises operators to pay close attention to the content—and the timing—of Blanco’s remarks.
A former Clark County Chief deputy district attorney and onetime member of the Nevada State Gaming Control Board, Silver recalls a similar compliance warning in the pre-iGaming era, from a former FinCEN director.
“It was quickly followed by some pretty significant fines” against big brick-and-mortar operators, Silver told GGB News.
To wit:
- In 2015, Caesars Entertainment was hit with an $8 million penalty for “willful and repeated violations of the Bank Secrecy Act,” and ordered to engage in a “look-back” for suspicious transactions.
- The same year, Trump Taj Mahal in Atlantic City was hit with a $10 million fine for similar offenses.
- Smaller operators didn’t escape notice—in 2016, a $1 million civil penalty was levied against John Ascuaga’s Nugget of Sparks, Nevada, which was told to “re-think its AML defenses.”
- The big daddy of fines—$75 million—was handed down to the Tinian Dynasty Hotel & Casino in the Northern Mariana Islands, a U.S. territory, also for Bank Secrecy Act violations.
All these operators “didn’t do the proper background work on their customers,” Silver said, adding that if today’s iGaming operators are not monitoring digital currency transactions, they should be prepared for painful consequences.
FinCEN has “delivered a shot across the bow,” Silver said. “It’s taking this moment to tell the industry that cryptocurrencies are just as important and just as subject to AML regulations. When they hand down millions in fines, they can say, ‘I told you so.’”
A certain amount of confusion may be inevitable as new sports betting operators flood the market, Silver suggested.
“There are no casinos that are not subject to the Bank Secrecy Act and Know Your Customer (protocols); they all must file reports in case of suspicious activities,” including any transaction that exceeds $10,000.
But these new online operators are not, strictly speaking, casinos, he said, and therefore may not legally fall under the BSA. That loophole will probably be quickly closed, he indicated.
In the meantime, “FinCEN “is reminding all these new operators, who are popping up everywhere in every state, that there are certain obligations they’ll have to follow,” according to Silver.
Blanco said reporting of suspicious use of virtual currencies, in particular, needs to be more “robust.” But gaming attorney Jeff Ifrah, a foremost expert in iGaming law, said U.S. gaming operators “have extremely robust compliance programs, and so do all betting operators. They’re used to that.”
And though some news reports use the terms “cryptocurrencies” and “digital/virtual currencies” interchangeably, Ifrah said they’re two wholly different things. Cryptocurrencies designed to mask the identity of the user are not used “in any regulated jurisdictions in the U.S.,” though they’re commonplace in some international jurisdictions, he said.
The problem with real cryptocurrencies—as the very name suggests—is that you don’t know who is using it or where it originated, said Ifrah. “The whole point is anonymity, and anonymity is not good when you’re talking about AML programs. If you’re an operator, you have an obligation to identify who your customer is, and the currency is grounded in anonymity, that’s a big red flag for any regulator.”
He recently discussed the matter with David Rebuck, head of the New Jersey Division of Gaming Enforcement. “He said there are way too many problems with payment processing and payment acceptance (of iGaming) by the banks. The last thing he wants is to introduce another problem by allowing cryptocurrencies. He’d like to wait for things to stabilize and essentially see banks accepting credit card transactions in this space, and then talk about crypto. But that’s a few years away.”
Ifrah does foresee a rise in branded currencies, however, and compares them to “Chuck E. Cheese coins, which essentially make it easier when you’re inside Chuck E. Cheese. You walk in, you get a bucket of coins, and there’s a certain level of efficiency to having some alternative token form. They can encourage you to buy more now, so you can hold the coins and return the next week. There’s some appeal to that” for gaming operators, he said.
Meanwhile, the essential message in Blanco’s presentation can be summed up in the following passage, in which he pointed out that FinCEN has noted a reduction in the number of SARs overall:
“There is a misconception that just because FinCEN has not publicly issued enforcement action against a casino or card club since last year that FinCEN is not looking at this financial sector,” Blanco said. “Let me assure you, this is not the case.”
In other words, you’ve been warned.
