The basis of money-launderingregulation in the U.S. is the BankSecrecy Act (BSA) of 1970, as latermodified. This act originally onlyestablished reporting requirements forcertain cash transactions. It did notitself define or criminalize moneylaundering. But the various BSAreports have become the Argus-eyes ofthe Treasury's Financial CrimesEnforcement Network (FinCEN, created inApril 1990) and the IRS' CriminalInvestigation and ExaminationDivisions. These agencies maintainwhat is in effect a large distributeddata base of financial information onU.S. citizens.
Despite its name, the BSA is notdirected only at banks. Any businesswhich handles large amounts of cash,such as a casino, is targeted by thelegislation. Casinos are examples of"non-bank financial institutions",which were included under the BSA in1985 if they had gross annual gamingrevenue over $1 million.
The BSA rules are not the same forall businesses. They're not even thesame for all casinos. For example,Nevada casinos, by agreement with theTreasury Department, have an exemptionfrom certain BSA reportingrequirements.
The main legal requirements forcasinos are found in the BSA (P.L. 91-508, 84 Stat. 1114 (1970)); theTreasury department's implementinglegislation at 31 C.F.R., part 103; theIndian Gaming Regulatory Act (IGRA) of1988; Nevada Gaming CommissionRegulation 6A; and Section 6050I of theInternal Revenue Code.
Section 5313 of the BSA requires aCurrency Transaction Report (CTR) ofcertain cash deposits or transactionsof $10,000 and above, which is IRS Form4789, and a Currency Transaction Reportby Casinos (CTRC), which is IRS Form8362. Section 5316 of BSA alsorequires a Currency or MonetaryInstrument Report (CMIR) for transportof $10,000 or more of currency in orout of the U.S. This is Customs Form4790. Section 5314(a) of BSA requiresreporting of foreign bank or financialaccounts whose value exceeds $10,000 atany time during the preceding year.This is called a Foreign Bank AccountReport (FBAR) and is Treasury form TDR90-22-1. Section 6050I of the IRSCode requires the reporting of businesstransactions involving more than$10,000 cash. These are reported onIRS Form 8300.
Casinos which fall under the BSArequirements (such as New Jersey andriverboat casinos) must identifycustomers who buy chips in cash amountslarger than $10,000. Nevada casinos dothis also under Nevada GamingCommission Regulation 6A, but unlikeBSA casinos, they do not reportidentifying information on payouts over$10,000 in verified winnings. Nevada,on the other hand, has staterequirements that prevent certain cash-for-cash transactions. The exchange ofsmall bills for large bills over $2,500is prohibited, for example. Tribalcasinos under IRS regulations reportcash amounts over $10,000 paid in, butdo not report amounts paid out.
"Tribal casinos" are gamingcasinos operated by Indians who belongto one of the federally-recognizedtribes in the U.S.--such as the CabazonTribe near Indio, California, or theMashantucket Pequot Tribe, who operatethe Foxwoods Resort Casino in Ledyard,Connecticut. Foxwoods is the largesttribal casino in the U.S.
The Indian Gaming Regulatory Act(IGRA) of 1988 did not make tribalcasinos subject to BSA. But they aresubject to Section 6050I of the IRSCode which requires the reporting ofbusiness receipt of more than $10,000cash on IRS Form 8300. Casino payouts,however, are not reported. The MoneyLaundering Suppression Act of 1994redefined BSA "financial institutions"to include some tribal casinos, andfuture implementing legislation maytherefore require cash payouts largerthan $10,000 to be reported also.
These various reports are enteredultimately into a common database.Customs Form 4790 goes to Custom's SanDiego Data Center, while the IRS andBSA forms go to the IRS DetroitComputing Center, where they areentered into a national database--theCurrency and Banking Retrieval System(CBRS). Nevada casinos file reportswith the Nevada Gaming Control Board,which also forwards the reports to theIRS Detroit Computing Center.
FinCEN makes much of this dataavailable to law enforcement agenciesin the 50 states and to all federal lawenforcement agencies. Only the tribalcasino forms, which include income taxinformation--and are thus subject todisclosure restrictions--are notgenerally available to law enforcementagencies.
Despite the various reportingrequirements, prior to 1986 moneylaundering itself was not a crime inthe U.S. But 18 U.S.C. 1956, which wasenacted in 1986, and strengthened in1988, 1990, 1992, and 1994, changed allthat. This addition to the U.S. codeset out three categories of criminalmoney-laundering offenses: transactionoffenses, transportation offenses, and"sting" offenses.
