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Anti-Money-Laundering Laws: Fed Role Feared After Breaches

5 May 2003

by Rod Smith

NEVADA -- Casino industry sources are increasingly wary that recent disclosures of anti-money laundering procedures being breached could trigger federal intervention in Nevada gaming regulations.

MGM Mirage and Station Casinos have both admitted to failing to file volumes of currency transactions reports as required under federal and state laws.

Park Place Entertainment Corp. also has entered a stipulated agreement with state regulators admitting employees falsely completed two such reports in 2000 and 2001 involving $90,000.

Even before these recent disclosures, however, authorities in Washington were discussing revoking Nevada's exemption from federal control over the currency transaction reports, Nevada Gaming Control Board Chairman Dennis Neilander said Friday.

Another source at the Gaming Control Board, asking not to be named, said the Financial Crimes Enforcement Network, which receives the currency reports from Nevada casinos, "is coming to the conclusion the feds will eliminate any and all exemptions.

"It's a really touchy situation with the federal government right now," the source said.

And while some industry executives said it would be acceptable for federal regulators to take over responsibility for the currency transaction reports, others are concerned it could lead to a larger federal role over the state's gaming industry.

The topic has been a priority for the Financial Crimes Enforcement Network, or FINCEN, an independent federal agency until recently part of the U.S. Treasury Department, since the adoption of the USA Patriot Act following the Sept. 11, 2001, terrorist attacks on New York and Washington, Neilander said.

The new law increased the agency's authority to monitor financial transactions as part of the federal anti-terrorism campaign.

"FINCEN is looking to see if any state should have an exemption," Neilander said.

Nevada now is the only gaming state with an exemption that allows state regulators, not federal officials, to oversee compliance with the federal reporting requirements. In some aspects Nevada's cash transaction reporting regulations are actually stricter than federal rules.

The exemption, however, does allow Nevada regulators to impose fines for reporting violations while federal officials handle that function in all other gaming states.

Paul Larson, a partner in the gaming division at Lionel Sawyer Collins who helped write the so-called Regulation 6A that set up the anti-money laundering rules, said, "Now, to have allegations of more incidents, it'll be perceived in Washington as a sign it is no longer a good idea to give Nevada an exemption from Title 31."

Alma Angotti, counsel for the federal agency, declined to comment Friday since no official action has been taken to revoke Nevada's exemption from currency reporting requirements.

However, she said the issue is considered important to her agency. Further, she said, agency officials would be very concerned if casinos in any other state had failed to file currency transactions reports, as three Nevada casinos recently have admitted to doing.

Angotti also noted that her agency is finalizing a major fine against a non-Nevada operator, which she declined to name, for a similar violation and seven Mississippi casinos recently were fined more than $1 million for failing to report cash transactions in excess of the $10,000 threshold.

Scott Duncan, a spokesman for the U.S. House Committee on Financial Services, said: "Obviously, Chairman (Michael) Oxley (R-Ohio), as a lead sponsor of the money laundering provisions in the Patriot Act, has an interest in ensuring (currency transaction reporting requirements) are followed and that law enforcement and the regulators are working effectively."

American Gaming Association President Frank Fahrenkopf, who lobbies Capitol Hill and the executive branch, said since passage of the Patriot Act, the federal government has played and will continue to play a larger role in monitoring and administering the regulation of currency transactions.

However, he said: "There is no evidence the government wants to take more regulatory control or is dissatisfied in any way with the cooperation of the industry." But Las Vegas professor and casino industry expert Bill Thompson, referring to the state's $700 million budget shortfall, Friday said it might be useful to discover how much the state could save by having the federal government administer the regulations.

In New Jersey, Thompson said, the federal government pays all bills to regulate the industry. But in Nevada, state taxpayers pay the entire bill, he said.

"It would probably be best if we just got rid of the exemption. We had terrorists in town. We have some sense these people are using our casinos to wash their money and I don't think we want that on the back of our gaming board," Thompson said.

"Sure, none of the 15,000 reports (The Mirage failed to file) had any problem like this (as far as we know), but integrity is the name of the game. And deferring to the federal government is probably the best way to go," he said.

"We're a vulnerable industry. It might be best that we not overextend. We should invite them in to help us if they suggest it, rather than consider them enemies," he said.

In both the MGM Mirage and Station cases, the companies failed to file required documents with the Financial Crimes Enforcement Network.

Under Nevada law, the fine for failing to submit the reports is $25,000 per count.

Casinos are required to track cash transactions of $3,000 or more and to submit currency reports whenever cash transactions by any individual total more than $10,000 in any 24-hour period.

The reports are filled out manually, usually at the cages on casino floors. The reports are turned over to company officials for auditing before they are mailed to the Financial Crimes Enforcement Network.

Until 1997, the 6A reports were submitted directly to the Gaming Control Board, but since then, at the request of the Internal Revenue Service, reports have been filed directly with the federal agency, which makes copies available to the state.

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