18 May 1998
Source: http://www.access.gpo.gov/su_docs/aces/aaces002.html
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[Federal Register: May 18, 1998 (Volume 63, Number 95)]
[Proposed Rules]
[Page 27230-27240]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18my98-20]
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DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA22
Proposed Amendment to the Bank Secrecy Act Regulations;
Requirement That Casinos and Card Clubs Report Suspicious Transactions
AGENCY: Financial Crimes Enforcement Network, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Financial Crimes Enforcement Network (``FinCEN'') is
proposing to amend the Bank Secrecy Act regulations to require casinos
and card clubs to report suspicious transactions involving at least
$3,000 in funds or other assets, relevant to a possible violation of
law or regulation; reports would be made on a reporting form
specifically designed for use in the gaming industry. The proposed
amendments to the Bank Secrecy Act regulations would also require
casinos and card clubs to establish procedures designed to detect
occurrences or patterns of suspicious transactions and would make
certain other changes to the requirements that casinos maintain Bank
Secrecy Act compliance programs. The proposal is a further step in the
creation of a comprehensive system (to which banks are already subject)
for the reporting of suspicious transactions by financial institutions.
Such a system is a core component of the counter-money laundering
programs of the Department of the Treasury.
DATES: Written comments on all aspects of the proposal are welcome and
must be received on or before September 15, 1998.
ADDRESSES: Written comments should be submitted to: Office of Chief
Counsel, Financial Crimes Enforcement Network, Department of the
Treasury, Suite 200, 2070 Chain Bridge Road, Vienna, Virginia 22182-
2536, Attention: NPRM--Suspicious Transaction Reporting--Casinos.
Comments also may be submitted by electronic mail to the following
Internet address: ``regcomments@fincen.treas.gov,'' with the following
caption in the body of the text: ``Attention: NPRM--Suspicious
Transaction Reporting--Casinos''. For additional instructions on the
submission of comments, see SUPPLEMENTARY INFORMATION under the heading
``Submission of Comments.''
Inspection of Comments: Comments may be inspected, between 10:00
a.m. and 4:00 p.m., at FinCEN's Washington office, in the Franklin
Court Building, 1099 14th Street, N.W., Fourth Floor,
[[Page 27231]]
Washington, D.C. 20005. Persons wishing to inspect the comments
submitted should request an appointment by telephoning (202) 216-2870.
FOR FURTHER INFORMATION CONTACT: Leonard C. Senia, Senior Financial
Enforcement Officer, Office of Program Development, FinCEN, (703) 905-
3931 or Cynthia L. Clark, Deputy Chief Counsel, Office of Chief
Counsel, FinCEN, (703) 905-3758.
SUPPLEMENTARY INFORMATION:
I. Introduction
This document proposes to add a new Sec. 103.21 to 31 CFR part 103,
to require casinos and card clubs to report to the Department of the
Treasury suspicious transactions to the extent provided in such section
relevant to a possible violation of law or regulation.1 The
proposal would extend to casinos and card clubs the suspicious
transaction reporting regime to which the nation's banks, thrift
institutions, and credit unions have been subject since April 1,
1996.2 Related changes are made to the provisions of 31 CFR
103.54 relating to casino compliance programs. FinCEN has previously
proposed a rule that would require suspicious transaction reporting by
(i) money transmitters, (ii) issuers, sellers, and redeemers of money
orders, and (iii) issuers, sellers, and redeemers of traveler's checks,
see 62 FR 27900, which is a part of the set of rules proposed at 62 FR
Part V (May 21, 1997). It intends in the near future to propose a rule
extending the suspicious transaction reporting requirement to brokers
or dealers in securities.
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\1\ As used hereafter in this document, the phrase ``casino''
when used singly includes a reference both to casinos and to card
clubs, as the latter term is defined in 31 CFR 103.11(n)(8), unless
the context clearly indicates otherwise. See 31 CFR
103.11(n)(7)(iii). 31 CFR 103.11(n)(7)(iii) and (n)(8) were added to
the Bank Secrecy Act Regulations by the final rule published at 63
FR 1919 (January 13, 1998).
\2\ The suspicious transaction reporting rules for banks are at
present found at 31 CFR 103.21, which is proposed to be renumbered
as 301 CFR 103.18 as part of the pending rulemaking relating to the
reporting of suspicious transactions by money transmitters and other
money services businesses (discussed immediately below in the text).
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II. Background
A. Statutory Provisions
The Bank Secrecy Act, Pub. L. 91-508, as amended, codified at 12
U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5330, authorizes
the Secretary of the Treasury, inter alia, to issue regulations
requiring financial institutions to keep records and file reports that
are determined to have a high degree of usefulness in criminal, tax,
and regulatory matters, and to implement counter-money laundering
programs and compliance procedures. Regulations implementing Title II
of the Bank Secrecy Act (codified at 31 U.S.C. 5311-5330), appear at 31
CFR part 103.3 The authority of the Secretary to administer
the Bank Secrecy Act has been delegated to the Director of FinCEN.
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\3\ Bank Secrecy Act provisions relating specifically to gaming
establishments are discussed at paragraph B, below.
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The provisions of the Bank Secrecy Act relating to the reporting of
suspicious transactions are contained in 31 U.S.C. 5318(g).4
That subsection grants the Secretary of the Treasury the authority to
require the reporting of such transactions by financial institutions
subject to the Bank Secrecy Act, and contains provisions protecting
reporting institutions from liability to customers on account of the
making of such reports. Subsection (g)(1) states generally:
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\4\ Subsection (g) of section 5318(g) was added to the Bank
Secrecy Act by section 1517 of the Annunzio-Wylie Anti-Money
Laundering Act (``Annunzio-Wylie Act''), Title XV of the Housing and
Community Development Act of 1992, Pub. L. 102-550; it was expanded
by section 403 of the Money Laundering Suppression Act of 1994, to
require designation of a single government recipient for reports of
suspicious transactions.
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The Secretary may require any financial institution, and any
director, officer, employee, or agent of any financial institution,
to report any suspicious transaction relevant to a possible
violation of law or regulation.
Subsection (g)(2) provides further:
A financial institution, and a director, officer, employee, or
agent of any financial institution, who voluntarily reports a
suspicious transaction, or that reports a suspicious transaction
pursuant to this section or any other authority, may not notify any
person involved in the transaction that the transaction has been
reported.
Subsection (g)(3) provides that neither a financial institution,
nor any director, officer, employee, or agent.
That makes a disclosure of any possible violation of law or
regulation or a disclosure pursuant to this subsection or any other
authority * * * shall * * * be liable to any person under any law or
regulation of the United States or any constitution, law, or
regulation of any State or political subdivision thereof, for such
disclosure or for any failure to notify the person involved in the
transaction or any other person of such disclosure.
Finally, subsection (g)(4) requires the Secretary of the Treasury,
``to the extent practicable and appropriate,'' to designate ``a single
officer or agency of the United States to whom such reports shall be
made.'' 5 The designated agency is in turn responsible for
referring any report of a suspicious transaction to ``any appropriate
law enforcement or supervisory agency.'' Id., at subsection (g)(4)(B).
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\5\ This designation is not to preclude the authority of
supervisory agencies to require financial institutions to submit
other reports to the same agency or another agency ``pursuant to any
other applicable provision of law.'' 31 U.S.C. 5318(g)(4)(C).
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The provisions of 31 U.S.C. 5318(h) grant the Secretary authority
to
Require financial institutions to carry out anti-money
laundering programs, including at a minimum,
(A) the development of internal policies, procedures, and
controls,
(B) the designation of a compliance officer,
(C) an ongoing employee training program, and
(D) an independent audit function to test programs.
