With the ever-expanding sports betting and online gaming environment, FinCEN’s historical definition of covered gaming institutions subject to BSA requirements has left sports betting operators wondering where they stand under regulatory requirements.  

Defining Gaming Institutions Subject to BSA

In the United States, the BSA requires certain financial institutions, including casinos, to implement anti-money laundering (AML) programs and report certain transactions to the Financial Crimes Enforcement Network (FinCEN). The definition of a gaming institution subject to the BSA is:

“a casino or a card club that is duly licensed or authorized to do business as such, and has gross annual gaming revenue in excess of $1 million, is a "financial institution" under the BSA. The definition applies to both land-based and riverboat operations licensed or authorized under the laws of a state, territory, or tribal jurisdiction, or under the Indian Gaming Regulatory Act. Tribal gaming establishments that offer slot machines, video lottery terminals, or table games, and that have gross annual gaming revenue in excess of $1 million are covered by the definitions.”¹

Under the current definition, sportsbooks may not be defined as covered gaming institutions. The only official reference to their qualification is in FIN-2007-G005 and it only specifies books with “nonrestricted” Nevada gaming licenses. FinCEN has issued no additional clarification up to this point. This leaves open some interpretation and gray area, especially for multi-jurisdiction operators.

Regarding sports betting operations, the categorization as a casino may vary. Some jurisdictions may classify sports betting operations as part of the broader definition of casinos, while others may treat them differently, such as separate licensing and regulatory frameworks. This can have a significant impact on BSA reporting and information sharing.  

AML Impact on Sports betting Operators

Sports betting operators that don’t have licenses tied to a brick-and-mortar casino or that are in jurisdictions where sports betting licenses are not considered casino licenses, may not currently be considered BSA covered institutions. These companies have still taken the initiative to have robust AML programs, compliance officers and investigation teams reporting suspicious activity and may even have some state regulated requirements around AML. After all, the ability to move money through deposits and withdrawals online creates tremendous AML risk, if left unchecked by the comprehensive policies and procedures developed by these operators.  

However, they may not have the same tools at their disposal as covered institutions, such as 314(b) and certain safe harbor provisions. An online sportsbook operator can apply for 314(b) and be denied at this point. This can get further convoluted for operators who have casino licenses in some states but online-only licenses in other states that don’t have casino as part of their definition. Even though they may be registered for 314(b), the safe harbor provisions involved with that type of information sharing may not be available to them, depending on the state involved in the information sharing request. Information sharing tools are a critical piece to identifying and investigating high risk individuals within the financial system.  

‍Power of 314(b) Information Sharing Program

The 314(b) provision allows institutions to share information with each other regarding potential money laundering or terrorist financing activities. This provision creates a channel for communication between financial institutions, which can be useful in identifying bad actors and preventing financial crimes. For sports betting, this provision would potentially allow an operator to establish a relationship with customer banks and other institutions that may have more robust source of funds/source of wealth information that gaming institutions don’t always have readily available.  

This is possible because, the use of deposit accounts, EFTs, card payments, and other banking products in sports betting establishes a relationship with the player's bank. This relationship creates an opportunity for the operator to leverage the 314(b) provision to fulfill their KYC (Know Your Customer) and EDD (Enhanced Due Diligence) requirements. 314(b) can be a critical tool when conducting CDD/EDD on identified high-risk customers. When a gaming institution has exhausted all of their tools and resources is still lacking a level of comfort with the customer’s risk this phone-a-friend like lifeline can be just what an operation needs to put together the last few pieces of the puzzle.  

Over 7,000 institutions, ranging from banks to money service businesses, to casinos, are participating in the 314(b) Information Sharing Program.² This is a powerful collaboration network of BSA compliance professionals, utilizing each other’s knowledge to file tens of thousands of SARs on high-risk individuals. Without clarity or updated definitions of gaming institutions subject to the BSA, sports betting operators could be locked out of this network.  

The rapid growth of the industry, now legal in 37 states and Washington D.C., is becoming an avenue for significant financial transactions. Not including tribal gaming, sports betting saw revenues of $7.56 billion in 2022 and wagers of $93.73 billion.³ With such significant transacting, operators have to rely purely on their own tools and information sets, without being able to reach out to banks, money services businesses and other operators where their high-risk customers may be transacting. Modern transaction monitoring, enhanced identity verification, document verification and AI driven enhanced due diligence providers give them the ability to mitigate some of this risk but without regulatory clarity allowing operators to share critical information with other institutions, they are fighting financial crime with one hand tied behind their back.  

ABOUT KINECTIFY

Kinectify is an AML risk management technology company serving gaming operators both in the US and Canada. Our modern AML platform seamlessly integrates all of the organization's data into a single view and workflow empowering gaming companies to efficiently manage risk across their enterprise. In addition, Kinectify's advisory services enhance gaming operators' capacity with industry experts who can design and test programs, meet compliance deadlines, and even provide outsource services for the day-to-day administration of compliance programs.

To learn more about Kinectify and book a demo, click here.

‍