Briefly, a transaction offense isany attempt to make a financialtransaction using the proceeds from anyillegal activity. A transportationoffense is the attempt to transfermoney across the border when the moneywas obtained illegally or will be usedfor illegal purposes. A sting offenseis the attempt to make a financialtransaction with money that is legal,but which a federal law enforcementofficer has lied about and claimed ithas come from some illegal activity.More specifically:
Transaction Offenses: It is amoney laundering transaction crime forany person to conduct, or to attempt toconduct, a financial transaction which,in fact, involves the proceeds ofspecified unlawful activity, knowingthat the property involved in thetransaction represents the proceeds ofsome crime, and, while engaging in thetransaction, with either a) the intentto promote the carrying on of thespecified unlawful activity, or b) theintent to commit certain tax crimes, orwith the knowledge that the transactionis designed at least in part a) toconceal or disguise the nature,location, source, ownership, or controlof the proceeds, or b) to avoid a cashreporting requirement.
Transportation Offenses: It is amoney laundering transportation crimefor any person to transport, transmitor transfer, or to attempt totransport, transmit or transfer, amonetary instrument or funds into orout of the U.S., and, while engaging inthe act, with either a) the intent topromote the carrying on of specifiedunlawful activity, or b) the knowledgethe monetary instrument or fundsrepresent the proceeds of some crime,and the knowledge that thetransportation, etc., is designed, atleast in part, (i) to conceal ordisguise the nature, location, source,ownership, or control of the proceeds,or (ii) to avoid a cash reportingrequirement.
"Sting" Offenses: It is a moneylaundering crime for any person toconduct, or to attempt to conduct, afinancial transaction which involvesproperty represented to be the proceedsof specified unlawful activity, orproperty used to conduct or tofacilitate specified unlawful activity,said representation being made by a lawenforcement officer or by anotherperson at the direction of, or with theapproval of, a federal officerauthorized to investigate or toprosecute 1956 crimes, and, whileengaging in the transaction, with theintent to a) promote the carrying on ofspecified unlawful activity, or b)conceal or disguise the nature,location, source, ownership, or controlof the property believed to be theproceeds of specified unlawfulactivity, or c) avoid a cash reportingrequirement.
Thus, as originally defined,"money laundering" only took place ifthe financial transaction involved (orsome law enforcement officer said itinvolved) some otherwise illegalactivity. But the definition keptgetting redefined to broaden its scope.Eventually the failure to fill out oneof the BSA reports became, by legaldefinition, money laundering also.
But the expansion of law didn'tstop there. Since some peopleattempted to evade the $10,000threshold in the BSA reportingrequirements, legislation was imposedthat made "smurfing" or "structuring" acrime also. To divide a $10,000 cashpayment into two $5,000 payments, inorder to avoid filling out one of theBSA forms, is an example ofstructuring.
Structuring is defined in a 1991amendment to the Bank Secrecy Actthusly: "Structure (structuring). . .. a person structures a transaction ifthat person, acting alone, or inconjunction with, or on behalf of otherpersons, conducts or attempts toconduct one or more transactions incurrency in any amount, at one or morefinancial institutions, on one or moredays in any manner, for the purpose ofevading the reporting requirements . .. 'In any manner' includes, but is notlimited to, the breaking down of asingle sum of currency exceeding$10,000 into smaller sums, includingsums at or below $10,000, or theconduct of a transaction or series oftransactions, including transactions ator below $10,000. The transaction ortransactions need not exceed the$10,000 reporting threshold at anysingle financial institution on anysingle day in order to constitutestructuring within the meaning of thisdefinition" (31 C.F.R. 103.11(p)(1991)).
Naturally all this paperwork mademany cash-based businesses unhappy, andthey complained to Congress. So theBSA was further modified to allowexemptions to the requirement to fillout currency transaction reports forbusinesses whose deposits orwithdrawals of currency fall into anyof the following categories (see 31C.F.R. 103.22(b)(2)(1992)):
1) They are made from an existingbank account, and the business is anestablished U.S. depositor who operatesa "retail type of business". Thismeans that the business sells consumergoods for which payments aresubstantially in the form of currency,just as long as it is not anautomobile, aircraft, or boatdealership. (Reporting is stillmandatory for the latter, because itwas claimed that drug dealers often buycars, planes, or boats with cash.)
