Hot on the heels of February’s National Risk Assessments on Money Laundering, Terrorist Financing, and Proliferation Financing (NMLRA), on May 16^th the U.S. Department of the Treasury (Treasury) released its 2024 National Strategy for Combating Terrorist and Other Illicit Financing (Strategy). This Strategy is particularly significant for the gaming industry, outlining the federal government’s blueprint over the next two years to address the key risks identified in the National Risk Assessments by disrupting and preventing illicit financial activities within casinos and online gaming platforms.

The Strategy outlines four priorities for the next two years:

1. Assess and address legal and regulatory gaps in the U.S. AML/CFT regime.

2. Make the U.S. Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) regulatory and supervisory framework for financial institutions more risk-focused and effective.

3. Enhance the operational effectiveness of law enforcement and other U.S. government agencies in combating illicit finance.

4. Support responsible technological innovation and harness technology to mitigate illicit finance risks.

Similar to the National Money Laundering Risk Assessment, the gaming industry gets some attention, particularly as it pertains to Priority #2 on the regulatory supervision framework.

National Casino AML/CFT Task Force

One of the more interesting proposals is to establish a nationwide casino AML task force to strengthen federal-state-tribal law enforcement and supervisory cooperation. In our previous blog (National Money Laundering Risk Assessment and Online Gaming: Uniformity, or the Need for Collaboration?), we covered the idea of federal examiners leveraging gaming regulatory agencies who are well versed in their registrants to facilitate more streamlined, efficient, and effective compliance process reviews. There already exists multiple organizations that comprise state and tribal government agencies from across the country – the North American Gaming Regulators Association (NAGRA), the National Council of Legislators from Gaming States (NCLGS) and the National Tribal Gaming Commissioners & Regulators (NTGCR). While none of these organization focus exclusively on AML/CTF matters, the issue often comes up during meetings, annual conferences and training. Additionally, the regulatory agencies participating in these programs often collaborate with law enforcement agencies in their regions. Treasury could leverage these existing groups to jump-start a national task force on AML in gaming to help increase law enforcement and supervisory coordination.

Updated Guidance on AML/CFT Roles and Responsibilities

Treasury is also considering issuing updated guidance regarding the AML/CFT roles and responsibilities of third-party online gaming operators under the Bank Secrecy Act (BSA). This issue was covered extensively in our February 22^nd blog, The NMLRA and How Outdated Regulation Exposes the Gaming Industry to Risk.

But will new guidance solve the issue of an outdated definition of “casino” in the BSA?

At first glance, this proposal sounds incredibly limited in addressing the risks noted in the NMLRA, which observes that not all of these gaming operators may be BSA-covered institutions under the current definition of “casino”. While online gaming and betting operators can often act as third parties through some kind of market access partnership, they also can operate as sole licensees in states where sports betting and internet gaming don’t need to be directly tied to a duly-licensed casino operator. Would guidance alone be enough to actually cover them, and will this guidance sufficiently address the risks stated in the NMLRA?  

One of the supporting actions for Treasury’s Strategy is to “assess the need for additional action on sectors not subject to comprehensive AML/CFT measures.”  It remains to be seen whether clarity will come in the form of legislative reform or guidance.

Increased  Number of BSA Examiners at Federal and…State Levels?

Treasury noted that the Internal Revenue Service’s (IRS) Small Business/Self-Employed Division (SB/SE) lacks sufficient resources to carry out casino examinations under the authority delegated by FinCEN. Treasury also observed that the resourcing and level of expertise and training varies considerably across state and tribal regulators. In seeking to address these concerns, Treasury recommends increasing federal, state and tribal regulatory oversight resources and proposes multistate examinations (more on this below). While the NMLRA suggested increased cooperation with state regulators, as does the aforementioned task force, this is the first time we’ve seen the possible delegation to non-federal bodies as it relates to BSA examinations in the gaming industry.

This lens of cooperation and delegation of examination authority/resourcing could create a completely new environment through which gaming institutions have to prepare for supervisory audits. While IRS BSA examiners often have limited gaming experience and may be unfamiliar with gaming data, gaming regulators (which are often staffed with former operators) can be astute in identifying potential deficiencies in a gaming institution’s compliance operations. Where recent IRS casino examinations have seen minimal to no findings in certain regions, it’s likely that findings related to transaction monitoring, risk assessments and the use of all available information could significantly grow when BSA examiners are armed with partners who are intimately familiar with the universe of information contained within casino and online operations.  

State-Federal and State-State Supervisory Cooperation

Multistate exams.

National operators should take notice of those two words. The Strategy seeks to mitigate the risk of jurisdictional arbitrage by increasing supervisory cooperation across all regulatory bodies responsible for gaming oversight. In the world of compliance, this may be the single biggest game changer for large BSA-covered gaming institutions.

Short of a public enforcement action, the details on BSA examination findings in one state may never make its way to another state regulator for the same operator. Should there be deficiencies at a corporate level that don’t result in public enforcement, a multistate operator can currently remediate those gaps across their enterprise before additional examinations take place. That may no longer be the case as the potential for state-level enforcement, on top of federal enforcement, becomes exponentially higher with multistate examinations. It’s not a massive leap to think other state regulatory bodies involved in the multistate examination may not want to be seen as lenient if another state decides to declare a penalty. This could create an unprecedented environment in gaming for enterprise-wide scrutiny.  

Upping the Game?

More than ten years ago, former FinCEN Director Jennifer Shasky Calvery stood before an audience at G2E in Las Vegas and warned “casinos that do choose to ignore their AML obligations and operate outside of the law are going to be held accountable.”  In the months and years following that speech, the gaming industry witnessed a slew of regulatory and criminal penalties for BSA compliance failures.  

With the release of the NMLRA and Strategy, it certainly looks like Treasury may be ready to up the game.

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ABOUT THE AUTHORS

Derek Ramm, Global Head of Advisory Services

Derek has extensive experience in the compliance and financial intelligence fields, and has brought his expertise to both the public and private sectors, providing him with a unique and well-rounded perspective to business challenges. Prior to joining Kinectify, Derek served as the Director of Anti-Money Laundering at the Alcohol and Gaming Commission of Ontario, where he led the agency's AML regulatory oversight initiatives in the gaming, horse racing, liquor and cannabis industries. Derek was previously the Managing Principal at MT>Play, an advisory venture of McCarthy Tetrault that provided strategic advice to gaming organizations and governments around the world. He has also held senior roles at Canada's federal financial intelligence unit (FINTRAC), the Ontario Lottery and Gaming Corporation, and was the chief anti-money laundering officer at one of North America's largest independent investment management firms. He was also appointed by the Government of Bermuda to serve as a Commissioner on the Bermuda Casino Gaming Commission.

Sean Topchi, Director of Business Development

Sean Topchi is a seasoned AML professional in the gaming industry. Sean has functioned in multiple compliance management roles, including being the BSA Officer for Morongo Casino Resort & Spa, a large tribal casino in Southern California. As part of RSM, he also consulted with dozens of casinos in the US and internationally. His projects included independent reviews, risk assessments, training, policy writing, and data analytics implementations. He is beyond excited to bring advanced software and risk management to gaming professionals throughout the industry. Before starting his AML career, Sean attended UNLV and obtained his BS in Accounting. He also received his MBA, obtained his certifications in Fraud Examination (CFE) & Anti-Money Laundering (ACAMS).

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.