SNAPSHOT: FinCen Has an Eye on Sports Betting and Crypto Money Laundering Risks


Casinos offering sports betting and accepting cryptocurrency heard a direct message from the director of the Financial Crimes Enforcement Network (FinCEN), a branch of the Treasury Department – your anti-money laundering (AML) programs must identify the “red flags” for illicit financing.

Kenneth A. Blanco spoke at 12e Annual Anti-Money Laundering Conference in Las Vegas on August 13. His remarks indicate that FinCEN is monitoring casinos – both brick-and-mortar establishments and online gaming companies – to ensure they are complying with their reporting obligations under the Bank Secrecy Act (BSA), and also focuses more broadly on the money laundering risks associated with cryptocurrency and sports betting.

Blanco’s remarks affirm FinCEN’s commitment to apply the BSA to casinos that deal with cryptocurrency, regardless of the scale of the transaction and whether or not the casino accepts cryptocurrency “from customers on site. or [] Mobile applications. “

Indeed, Blanco stressed that all casinos that deal in cryptocurrency must design AML programs unique to the risks posed by such transactions. For example, he noted specific compliance issues posed by cryptocurrency, including due diligence processes on digital currency; blockchain analysis to determine the source of the cryptocurrency; and mechanisms for identifying “red flags” for “money laundering, sanction evasion and other illicit financing purposes”.

Mobile sports games

In 2018, the United States Supreme Court overturned the 26-year federal ban on the Professional and Amateur Sports Protection Act imposed by the Federal Sports Betting Act, and paved the way for 50 states to legalize sports betting. The state’s recent actions to legalize sports betting are leading to a proliferation of new sports betting outlets, both conventional and online. Focusing on the rise of online sports games, Blanco stressed that casinos are responsible for managing the money laundering risks associated with online sports betting and other forms of mobile gambling.

Discussing mobile betting, Blanco said that FinCEN recently updated its Form for Suspicious Activity Reports (SAR) to have fields allowing BSA-covered financial institutions (including casinos) to report cyber flags, i.e. unique electronic fingerprints, ranging from source and destination information, file information, subject usernames, system changes and account information .

Blanco’s remarks are a reminder that FinCEN expects all covered institutions to establish AML compliance programs corresponding to expanding technologies that involve money laundering risks.

Reporting of suspicious activity and currency transactions

Blanco also stressed that as financial institutions, casinos must exercise risk-based customer due diligence and submit SARs on suspicious transactions to FinCEN. On that note, Blanco described how FinCEN is increasingly using artificial intelligence to assess the data that casinos feed into the BSA reporting system for clues of criminal activity.

Blanco set the example of how a drug suspect would be more likely to give a casino their correct cell phone number to ensure their winnings were wired correctly, and a DEA agent researching the base of SAR data from FinCEN would then be able to cross-reference this number with other tracks.

Given Blanco’s remarks on how FinCEN uses SAR declarations as a law enforcement tool, it should come as no surprise that he pointed out that FinCEN can take enforcement action against evading casinos. to their SAR reporting requirements.

In fact, FinCEN highlighted SAR’s filing failures in its latest enforcement action against a casino. In May 2018, FinCEN fined Artichoke Joe’s, a California-based card club, $ 8 million for various BSA violations, including filing multiple SARs on transactions over $ 10,000 without file the corresponding currency transaction reports (CTRs).

Blanco bluntly reminded casinos that FinCEN “will not hesitate” to hold casinos accountable for meeting their obligations under the BSA.

Cryptocurrency

Blanco noted that the growth of mobile games is linked to the rise of cryptocurrency, especially in online casinos that allow cryptocurrency payments and withdrawals, or allow customers to trade crypto. -currency against a currency issued by the government.

In 2011, FinCEN issued a final rule amending the definitions and other regulations of the BSA relating to money services businesses (MSBs) (a type of financial institution under the BSA) to provide that the transmission of money covers the acceptance and transmission of value that substitutes for money. Cryptocurrency is such a substitute and is covered by this regulation.

In March 2013, FinCEN issued guidelines further clarifying this point and providing that the anti-money laundering provisions of the BSA apply to all transactions involving the transmission of money, including virtual currency. In May 2019, FinCEN published guidelines setting out examples of how BSA regulations apply to business models involving the transmission of cryptocurrency, including online casinos.

These guidelines provide that even transactions undertaken in the gaming industry which are not otherwise covered by the regulatory definitions of the casino or card club BSA, but which accept and transmit cryptocurrency, may be considered as of money transmitters under the BSA.

Casinos that accept and transmit cryptocurrency must register as an MSB with FinCEN and, like other casinos, must develop and maintain written AML programs, implement Know Your Customer (KYC) programs to ensure customers who cash in or withdraw with cryptocurrency have a legitimate source of funds, identify and report suspicious transactions, and deposit CTRs on transactions over $ 10,000.

In particular, casinos that fall under the definition of an ESM must deposit SARs on suspicious cryptocurrency transactions over $ 2,000, while casinos that deal in government-issued currencies must deposit SARs on suspicious transactions over $ 5,000.

Tellingly, Blanco expressed concern that casinos’ cryptocurrency-related SAR deposits “haven’t been as strong as expected since May. [2019 cryptocurrency] guidance and advice has been published. His remarks indicate that FinCEN is not releasing its commitment to enforce and enforce AML regulations in the cryptocurrency industry, including any casino that deals with cryptocurrency.

In fact, a FinCEN implementation measure in 2018 further indicates that FinCEN is cracking down on cryptocurrency exchangers. On April 18, 2018, FinCEN announced that it was assessing a $ 35,000 fine against Eric Powers, a peer-to-peer cryptocurrency exchanger who bought and sold millions of dollars in bitcoins. , for failing to have written AML compliance policies or procedures in place. , failing to exercise due diligence in KYC matters and failing to report suspicious transactions and currency transactions. In announcing the action against Powers, Blanco stressed that BSA’s obligations apply to fund transmitters “regardless of their size”.

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

Author Info

Reid j schar is a partner of Officer Jenner & Block in Chicago and co-chairs the firm’s investigative, compliance and defense practice. Schar is a fellow of the American College of Trial Lawyers and a former U.S. Assistant Lawyer who has tried more than 20 cases, many of which involved complex issues of fraud and funding.

Wade A. Thomson is a partner at Jenner & Block with significant experience in high stakes commercial litigation and government investigations around the world, practicing in both the Chicago and London offices. He has advised numerous companies on anti-money laundering and banking secrecy law and is a certified anti-money laundering specialist.

EK McWilliams is a partner and member of Jenner & Block’s Investigations, Compliance and Defense Practice division in the Chicago office. McWilliams practice focuses on internal and government-initiated investigations and is a certified anti-money laundering compliance specialist with particular experience in the area of ​​anti-money laundering regulation and law. banking secrecy.