2) They are made from an existingbank account, and the business is anestablished U.S. depositor who operatesa sports arena, race track, amusementpark, restaurant, hotel, check cashingservice licensed by state or localgovernment, vending machine company,theater, regularly scheduled passengercarrier, or public utility. (Thisexemption means, of course, that racetracks and sports stadiums now provideimportant mechanisms for launderingcash.)
3) They are made by a local, stateor United States governmental agency orinstrumentality. (Government agencieswho handle large amounts of cash thusfrequently become venues for moneylaundering activity.)
4) They are made from an existingbank account, and the business is anestablished U.S. depositor whoregularly withdraws more than $10,000to pay its employees in currency.
Also exempt from CTR reporting arecurrency transactions made with FederalReserve Banks or Federal Home LoanBanks, transactions between domesticbanks, or transactions betweencommercial banks and nonbank financialinstitutions.
Of course, despite theseconvenient alternatives, moneylaundering also takes place throughcasinos. The relative size ofdifferent casino sectors can beascertained through their gross annualgaming revenue (GAGR). In 1994 Nevadacasinos had $6.8 billion GAGR, NewJersey casinos (who fall under the BSA)$3.4 billion, the 60 or so riverboatcasinos $3.3 billion, and tribalcasinos about $3 billion.
In the old days casino moneylaundering was as simple as walkinginto a casino with cash, buying casinochips, doing little or no gaming, andthen turning in the chips for largerbills or a cashier's check. But nowsuch cash purchases of chips in amountslarger than $10,000 are subject to thevarious reporting requirements if doneall at once.
Smaller amounts are alsoaggregated under certain circumstances.Purchases in the same gaming area ofless than $10,000 in BSA and Nevadacasinos are aggregated if they takeplace within the same 24 hour period("gaming day"), and are reported on IRSForm 8362 if the aggregate totalexceeds $10,000. BSA, but not Nevada,casinos also aggregate across gamingareas. (This means, for example, thatchip purchases at the blackjack tablesare aggregated with the crap tables inBSA casinos.) Tribal casinos under IRSregulations have to aggregate chippurchases over a year's time. (A$6,000 purchase in January and a $5,000purchase in August is supposed toresult in the $11,000 total beingreported on IRS Form 8300.)
The degree of casino compliancewith the reporting requirements is notalways clear. There has been virtuallyno IRS auditing of tribal casinos, forexample.
In any case, cash in amountssmaller than $10,000 may beconveniently laundered through any ofthe casinos. Larger amounts may alsobe laundered, but will have to bespread across different gaming areas(in Nevada casinos), or differentgaming days (in BSA or Nevada casinos),or divided up and laundered acrossseveral BSA, Nevada, or tribal casinos.
Another alternative available inNevada casinos is to produce revenuethrough "verified winnings".("Verified" means a casino employeesigns his name to a form that the moneywas won in the casino.) You may havenoticed that slot machine payoffs of $1million and more tend to take place oncasino gala opening nights with plentyof photogenic "beautiful people" inattendance and extensive presscoverage. This is not surprising giventhat some slot machines are controlledby software that has certain overridefeatures--"back doors" which givecasino managers the ability to forcepayment of a jackpot. The same backdoor can also be a convenient moneylaundering mechanism, since payouts ofverified winnings are not matchedagainst personal identifyinginformation under Nevada gaming law.Naturally, the existence of thesesoftware back doors is a secret guardedas carefully as the existence of backdoors in banking software.
Verified winnings in amountsgreater than $10,000 are reported byNevada casinos on state CurrencyTransaction Incidence Reports (CTIRs).These are also forwarded to the IRSDetroit Computing Center, but are notentered into the Currency and BankingRetrieval System, since the forms donot include customer names or anyidentifying customer identification.The IRS considers them useless.
The future will see virtualcasinos and, logically, virtual moneylaundering. For example, Las Vegas-based Alliance Gaming Corporation,which recently acquired Bally GamingInternational, wants to establish adominant role in Internet gaming. Itclearly has all the right ingredients.
First is Internet expertise.Alliance Gaming's Vice Chairman, CraigFields, was formerly the Director ofthe Defense Advanced Research ProjectsAgency (DARPA), which created theInternet.
Second is gambling expertise.Bally, and by reflection Alliance, is ahousehold name to the average gambler.
Third, well . . . According tosome Nevada law enforcement officialsI've spoken to, Alliance Gamingcurrently launders money for the CIA.That should give Alliance theexperience it needs to expand theconcept to cyberspace.
March 13, 1997
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