These provisions, enacted at the same time as the explicit
provisions relating to reporting of suspicious transactions, complement
the latter provisions.
B. Application of the Bank Secrecy Act to Gaming Businesses
State licensed gambling casinos were generally made subject to the
Bank Secrecy Act as of May 7, 1985, by regulation issued early that
year. See 50 FR 5065 (February 6, 1985).6 The 1985 action
was based on Treasury's statutory authority to designate as financial
institutions for Bank Secrecy Act purposes (i) businesses that engage
in activities ``similar to'' the activities of the businesses listed in
the Bank Secrecy Act, as well as (ii) other businesses ``whose cash
transactions have a high degree of usefulness in criminal, tax, or
regulatory matters.'' See 31 U.S.C. 5312(a)(2)(Y) and (Z) 7.
Special Bank Secrecy Act regulations relating to casinos were issued in
1987, and amended in 1989 and (more significantly) in 1994. See 52 FR
11443 (April 8, 1987), 54 FR 1165 (January 12, 1989), and 59 FR 61660
(December 1, 1994) (modifying and putting into final effect the rule
originally published at 58 FR 13538 (March 12, 1993)). These actions
reflect the continuing determination not only that casinos are
vulnerable to manipulation by money launderers and tax evaders but,
more generally, that gaming establishments provide their customers with
a financial product--gaming--and as a corollary offer a broad array of
financial services,
[[Page 27232]]
such as customer deposit or credit accounts, facilities for
transmitting and receiving funds transfers directly from other
institutions, and check cashing and currency exchange services, that
are similar to those offered by depository institutions and other
financial firms.
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\6\ Casinos whose gross annual gaming revenue did not exceed $1
million were, and continue to be, excluded from Bank Secrecy Act
coverage.
\7\ In 1985, these provisions were numbered 31 U.S.C.
5312(a)(2)(X) and (Y). The numbering changed with the addition to
section 5312(a)(2) of a new subparagraph (X), described in the text,
dealing with gaming establishments, by the Money Laundering
Suppression Act of 1994.
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In recognition of the importance of the application of the Bank
Secrecy Act to the gaming industry, section 409 of the Money Laundering
Suppression Act of 1994 (the ``Money Laundering Suppression Act''),
Title IV of the Riegle Community Development and Regulatory Improvement
Act of 1994, Pub. L. 103-325, codified the application of the Bank
Secrecy Act to gaming activities by adding casinos and other gaming
establishments to the list of financial institutions specified in the
Bank Secrecy Act itself. The statutory specification reads:
(2) financial institution means--
* * * * *
(X) a casino, gambling casino, or gaming establishment with an
annual gaming revenue of more than $1,000,000 which--
(i) is licensed as a casino, gambling casino, or gaming
establishment under the laws of any State or any political
subdivision of any State; or
(ii) is an Indian gaming operation conducted under or pursuant
to the Indian Gaming Regulatory Act other than an operation which is
limited to class I gaming (as defined in section 4(6) of such Act) *
* *.
31 U.S.C. 5312(a)(2)(X). Gambling casinos authorized to do business
under the Indian Gaming Regulatory Act became subject to the Bank
Secrecy Act on August 1, 1996. See 61 FR 7054 (February 23, 1996), and
the class of gaming establishments known as ``card clubs'' will become
subject to the Bank Secrecy Act on August 1, 1998.8 See 63
FR 1919 (January 13, 1998).
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\8\ Generally card clubs would be subject to the same rules as
casinos, unless a specific provision of the rules in 31 CFR part 103
applicable to casinos explicitly requires a different treatment for
card clubs. As in the case of casinos, card clubs whose gross annual
gaming revenue is $1 million or less are excluded from Bank Secrecy
Act coverage. See 31 CFR 103.11(n)(8).
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Casinos in Nevada were exempted from direct coverage under the Bank
Secrecy Act as a result of Treasury action taken in 1985 at the request
of state authorities. See 50 FR 5064 (February 6, 1985). The exemption
carries with it a continuing requirement that Nevada casinos must be
subject to a state ``regulatory system [that] substantially meets the
reporting and recordkeeping requirements'' of 31 CFR part 103, in the
judgment of the Department of the Treasury, see 31 CFR 103.45(c)(1),
and that meets certain additional conditions specified in 31 CFR
103.45(c)(2).
Nevada Gaming Commission Regulation 6A, Cash Transactions
Prohibitions, Reporting, and Recordkeeping, has required Nevada casinos
to report currency transactions in excess of $10,000 as part of its
continuing responsibilities pursuant to a May 1985 cooperative
agreement between the State of Nevada and the U.S. Department of the
Treasury that implements the exemption. As a result of a recent
Treasury review of Nevada's regulatory system, Regulation 6A was
amended, inter alia, to enhance the counter-money laundering rules to
which casinos are subject. The enhanced state rules require casinos to
report directly to the Department of the Treasury both: (i) Large
currency transactions (on Internal Revenue Service Form 8852, Currency
Transaction Report by Casinos--Nevada), and (ii) potentially suspicious
transactions and activities (under rules reflecting the same concerns,
in the context of Nevada's state regulatory system, as the rules
contained in 31 CFR 103.21 as proposed in this document, and as
reflected in Treasury Form TD F 90-22.49 (Suspicious Activity Report by
Casinos)).9
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\9\ At present, the use of the form is required only for casinos
that file reports subject to Nevada Gaming Commission Regulation 6A.
A more thorough discussion of the current status of Form TD F 90-
22.49 appears below, under the heading ``Paperwork Reduction Act
Notices.''
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C. Importance of Suspicious Transaction Reporting in Treasury's
Counter-Money Laundering Programs
The Congressional mandate to require reporting of suspicious
transactions recognizes two basic points that are central to Treasury's
counter-money laundering and counter-financial crime programs. First,
it is to financial institutions that money launderers must go, either
initially, to conceal their illegal funds, or eventually, to recycle
those funds back into the economy. Second, the employees and officers
of those institutions are often more likely than government officials
to have a sense as to which transactions appear to lack commercial
justification (or in the case of gaming establishments, transactions
that appear to lack a reasonable relationship to legitimate wagering
activities) or that otherwise cannot be explained as constituting a
legitimate use of the casino's financial services. Moreover, because
money laundering transactions are designed to appear legitimate in
order to avoid detection, the creation of an effective system for
detection and prevention of money laundering is impossible without the
cooperation of financial institutions, including, in this case, gaming
establishments. Indeed, many non-banks have come increasingly to
recognize the increased pressure that money launderers have come to
place upon their operations and the need for innovative programs of
training and monitoring necessary to counter that pressure.
The provisions of the Annunzio-Wylie and Money Laundering
Suppression Acts recognize that the traditional reliance of Treasury
counter-money laundering programs on the reporting of currency
transactions between financial institutions and their customers and the
reporting of the transportation of currency and certain monetary
instruments into or out of the United States, is not adequate to
prevent or detect money laundering activities. This document is thus
one of a group of proposed rule changes that signals a move from
reliance solely on currency transaction reporting to reliance as well
upon the timely reporting of information equally, if not more, likely
to be of use to law enforcement officials and financial regulators,
namely, information about suspicious transactions and activities.
Suspicious transaction reporting is a key component of a flexible and
effective compliance system required to prevent the use of the nation's
financial system for illegal purposes.
The reporting of suspicious transactions is also a key to the
emerging international consensus on the prevention and detection of
money laundering. One of the central recommendations of the Financial
Action Task Force--recently updated and reissued--is that:
If financial institutions suspect that funds stem from a
criminal activity, they should be required to report promptly their
suspicions to the competent authorities.
