On October 23, 2024, FinCEN issued a consent order to the Lake Elsinore Hotel & Casino, a small card club located in Southern California. The consent order is significant for several reasons. First, FinCEN has not issued a consent order to a gaming institution since May of 2018, which was a follow-up to the 2017 enforcement action against Artichoke Joe’s Casino. Second, and very notably, the scale of this enforcement action lies in sharp contrast with the scale of the casino’s operations.

Far from a major Vegas strip operation, the Lake Elsinore Hotel & Casino is a local card club with 22 tables tucked away in a quiet lakeside community.  Despite the smaller size and complexity of the casino, it still received the scrutiny of government agencies. FinCEN Director Andrea Gacki underscored this point in her public statement regarding the enforcement action:  

“This action should serve as a reminder that all financial institutions – regardless of their type or size – must comply with their obligations under the BSA and FinCEN’s regulations.”

Below is a summary of the BSA/AML violations, penalties and remediation actions contained within the consent order.

Violations

Anti-Money Laundering (AML) Program ​

Lake Elsinore failed to implement an effective AML program. ​ The deficiencies included:

• Inadequate internal controls

• Lack of independent testing and training

• No designated individual for day-to-day compliance

• Inadequate procedures for detecting and reporting suspicious transactions

Currency Transaction Reporting (CTR) ​

Lake Elsinore failed to file CTRs for transactions involving more than $10,000 in cash within the required timeframe. ​ This failure hindered FinCEN and law enforcement's ability to track the movement of funds potentially associated with money laundering.

Suspicious Activity Reporting (SAR) ​

Lake Elsinore failed to monitor, detect, and report suspicious activities. ​ Dozens of instances of structuring and chip walking went unreported, and SARs were either not filed or filed late. ​The property had several years where no SARs were filed. Instances where suspicious activity was reported but not filed, or SARs were drafted but not summited, were unearthed as well. FinCEN stated that the AML deficiencies of the card club were so severe, it was impossible to determine just how much suspicious activity was missed.

Recordkeeping

Lake Elsinore failed to maintain required records for transactions involving monetary instruments with a face value of $3,000 or more. This included missing information in the negotiable instruments log (NIL).

Enforcement Factors

FinCEN considered several factors in deciding to impose a Civil Money Penalty:

• Nature and seriousness of the violations

• Pervasiveness of wrongdoing within the institution

• Presence or absence of prompt, effective action to terminate the violations

• Timely and voluntary disclosure of the violations

• Quality and extent of cooperation with FinCEN and other agencies

• Whether another agency took enforcement action for related activity ​(CABGC)

Enforcement Penalties

Civil Penalty

FinCEN imposed a Civil Money Penalty of $900,000, with $50,000 suspended pending compliance with the Consent Order.

Undertaking

Lake Elsinore must hire an independent consultant to review its AML program within 60 days of the Consent Order's effective date. The consultant will provide a report on the program's adequacy and recommend modifications. Lake Elsinore must implement these recommendations or propose alternatives, subject to the consultant's approval.

Admissions and Cooperation

Lake Elsinore admits to the violations and agrees to cooperate fully with FinCEN in any related investigations. This includes providing documents and information as requested.

Violations of the Consent Order

If Lake Elsinore fails to comply with the Consent Order, FinCEN may take further action, including voiding any releases or waivers and pursuing additional penalties.

Public Statements and Record Retention

Lake Elsinore agrees not to make any public statements contradicting the Consent Order and must retain all relevant records for six years.

An Unprecedented Year for AML Enforcement

In a year where we have seen non-prosecution agreements, scathing risk assessments from the U.S. Treasury, formal complaints from gaming regulators, and proposed new rules for the first time in years, FinCEN has finally chimed in on the enforcement end. When you combine these factors, it appears the industry is headed for a level of regulatory scrutiny beyond what we saw ten years ago. Notably, nearly all of these non-prosecution agreements and enforcement actions require upgrades to the AML technology being used and an increased commitment to resourcing AML operations. The industry needs to take a critical look at their AML compliance programs and brace for what will most likely be an interesting next few years.

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