Financial Action Task Force Annual Report (June 28, 1996),
10 Annex 1 (Recommendation 15). The recommendation, which
applies equally to banks and non-banks, revises the original
recommendation, issued in 1990, that required institutions to be
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either ``permitted or required.'' (Emphasis supplied.) The revised
recommendation reflects the international consensus that a mandatory
suspicious transaction reporting system is essential to an effective
national counter-money laundering program and to the success of efforts
of financial institutions themselves to prevent and detect the use of
their services or facilities by money launderers and others engaged in
financial crime.
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\10\ The Financial Action Task Force, commonly referred to as
the ``FATF,'' is an inter-governmental body whose purpose is
development and promotion of policies to combat money laundering.
Originally created by the G-7 nations, its membership now includes
Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan,
Luxembourg, the Kingdom of the Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland, Turkey, the United
Kingdom, and the United States, as well as the European Commission
and the Gulf Cooperation Council.
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Similarly, the European Community's Directive on prevention of the
use of the financial system for the purpose of money laundering calls
for member states to--
Ensure that credit and financial institutions and their
directors and employees cooperate fully with the authorities
responsible for combating money laundering * * * by [in part]
informing those authorities, on their own initiative, of any fact
which might be an indication of money laundering.
EC Directive, O.J. Eur. Comm. (No. L 166) 77 (1991), Article 6. Accord,
the Model Regulations Concerning Laundering Offenses Connected to
Illicit Drug Trafficking and Related Offenses of the Organization of
American States, OEA/Ser. P. AG/Doc. 2916/92 rev. 1 (May 23, 1992),
Article 13, section 2. 11 All of these documents recognize
the importance of extending the counter-money laundering controls to
``non-traditional'' financial institutions, not simply to banks, both
to ensure fair competition in the marketplace and to recognize that
non-banks as well as depository institutions are an attractive
mechanism for, and are threatened by, money launderers. See, e.g.,
Financial Action Task Force Annual Report, supra, Annex 1
(Recommendation 8).
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\11\ The Organization of American States (OAS) reporting
requirement is linked to the provision of the Model Regulations that
institutions ``shall pay special attention to all complex, unusual
or large transactions, whether completed or not, and to all unusual
patterns of transactions, and to insignificant but periodic
transactions, which have no apparent economic or lawful purpose.''
OAS Model Regulation, Article 13, section 1.
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The FATF's research and national mutual evaluation projects have
expanded in recent years the degree of attention paid to non-banks,
including gaming establishments. The Caribbean Financial Action Task
Force (or ``CFATF''), a 24 nation regional counterpart of the FATF, has
also paid special attention to the vulnerability of the gaming industry
in the Caribbean to penetration by money launderers.
D. Importance of Suspicious Transaction Reporting by Casinos and Card
Clubs
Billions of dollars of U.S. currency are laundered each year,
through many different types of financial institutions and businesses.
The corrosive effects of money laundering are well understood. Growing
government knowledge about the way illegally-obtained proceeds are
laundered has led to a more sophisticated understanding of the steps
that can and should be taken to counter this crime.
The placement of illegally-derived currency into the financial
system and the smuggling of such currency out of the country remain two
of the most serious issues facing financial law enforcement efforts in
the United States and around the world. But as financial institutions
have responded to the challenges posed by money laundering, it has
become far more difficult than in the past to pass large amounts of
currency unnoticed directly into the nation's financial system and far
easier to identify and isolate those institutions and officials that
remain willing to assist or turn a blind eye to money launderers.
Moreover, the placement of currency into the financial system is at
most only the first stage in the money laundering process. The money
launderer's objective is to integrate the funds into the financial
system, passing the funds through multiple transactions, financial
instruments, or layers of formal ownership, so that they can be used
for consumption or reinvestment in either legitimate or criminal
activity without calling attention to their origin. While many currency
transactions are not indicative of money laundering or other violations
of law, many non-currency transactions can indicate illicit activity,
especially in light of the breadth of the statutes that make money
laundering itself a crime. See 18 U.S.C. 1956 and 1957.
Owing in part to different business and transactional patterns,
non-banks have historically not been subject to the same counter-money
laundering controls as depository institutions. As government and
industry programs have made it more difficult for customers to launder
money at banks and other depository institutions, the interest of money
launderers in moving funds into the financial system through non-bank
financial services providers has increased.
Gaming establishments have not been spared from this
trend.12 The experience of law enforcement and regulatory
officials suggests that the gambling environment can attract criminal
elements involved in a variety of illicit activities, including fraud,
narcotics trafficking, and money laundering. With large volumes of
currency being wagered by legitimate gaming customers from throughout
the United States (and, indeed, from around the world), the fast-paced
environment of casino gaming can create an especially valuable
``cover'' for money launderers. The explosive growth of casino gaming
in the United States in the last decade vastly increases the ``targets
of opportunity'' for such criminals, as casino sites, amounts wagered,
and casino attendance have multiplied.13
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\12\ U.S. v. Marks, 97 CR 20069 (District Court Western District
of Louisiana), June 1997 (defendants indicted for laundering drug
proceeds by buying and cashing casino tokens); U.S. v. Zottola
(District Court Western District of Pennsylvania) and U.S. v.
Zottola, 97 CR 0953T (District Court Southern District of
California), April 1997 (defendants indicted for laundering $2.1
million in organized crime proceeds to open a casino on tribal
lands); New Jersey Division of Gaming Enforcement v. Freedman,
October 1996, 96-0609-RC NJ-DGE (defendants charged with structuring
transactions to avoid reporting by cashing $20,000, in increments of
$1,000, in casino chips); U.S. v. Vacanti, 96 CR 593(SMO) (District
Court New Jersey), September 1996 (structuring token purchases to
avoid transaction reporting requirements); U.S. v. McClintock, 96 CR
91(JEI) (District Court New Jersey), February 1996 (structuring
transactions totalling $124,000); U.S. v. Baxter, 95 CR 116
(District Court Eastern District of Louisiana), August 1995
(president of a casino laundered $200,000 by manipulating the books
of the casino to show the funds were from legitimate gambling); U.S.
v. Grittini, 1:95 CR 17GR (District Court Southern District of
Mississippi), May 1995 (rigged blackjack games used to launder
$520,000 for organized crime); New Jersey Division of Gaming
Enforcement v. Meyerson, 96-0393-RC (casino employee advised
gamblers to structure $360,000 and assisted in structuring $30,000
to avoid transaction reporting requirements); U.S. v. Freapane, 94
CR 287 (District Court Eastern District of Louisiana), November
1994, (owner of illegal video slot machine business indicted for
laundering profits from the business through casino slot machines in
another state).
\13\ The General Accounting Office cites in its January 1996
report on money laundering that ``the proliferation of casinos,
together with the rapid growth of the amounts wagered, may make
these operations highly vulnerable to money laundering.'' General
Accounting Office, Report to the Ranking Minority Member, Permanent
Subcommittee on Investigations, Committee on Governmental Affairs,
U.S. Senate, Money Laundering: Rapid Growth of Casinos Makes Them
Vulnerable GAO/GGD-96-28. According to International Gaming and
Wagering Business (August 1997), the amount of money legally wagered
in casinos exceeded $480 billion in 1996. This is a substantial
increase from the $101 billion wagered in casinos in 1982. Casino
gaming accounts for 82 percent of the total amount of money wagered
for all gaming activities throughout the United States. Similarly,
according to International Gaming and Wagering Business (August
1997), the amount of money legally wagered in card rooms constituted
an additional $9.8 billion in 1996 (i.e., 1.7 percent of the total
amount of money wagered). It is estimated that 125 million people
visit government licensed casinos each year.
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[[Page 27234]]
E. Coordinated System for Reporting Suspicious Transactions
The proposed rule is one of a series of rulemakings designed to
extend suspicious activity reporting to institutions subject to the
Bank Secrecy Act.14 As in the case of the other rules, this
proposed rule is designed to permit creation of a unified system for
all reports of suspicious casino and card club transactions and
activities. Under that system, all such reports will be filed with
FinCEN and made available, in a single data base, to federal and state
law enforcement authorities and gaming regulators nationwide. The
single data base will not only permit rapid dissemination of reports to
appropriate law enforcement agencies, but will facilitate more thorough
analysis and tracking of those reports, and, in time, the provision to
the financial community of information about trends and patterns
gleaned from the information reported. The single filing location will
also facilitate development of procedures for magnetic and ultimately
electronic filing of such reports.
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\14\ Several casinos have already voluntarily reported
suspicious transactions and activities by filing on Form TD F 90-
22.47, Suspicious Activity Report (SAR), which is the form required
for banks and other depository institutions. Other casinos have
reported such transactions by telephone to local offices of federal
law enforcement or gaming regulatory agencies.
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FinCEN is developing a form, the Suspicious Activity Report by
Casinos (``SARC''), that will be used by casinos and card clubs around
the nation to report a suspicious transaction or activity under the
proposed rule. A variant of that form is already in use by casinos in
Nevada that (as described above) became subject to a state requirement
to report suspicious transactions to FinCEN on October 1, 1997. See 62
FR 44032 (August 18, 1997) (Paperwork Reduction Act Notice for Form TD
F 90-22.49 to be used initially by casinos in Nevada).
No system for the reporting of suspicious transactions can be
effective unless information flows from as well as to the government.
FinCEN anticipates working on an ongoing basis with gaming
establishments and state regulatory officials in their efforts to
detect suspicious activities.
Treasury ultimately must rely on the creation of a working
partnership with the gaming industry that will assist gaming
establishments to apply their knowledge of both their customers and
business patterns to identify and report suspicious activity and permit
the implementation of suspicious activity reporting by gaming
establishments in an efficient and cost-effective manner. Joint efforts
will include exchanges of information, training, and advisory guidance
as to examples and patterns of potentially suspicious casino
transactions and activities. (Of course no list of potentially
suspicious activities will apply with equal force to all gaming
establishments or all jurisdictions in which gaming is permitted, due
in part to differences in the range of gaming activities permitted in
various areas.)
In addition, FinCEN intends to hold several public meetings, which
will be announced by notice published in the Federal Register, to
provide additional opportunities for the industry and other interested
parties to discuss the various provisions of this proposed rule. During
such meetings, FinCEN will also welcome discussion of a new advisory
entitled ``Guidance for Detecting and Reporting Suspicious Casino
Transactions and Activities,'' which is in preparation.
III. Specific Provisions 15
A. 103.11(ii)--Transaction
The definition of ``transaction'' in the Bank Secrecy Act
regulations for purposes of suspicious transaction reporting conforms
generally to the definition Congress added to 18 U.S.C. 1956 when it
criminalized money laundering in 1986. See Pub. L. 99-570, Title XIII,
1352(a), 100 Stat. 3207-18 (Oct. 27, 1986). This notice proposes to
amend that definition to include explicit references to ``the purchase
or redemption of casino chips or tokens, or other gaming instruments,''
to eliminate any question of the application of the definition to
transactions of a sort common to gaming establishments. These changes
are necessary so that the reporting rules will cover all activity that
should be reported under the proposed rule.
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\15\ Because proposed Sec. 103.21 reflects the terms of the
reporting rule for banks, readers of this document may wish to
consult the notice of proposed rulemaking and the document
containing the final reporting rule for banks, at 60 FR 46556
(September 7, 1995) (proposed rule) and 61 FR 4326 (February 5,
1996) (final rule). The bank rule is found at Sec. 103.21, but is
proposed by this notice to be renumbered as Sec. 103.18.
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B. 103.21--Reports of Suspicious Transactions
General
Proposed Sec. 103.21 contains the rules setting forth the
obligation of casinos and card clubs to report suspicious transactions.
The rule itself does not contain a separate reference to card clubs,
since 31 CFR 103.11(n)(7)(iii) generally provides that ``[a]ny
reference in [31 CFR part 103] . . . to a casino shall also include a
reference to a card club, unless the provision in question contains
specific language varying its application to card clubs or excluding
card clubs from its application.'' See 63 FR 1919, 1923 (January 13,
1998). No such varying provision is contained in the proposed rule.
Proposed paragraph (a)(1) contains a general statement of the
obligation to file a suspicious activity report, as well as language
designed to encourage the reporting of transactions that appear
relevant to violations of law or regulation, even in cases in which the
rule does not explicitly so require, for example in the case of a
transaction falling below the $3,000 threshold in the rule. The
Department of the Treasury continues to believe that such a voluntary
report (that is, the report of a suspicious transaction relevant to a
possible violation of law or regulation, in circumstances not required
by the rule proposed in 31 CFR 103.21(a)(1)) is fully covered by the
rules against disclosure and protections against liability specified in
31 U.S.C. 5318(g)(2) and (g)(3) and in proposed 31 CFR 103.21(d).
Proposed paragraph (a)(2) provides that with respect to casinos, a
transaction requires reporting under 31 CFR 103.21 if it is conducted
or attempted by, at, or through the casino, involves or aggregates at
least $3,000 in funds or assets, and the casino knows, suspects, or has
reason to suspect that the transaction is one that must be reported.
Proposed paragraph (a)(2) embodies two important points. First,
FinCEN is proposing a $3,000 threshold to the reporting of suspicious
casino and card club transactions and activities, so that reports will
be required for a transaction (or a pattern of transactions of which
the transaction is a part) that involves at least that amount in funds
or assets and that otherwise satisfies the terms of the proposed rule.
The proposed language makes it clear that related suspicious
transactions ``aggregating'' $3,000 or more in funds or assets are also
reportable under the Bank Secrecy Act. Transactions are reportable
under proposed paragraph (a) whether or not they involve currency.
The proposed $3,000 threshold is intended to focus attention on
customers who are conducting suspicious transactions at a level that
warrants attention and, at the same time, to limit the application of
the reporting requirement to a small, but important percentage of total
customer transactions that occur at a casino each day. Casino
regulations in several
[[Page 27235]]
States, namely, Colorado, Illinois, Indiana, Missouri and Nevada,
already require the recording and scrutiny of currency transactions
occurring at this threshold on the gaming floor or at the cage.
Moreover, in other States, such as Louisiana and Mississippi, and at
some tribal casinos, customer activity is typically recorded at or
slightly below this threshold on cage action control logs and gaming
floor multiple currency transaction logs. And, as noted above, Nevada
casinos have been subject to a $3,000 threshold for the filing of
suspicious activity reports since October 1997.
Second, the use of the term ``knows, suspects, or has reason to
suspect'' is intended to introduce a concept of due diligence into the
reporting procedures. Casino officials who monitor a customer's gaming
activity or conduct transactions with a customer are in a unique
position to recognize transactions and activities which appear to have
no legitimate purpose, are not usual for a specific player or type of
players, or have no apparent business explanation. The suspicious
nature of the transaction may first be detected by an employee
conducting the transaction, a supervisor observing the transaction, or
a surveillance department employee monitoring the transaction. The
scrutiny needed to identify suspicious transactions highlights the
importance of casinos knowing their customers.
The proposed rule designates three classes of transactions as
requiring reporting by casinos. The first class, described in proposed
paragraph (a)(2)(i), includes transactions involving funds derived from
illegal activity or intended or conducted in order to hide or disguise
funds or assets derived from illegal activity. The second class,
described in proposed paragraph (a)(2)(ii), involves transactions
designed to evade the requirements of the Bank Secrecy Act. The third
class, described in proposed paragraph (a)(2)(iii), involves
transactions that appear to have no business purpose or that vary so
substantially from normal commercial activities or activities
appropriate for the particular customer or type of customer as to have
no reasonable explanation.
The determination as to whether a suspicious report is required
must be based on all the facts and circumstances relating to the
transaction and the customer in question. Suspicious transactions and
activities will often take place at a casino cage, gaming table or slot
machine, but they can occur anywhere in the casino. Suspicious
transaction reporting is not limited to transactions in currency such
transactions may also involve monetary instruments or credit cards, or
may involve funds transfers into, out of, or through casinos. In some
situations casinos may be used in an attempt initially to place
illegally-obtained funds into the financial system; in other
situations, passage of funds through a casino may follow the initial
placement of illegal proceeds at another financial institution, as part
of the ``placement'' or ``integration'' stages of the money laundering
cycle.
Paragraph (a)(2)(iii) includes in the rule a requirement for the
reporting of transactions that vary so substantially from normal
practice that they legitimately can and should raise suspicions of
possible illegality. Unlike many criminal acts, money laundering
involves the taking of apparently lawful steps--opening deposit and
credit accounts, wiring funds, or cashing checks--for an unlawful
purpose. Thus, in attempting to appear to be wagering customers,
persons may be willing to lose a nominal amount of chips by making
small bets or offsetting larger bets and then exchanging their
remaining chips for currency, a check or a wire transfer. They may
attempt to structure deposits or withdrawals of funds from a casino
account to avoid recordkeeping or reporting thresholds or to move
substantial funds through a casino's facilities with little or no
related gaming activity, or to provide false documents or identifying
information to casino officials. A skillful money launderer will often
split the movement of funds among different parts of a casino so that
no one single person has a complete picture of the transactions or
movement of funds involved, and may use agents to conduct multiple
transactions for an anonymous individual, layering the transactions to
disguise their source.
A casino may also detect suspicious or suspected illegal activity
pertaining to transactions involving a check cashing operator, junket
operator, gambling tour company, supplier, vendor, etc. with which it
has a contractual relationship. For example, a casino may observe a
customer (other than an established junket operator) directly supplying
large amounts of currency to individuals who then use the currency to
make a deposit, purchase of chips, exchange of currency, etc.
Finally, a determination whether a suspicious activity report is
required to be filed may not result from face-to-face transactions
between customers and casino personnel or from a review of the account
of a customer, but instead may be discovered by information contained
in the casino's own internal accounts and financial or other records.
For instance, patterns of funds transfers by seemingly unrelated
customers to a third party account, followed by little or no gaming
activity and withdrawal of the consolidated funds, may raise questions
that examination of no one transaction would reveal. Such patterns of
suspicious activity may be detected during an unrelated review of a
casino's internal records, as part of an independent audit of a
casino's compliance systems, or as a result of a suspicious activity
monitoring program designed to detect the occurrence of potentially
suspicious transactions generally.
Proposed paragraph (a)(2)(iii) recognizes the emerging
international consensus that efforts to deter, substantially reduce,
and eventually eradicate money laundering are greatly assisted by the
reporting of unusual financial transactions for which no lawful purpose
can be determined. The requirements of this section comply with the
recommendations adopted by the FATF and the OAS, and are consistent
with the European Community's directive on preventing money laundering
through financial institutions.
Given the breadth of the reporting requirement, and the variety of
transactions conducted in or through gaming establishments, it is
impossible to avoid the need for judgment in administering or applying
the reporting standards to particular situations. Different fact
patterns will require different types of judgments. In some cases, the
facts of the transaction may clearly indicate the need to report. For
example, the fact that a customer: (i) Furnishes an identification
document which the casino believes is false or altered in connection
with the completion of a Currency Transaction Report by Casinos (CTRC),
or the opening of a deposit, credit account, or check cashing account;
(ii) tries to influence, bribe, corrupt, or conspire with an employee
not to file CTRCs; or (iii) converts large amounts of currency from
small to large denomination bills; would all clearly indicate that a
SARC should be filed.
In other situations a more involved judgment may be needed to
determine whether a transaction is suspicious within the meaning of the
rule. The need for such judgments may arise, for example, in the case
of transactions in which a customer (i) wires out of a casino funds not
derived from gaming proceeds, or wires funds to financial institutions
located in a country which is not his or her residence or place of
[[Page 27236]]
business; (ii) transmits or receives funds transfers without normal
identifying information or in a manner that may indicate an attempt to
disguise or hide the country of origin or destination or the identity
of the customer sending the funds or the beneficiary to whom the funds
are sent; (iii) repeatedly uses an account as a temporary resting place
for funds from multiple sources; (iv) makes continuous payments or
withdrawals of currency in amounts each below the currency transaction
reporting threshold applicable under 31 CFR 103.22; or (v) inserts
currency into a slot machine validator, accumulates credits with
minimal or no gaming activity, and then cashes out the tokens or
credits at the cage (or slot booth) for large denomination bills or a
casino check. The judgments involved will also extend to whether the
facts and circumstances and the institution's knowledge of its customer
provide a reasonable explanation for the transaction that would remove
it from the suspicious category. Again, it is crucial to recognize that
suspicious transactions and activities are reportable under this rule
and 31 U.S.C. 5318(g) whether or not they involve currency.
For all of these reasons, casinos must know their customers to make
an informed decision as to whether certain customer transactions are
suspicious. Many casinos already maintain and rely for business
purposes on a great deal of information about their customers from data
routinely obtained through deposit, credit, check cashing, and player
rating accounts. These accounts generally require casinos to obtain
basic identification information about the accountholders, at the time
the accounts are opened, and to inquire into the kinds of wagering
activities the customer is likely to conduct.16 Also, in
certain instances, casinos use credit bureaus to verify information
obtained from their customers. All of these sources of information can
help a casino to better understand its customer base and to evaluate
specific customer transactions that appear to lack justification or
otherwise cannot be explained as falling within the usual methods of
legitimate business.
---------------------------------------------------------------------------
\16\ The deposit and credit accounts track customer deposits and
casino extensions of credit. Casino customers can draw down on
either account to fund their gaming, purchase chips and conduct
other activities on casino properties. The player rating account
tracks gaming activity and is designed primarily to award
complimentary perquisites to volume players, and to serve as a
marketing tool to identify customers and to encourage continued
patronage.
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Filing Procedures
Paragraph (b) sets forth the filing procedures to be followed by
casinos making reports of suspicious transactions. Within 30 days after
a casino becomes aware of a suspicious transaction, the casino must
report the transaction by completing a SARC and filing it in a central
location, to be determined by FinCEN.
Supporting documentation relating to each SARC is to be collected
and maintained separately by the casino and made available to FinCEN
and any appropriate law enforcement or gaming regulatory agency upon
request. Special provision is made for situations requiring immediate
attention, in which case casinos are to immediately notify, by
telephone, the appropriate law enforcement authority in addition to
filing a SARC.
Reports filed under the terms of the proposed rule will be lodged
in a central data base (on the model of the data base used to process,
analyze, and retrieve bank suspicious activity reports). Information
will be made automatically available to federal and state law
enforcement and gaming regulatory agencies, to enhance the ability of
those agencies to carry out their mandates to fight financial crime.
Maintenance of Records
Paragraph (c) provides that filing casinos must maintain copies of
SARCs and the original related documentation for a period of five years
from the date of filing; the relevant records may include not only
paper or electronic accounting or other entries but also (without
limitation) appropriate segments of video or audio tapes recorded by
the casino as part of its operations. Even though not required to be
filed with the SARC, the supporting documentation is deemed to be a
part of the SARC and is required to be held by the casino (in effect as
agent for FinCEN). This provision is intended to relieve casinos of the
need to transmit supporting documentation immediately to FinCEN without
lessening the utility or availability of the supporting documentation.
Thus, identification of supporting documentation must be made at the
time the SARC is filed, and such supporting documentation is deemed
filed with a SARC in accordance with paragraph (c); as such, FinCEN,
law enforcement authorities and appropriate gaming regulatory agencies
need not make their access requests through subpoena or other legal
processes.17
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\17\ References to ``appropriate law enforcement and regulatory
agencies'' naturally include the Examination Division of the
Internal Revenue Service, to which authority to examine, inter alia,
gaming establishments for compliance with the Bank Secrecy Act has
been delegated. See 31 CFR 103.46(b)(8).
---------------------------------------------------------------------------
Prohibition From Disclosing SARCs; Safe Harbor From Civil Liability
Paragraph (d) incorporates the terms of 31 U.S.C. 5318(g)(2) and
(g)(3). This paragraph thus specifically prohibits persons filing SARCs
from making any disclosure, except to law enforcement and regulatory
agencies, about either the fact of the filing of the reports or the
reports themselves, the information contained therein, or the
supporting documentation. The non-disclosure provisions of section
5318(g)(2) are intended to ensure that suspicious activity report
information is restricted to appropriate law enforcement and regulatory
personnel and are not otherwise made public. It is also designed to
prevent the subject of a report from learning that his suspicious
conduct has been reported to the government. SARC information, like
other reports required to be filed under the Bank Secrecy Act, are not
subject to disclosure to the public without the express authorization
of FinCEN.
Auditing and Enforcement
Finally, paragraph (e) notes that compliance with the obligation to
report suspicious transactions will be audited, and provides that
failure to comply with the rule may constitute a violation of the Bank
Secrecy Act and the Bank Secrecy Act regulations, which may subject
non-complying casinos to an enforcement action.
C. 103.54--Related Changes to Casino Compliance Program Requirements
General
31 CFR 103.54 contains special compliance program rules for
casinos, adopted by Treasury in 1994. See 59 FR 61660 (December 1,
1994). The compliance program requirement contained in the 1994 final
rule was revised to include procedures to determine the occurrence of
unusual or suspicious transactions.
As noted above, the compliance program and suspicious transaction
reporting rules are complementary, and FinCEN believes that it is
appropriate to propose modification of those rules in light of the
projected commencement of suspicious transaction reporting for casinos.
Two specific modifications are proposed.
a. Testing for compliance. 31 CFR 103.54(a)(2)(ii) requires that
casino compliance programs include ``[i]nternal and/or external
independent
[[Page 27237]]
testing for compliance.'' FinCEN proposes to modify the requirement so
that (i) the necessary testing must occur at least annually, and (ii)
must include a specific determination whether programs at the casino
are working effectively to: (i) detect and report suspicious
transactions of $3,000 or more, and currency transactions of more than
$10,000, to proper authorities, and (ii) comply with recordkeeping and
compliance program standards. The change would emphasize a casino's
responsibility to comply with all Bank Secrecy Act requirements and
assure ongoing evaluation of the adequacy of casino compliance
programs.
b. Occurrence or patterns of suspicious transactions. 31 CFR
103.54(a)(2)(v)(B) requires casinos to maintain procedures to determine
``[w]hen required by [31 CFR part 103] the occurrence of unusual or
suspicious transactions.'' FinCEN proposes to modify the requirement to
make clear that the necessary procedures extend to analysis not only of
customer accounts but also of the casino's own records derived from or
used to record, track, or monitor casino activity. FinCEN believes that
casinos should utilize available information, including information in
existing computerized systems that monitor a customer's account
activity to assist in identifying transactions, activities and patterns
which appear to have no legitimate purpose, are not usual for a
specific player or type of players, or have no apparent business
explanation. This will encompass activity occurring through deposit and
credit accounts, player rating accounts, as well as any other account
that may be feasible.
The proposal does not specify the method that must be used by a
casino to determine the occurrence of or patterns of suspicious
transactions that may be occurring nor does it require that all such
activity be monitored at such establishments. Rather, it permits
flexibility by allowing each casino to rely on its existing information
systems and operational characteristics to determine how to identify
such transactions and activities. The procedures developed by a casino
should be designed to identify not only flagrant attempts to defeat the
casino's counter-money laundering controls, but also to determine if
customers are using more sophisticated schemes and techniques to the
same end.
IV. Submission of Comments
An original and four copies of any written hard copy comment (but
not of comments sent via E-Mail), must be submitted. All comments will
be available for public inspection and copying, and no material in any
such comments, including the name of any person submitting comments,
will be recognized as confidential. Accordingly, material not intended
to be disclosed to the public should not be submitted.
V. Regulatory Flexibility Act
FinCEN certifies that this proposed regulation will not have a
significant economic impact on a substantial number of small entities.
The Bank Secrecy Act authorizes Treasury to require financial
institutions to report suspicious activities. 31 U.S.C. 5313(g).
However, the Bank Secrecy Act excludes casinos or gaming establishments
with annual gaming revenue not exceeding $1 million from the definition
of ``financial institution.'' 31 U.S.C. 5312(a)(2)(X). Thus, certain
small casinos and card clubs are excluded by statute from the operation
of the proposed regulation. Other casinos, namely those in Colorado and
South Dakota, are subject to state law limitations on the size of
wagers that may be made at those casinos. In casinos such as these, the
burden to establish procedures to detect suspicious activity should be
substantially reduced since the low dollar amount of the limits makes
it unlikely that customers would engage in transactions at these
casinos large enough to trigger a reporting requirement under the
proposed regulation.
As to the remaining casinos and card clubs, many of the
requirements of the proposed regulation may be satisfied, in large
part, using existing business practices and records. For example, many
casinos already obtain a great deal of data about their customers from
information routinely collected from casino established deposit,
credit, check cashing and player rating accounts. This existing data
can assist casinos in making decisions about whether a transaction is
suspicious. Many casinos also already have policies and procedures in
place and have trained personnel to detect unusual or suspicious
transactions, as part of their own risk prevention programs. In
addition, it is common in the casino industry to perform annual, and in
some cases quarterly, testing of their compliance programs. Further, a
number of casinos have already begun voluntarily reporting suspicious
transactions to Treasury.
In drafting the proposed regulation, FinCEN carefully considered
the importance of suspicious activity reporting to the administration
of the Bank Secrecy Act. In light of the fact that Congress considers
suspicious activity reporting a ``key ingredient in the anti-money
laundering effort,'' 18 there is no alternative mechanism
for the government to obtain this key information other than by
requiring casinos and card clubs to set up procedures to detect and
report suspicious activity. The legislative history of the Bank Secrecy
Act demonstrates that money launderers will shift their activities away
from more regulated to less regulated financial institutions.
19
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\18\ H.R. Rep. No. 438, 103d Cong., 2d Sess. 15 (1994).
\19\ ``It is indisputable that as banks have been more active in
prevention and detection on money laundering, money launderers have
turned in droves to the financial services offered by a variety of
[non-bank financial institutions].'' Id., at 19.
---------------------------------------------------------------------------
FinCEN has met with the casino industry to discuss issues relevant
to suspicious transaction reporting and, as indicated in the preamble,
plans to conduct a series of public meetings across the country to
provide the members of the industry the opportunity to discuss the
proposed regulation. In addition, FinCEN is preparing an industry guide
to explain suspicious activity reporting.
VI. Paperwork Reduction Act Notices
A. Suspicious Activity Report by Casinos
In accordance with requirements of the Paperwork Reduction Act of
1995, 44 U.S.C. 3506(c)(2)(A), and its implementing regulations, 5 CFR
1320, the following information concerning the collection of
information on the Suspicious Activity Report by Casinos is presented
to assist those persons wishing to comment on the information
collection.
FinCEN anticipates that this proposed rule, if adopted as proposed,
would result in the annual filing of a total of 3,000 Suspicious
Activity Report by Casinos forms. This result is an estimate, based on
a projection of the size and volume of the industry.
Title: Suspicious Activity Report by Casinos.
OMB Number: 1506-0006.
Description of Respondents: All casinos and card clubs subject to
this rule.
Estimated Number of Respondents: 550.
Frequency: As required.
Estimate of Burden: Reporting average of 36 minutes per response;
recordkeeping average of three hours per response, which includes
internal review of records and other information to determine whether
the activity warrants reporting under the rule.
[[Page 27238]]
Estimate of Total Annual Burden on Respondents: 3,000 responses.
Reporting burden estimate = 1,800 hours; recordkeeping burden estimate
= 9,000 hours. Estimated combined total of 10,800 hours.
Estimate of Total Annual Cost to Respondents for Hour Burdens:
Based on $20 per hour, the total cost to the public is estimated to be
$216,000.
Estimate of Total Other Annual Costs to Respondents: None.
B. Notification to Law Enforcement in Cases Requiring Immediate
Attention
In accordance with requirements of the Paperwork Reduction Act of
1995, 44 U.S.C. 3501 et seq., and its implementing regulations, 5 CFR
part 1320, the following information concerning proposed
Sec. 103.21(b)(3) is presented to assist those persons wishing to
comment on the information collection. Section 103.21(b)(3) would
require respondents, in cases requiring immediate attention, to notify
a law enforcement agency by telephone of suspicious activity required
to be reported under section 103.21.
FinCEN estimates that this provision, if adopted as proposed, would
result in casinos and card clubs making 100 telephone notifications of
suspicious activity to law enforcement per year. This estimate is based
on FinCEN's experience with financial institutions (other than casinos)
which have provided similar telephone notice of suspicious activity to
law enforcement.
Title: Notification to Law Enforcement in Cases Requiring Immediate
Attention.
OMB Number: To be determined.
Description of Respondents: All casinos and card clubs subject to
this rule.
Estimated Number of Respondents: 550.
Frequency: As required.
Estimate of Burden: Average of 15 minutes per telephone call to law
enforcement.
Estimate of Total Annual Burden on Respondents: 100 responses per
year. Reporting burden estimate = 25 hours annually.
Estimate of Total Annual Cost to Respondents for Hour Burdens:
Based on $20 per hour, the total cost to the public is estimated to be
$500 annually.
Estimate of Total Other Annual Costs to Respondents: None.
C. Notification to FinCEN of a Request To Disclose SARC Information
In accordance with requirements of the Paperwork Reduction Act of
1995, 44 U.S.C. 3501 et seq., and its implementing regulations, 5 CFR
part 1320, the following information concerning proposed 103.21(d) is
presented to assist those persons wishing to comment on the information
collection. Proposed 103.21(d) would require notice to FinCEN when a
casino or card club has been requested to disclose a SARC form or the
information contained in the form to anyone other than FinCEN or a law
enforcement or regulatory agency authorized under the proposed rule.
FinCEN estimates that this provision, if adopted as proposed, would
result in less than 10 such reports annually. This estimate is based on
FinCEN's experience with financial institutions (other than casinos)
which have provided similar notice of requests for suspicious activity
report information filed with FinCEN.
Title: Notice to FinCEN of Request for Suspicious Activity Report
Information.
OMB Number: To be determined.
Description of Respondents: All casinos and card clubs subject to
this rule.
Estimated Number of Respondents: 550.
Frequency: As required.
Estimate of Burden: 30 minutes per notice to FinCEN.
Estimate of Total Annual Burden on Respondents: 10 responses per
year. Reporting burden estimate = 5 hours.
Estimate of Total Annual Cost to Respondents for Hour Burdens:
Based on $20 per hour, the total cost to the public is estimated to be
$100.
Estimate of Total Other Annual Costs to Respondents: None.
D. Suspicious Transaction Compliance Testing and Monitoring
In accordance with requirements of the Paperwork Reduction Act of
1995, 44 U.S.C. 3501 et seq., and its implementing regulations, 5 CFR
part 1320, the following information concerning Suspicious Transaction
Recordkeeping and Reporting is presented to assist those persons
wishing to comment on the information collection. The proposed rule
would amend: (i) Sec. 103.54(a)(2)(ii) to specify, among other things,
that required casino internal, and/or external compliance testing be
done, at a minimum, annually and result in an annual statement whether
internal control standards and procedures are working effectively to
detect and report suspicious transactions, as required by this part;
and (ii) Sec. 103.54(a)(2)(v)(B) to require casinos to establish
procedures designed to detect the occurrence of any transaction or
patterns of transactions required to be reported by this part,
including any transactions or patterns of transactions indicated by
accounts or records maintained by a casino to record or monitor
customer activity.
FinCEN estimates that these provisions, if adopted as proposed,
would result in a total of 500 hours per respondent annually. Given the
fact that the gross annual gaming revenue of casinos and card clubs
covered by this part can vary between $1 million and several hundred
million dollars, FinCEN's estimate is based on an average casino or
card club expending about 500 hours annually complying with the
proposed testing and monitoring requirements. (This number is an
average; FinCEN recognizes that because there is a wide disparity
between the size of casinos in the United States, the number could well
be higher or lower than 500 for a particular casino.) This estimate is
based on estimates developed for the banking industry for its
suspicious transaction program, and takes into account the fact that
the banking industry was subject to a criminal referral system prior to
the suspicious transaction program. This 500 hour estimate does not
include existing casino internal, and/or external Bank Secrecy Act
compliance testing already required by Sec. 103.54(a)(2)(ii).
Title: Suspicious Transaction Compliance Testing and Monitoring.
OMB Number: 1506-0009 (formerly control number 1505-0063).
Description of Respondents: All casinos and card clubs subject to
this rule.
Estimated Number of Respondents: 550.
Frequency: As required.
Estimate of Burden: Annual testing and monitoring of 500 hours per
respondent.
Estimate of Total Annual Burden on Respondents: Testing and
monitoring program burden estimate = 275,000 hours.
Estimate of Total Annual Cost to Respondents for Hour Burdens:
Based on $20 per hour, the total cost to the public is estimated to be
$5,500,000.
Estimate of Total Other Annual Costs to Respondents: None.
FinCEN specifically invites comments on the following subjects: (a)
whether the proposed collection of information is necessary to further
the purposes of the Bank Secrecy Act, including whether the information
retained shall have practical utility; (b) the accuracy of FinCEN's
estimate of the burden of the proposed collection of information; (c)
ways to enhance the quality, utility, and clarity of the information to
be retained; and (d) ways to minimize the burden of the collection of
information on the affected industry, including through the use of
automated storage and retrieval
[[Page 27239]]
techniques or other forms of information technology.
In addition, the Paperwork Reduction Act of 1995, supra, requires
agencies to estimate the total annual cost burden to respondents or
recordkeepers resulting from the information collection. Thus, FinCEN
also specifically requests comments to assist with this estimate. In
this connection, FinCEN requests commenters to identify any additional
costs associated with the information collection covered by the
requirement. These comments on costs should be divided into two parts:
(i) any additional costs associated with recordkeeping and reporting;
and (ii) any additional costs associated with testing and monitoring.
VII. Executive Order 12866
The Department of the Treasury has determined that this proposed
rule is not a significant regulatory action under Executive Order
12866.
VIII. Unfunded Mandates Act of 1995 Statement
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4 (Unfunded Mandates Act), March 22, 1995, requires that an agency
prepare a budgetary impact statement before promulgating a rule that
includes a federal mandate that may result in expenditure by state,
local and tribal governments, in the aggregate, or by the private
sector, of $100 million or more in any one year. If a budgetary impact
statement is required, section 202 of the Unfunded Mandates Act also
requires an agency to identify and consider a reasonable number of
regulatory alternatives before promulgating a rule. FinCEN has
determined that it is not required to prepare a written statement under
section 202 and has concluded that on balance this proposal provides
the most cost-effective and least burdensome alternative to achieve the
objectives of the rule.
List of Subjects in 31 CFR Part 103
Authority delegations (Government agencies), Banks and banking,
Currency, Investigations, Law enforcement, Reporting and recordkeeping
requirements.
Proposed Amendments to the Regulations
For the reasons set forth above in the preamble, 31 CFR part 103 is
proposed to be amended as follows:
PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND
FOREIGN TRANSACTIONS
1. The authority citation for part 103 continues to read as
follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5330.
2. Section 103.11(ii)(1) is revised to read as follows:
Sec. 103.11 Meaning of terms.
* * * * *
(ii) Transaction. (1) Except as provided in paragraph (ii)(2) of
this section, transaction means a purchase, sale, loan, pledge, gift,
transfer, delivery or other disposition, and with respect to a
financial institution includes a deposit, withdrawal, transfer between
accounts, exchange of currency, loan, extension of credit, purchase or
sale of any stock, bond, certificate of deposit, or other monetary
instrument or investment security, purchase or redemption of any money
order, payment or order for any money remittance or transfer, purchase
or redemption of casino chips or tokens, or other gaming instruments,
or any other payment, transfer, or delivery by, through, or to a
financial institution, by whatever means effected.
* * * * *
Secs. 103.20 and 103.2 [Redesignated as Secs. 103.15 and 103.18]
3. Sections 103.20 and 103.21 are redesignated as Secs. 103.15 and
103.18, respectively, and a new Sec. 103.21 is added to read as
follows:
Sec. 103.21 Reports by casinos of suspicious transactions.
(a) General. (1) Every casino (for purposes of this section, a
``reporting casino''), shall file with the Treasury Department, to the
extent and in the manner required by this section, a report of any
suspicious transaction relevant to a possible violation of law or
regulation. A casino may also file with the Treasury Department, by
using the Suspicious Activity Report by Casinos specified in paragraph
(b)(1) of this section, or otherwise, a report of any suspicious
transaction that it believes is relevant to the possible violation of
any law or regulation but whose reporting is not required (whether
because of its dollar amount, or otherwise) by this section.
(2) A transaction requires reporting under the terms of this
section if it is conducted or attempted by, at, or through a casino,
and involves or aggregates at least $3,000 in funds or other assets,
and the casino knows, suspects, or has reason to suspect that the
transaction (or a pattern of transactions of which the transaction is a
part):
(i) Involves funds derived from illegal activity or is intended or
conducted in order to hide or disguise funds or assets derived from
illegal activity (including, without limitation, the ownership, nature,
source, location, or control of such funds or assets) as part of a plan
to violate or evade any federal law or regulation or to avoid any
transaction reporting requirement under federal law or regulation;
(ii) Is designed, whether through structuring or any other means,
to evade any requirements of this part or of any other regulations
promulgated under the Bank Secrecy Act, Pub. L. 91-508, as amended,
codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-
5330; or
(iii) Has no business or apparent lawful purpose or is not the sort
in which the particular customer would normally be expected to engage,
and the casino knows of no reasonable explanation for the transaction
after examining the available facts, including the background and
possible purpose of the transaction.
(b) Filing procedures--(1) What to file. A suspicious transaction
shall be reported by completing a Suspicious Activity Report by Casinos
(``SARC''), and collecting and maintaining supporting documentation as
required by paragraph (c) of this section.
(2) Where to file. The SARC shall be filed with FinCEN in a central
location, to be determined by FinCEN, as indicated in the instructions
to the SARC.
(3) When to file. A reporting casino is required to file each SARC
no later than 30 calendar days after the date of the initial detection
by the reporting casino of facts that may constitute a basis for filing
a SARC under this section. If no suspect is identified on the date of
such initial detection, a casino may delay filing a SAR for an
additional 30 calendar days to identify a suspect, but in no case shall
reporting be delayed more than 60 calendar days after the date of such
initial detection. In situations involving violations that require
immediate attention, such as ongoing money laundering schemes, the
reporting casino shall immediately notify by telephone an appropriate
law enforcement authority in addition to filing a SARC.
(c) Retention of records. A reporting casino shall maintain a copy
of any SARC filed and the original or business record equivalent of any
supporting documentation for a period of five years
[[Page 27240]]
from the date of filing the SARC. Supporting documentation shall be
identified as such and maintained by the reporting casino, and shall be
deemed to have been filed with the SARC. A reporting casino shall make
all supporting documentation available to FinCEN and any other
appropriate law enforcement agencies or federal, state, local, or
tribal gaming regulators upon request.
(d) Confidentiality of reports; limitation of liability. No casino,
and no director, officer, employee, or agent of any casino, who reports
a suspicious transaction under this part, may notify any person
involved in the transaction that the transaction has been reported.
Thus, any person subpoenaed or otherwise requested to disclose a SARC
or the information contained in a SARC, except where such disclosure is
requested by FinCEN or another appropriate law enforcement or
regulatory agency, shall decline to produce the SARC or to provide any
information that would disclose that a SARC has been prepared or filed,
citing this paragraph and 31 U.S.C. 5318(g)(2), and shall notify FinCEN
of any such request and its response thereto. A reporting casino, and
any director, officer, employee, or agent of such reporting casino,
that makes a report pursuant to this section (whether such report is
required by this section or made voluntarily) shall be protected from
liability for any disclosure contained in, or for failure to disclose
the fact of, such report, or both, to the extent provided by 31 U.S.C.
5318(g)(3).
(e) Compliance. Compliance with this section shall be audited by
the Department of the Treasury, through FinCEN, or by delegees of the
Department of the Treasury under the terms of the Bank Secrecy Act.
Failure to satisfy the requirements of this section may constitute a
violation of the reporting rules of the Bank Secrecy Act and of this
part.
4. Section 103.54 is amended by:
a. Revising paragraph (a)(2)(ii),
b. Removing the word ``hereafter'' in paragraph (a)(2)(iii); and
c. Revising paragraph (a)(2)(v)(B).
The revised paragraphs read as follows:
Sec. 103.54 Special rules for casinos.
(a) Compliance programs. * * *
(2) * * *
(ii) Annual internal and/or external independent testing of
compliance, including, without limitation, an annual statement whether
internal controls and procedures are working effectively to detect and
report suspicious transactions of $3,000 or more, and currency
transactions of more than $10,000, to the proper authorities, as
required by this part, and to comply with the recordkeeping and
compliance program standards of this part;
* * * * *
(v) * * *
(B) The occurrence of any transactions or patterns of transactions
required to be reported pursuant to Sec. 103.21, including, without
limitation, any transactions or patterns of transactions indicated by
accounts or records maintained by a casino to record or monitor
customer activity.
* * * * *
Dated: May 12, 1998.
William F. Baity,
Acting Director, Financial Crimes Enforcement Network.
[FR Doc. 98-13053 Filed 5-15-98; 8:45 am]
BILLING CODE 4820-03-P