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Federal Rules Imposed on Nevada

LAS VEGAS --Starting Tuesday, Nevada casinos must comply with new cash reporting rules adopted by the U.S. Treasury Department to counteract the threat of terrorist activity -- a rule that will require more than 140 small to mid-size gaming properties and even some grocery stores to begin filing reports that until now weren't required by any government agency.

At a Nevada Gaming Commission meeting Thursday, regulators announced to a packed room of casino attorneys and managers that the Treasury Department has rejected a request by the Nevada Gaming Control Board that would allow Nevada to remain exempt from so-called "suspicious activity" reporting requirements adopted by the federal government in September 2002. Nevada has operated under its own set of parallel rules for so-called SARs since 1997 that require casinos to report suspicious activities to Gaming Control Board authorities.

"We were hoping (the feds) would allow us to continue" under Nevada's own rules, Nevada Gaming Commission Chairman Peter Bernhard said. Still, he said, the state understands that the overhanging threat of terrorism and money-laundering concerns "makes them unwilling to grant any exemptions."

The new federal casino rule differs in two major respects from the state version.

First, it would require casinos with gross gaming revenue of $1 million or more to file suspicious activity reports with the Treasury's anti-money laundering arm known as the Financial Crimes Enforcement Network. Nevada's provisions only apply to casinos with revenue of $10 million or more.

That leaves about 140 Nevada casinos that fall between the $1 million and $10 million thresholds.

Nevada casinos that take in more than $10 million have been required to file suspicious activity reports since 1997 as well as other documents called Currency Transaction Reports since 1985, when the Treasury Department granted Nevada an exemption and adopted its own CTR rules for the rest of the nation's casinos. The CTRs are aimed at combating money laundering. The rules require Nevada casinos to report transactions of $10,000 or more and prohibit certain other transactions of $3,000 or more.

The 140 or so casinos in the middle, however, have never needed to file either CTRs or suspicious activity reports with the federal government. They are generally small casinos and even include some grocery stores that may have a high volume of slot machine activity yet very few machines. Nevada regulators have argued that such locations present little risk of being used as money-laundering facilities and are the reason why Nevada initiated a higher threshold of $10 million.

Small gaming operations also don't have compliance staffs like large casinos and little experience maneuvering through the cash reporting laws that have been required of their bigger counterparts for years, attorneys say.

"It's pretty significant and pretty daunting," said Paul Larsen, a gaming law expert and partner at Lionel Sawyer & Collins in Las Vegas.

Yet starting Tuesday, they must also comply with the fed's new suspicious activity rules, Gaming Control Board officials say.

Casinos also are concerned about a second significant difference between the two rules.

The federal standard requires a casino to report when it "knows, suspects or has reason to suspect" suspicious activity. Nevada's rule defers to the casino's judgment by requiring reports when the casino knows or "in the judgment" of employees has reason to suspect a transaction is suspicious.

Gaming interests have criticized the wording of the federal rule, saying it allows the federal government to second-guess the judgment of its casino bosses.

The Treasury Department first notified casinos that it intended to adopt its own suspicious activity reporting rules in 1998. It finally adopted the rules in September 2002, shortly after the passage of President George W. Bush's Patriot Act, a post-Sept. 11 measure designed to counteract the threat of money-laundering for terrorism purposes. Casinos were put on notice to implement the measure starting March 25. Cash transactions of $10,000 or more at casinos will still be reported to the Treasury Department even if they're not considered suspicious in nature.

Unlike the federal version that applies to non-Nevada casinos, Nevada also prohibits cash-for-cash, cash-for-check and cash-for wire transactions of $3,000 or more.

Nevada casinos have been fined more than $3 million since 1985 for such transactions, which are still legal under federal rules, Gaming Control Board records show.

"If you're a drug dealer it's a lot easier for you to take a casino check and put it in your purse rather than carry around a case full of $1s and $5s," said Gregory Gale, chief of the board's audit division. "The same goes for walking in with $8,000 and asking to wire money to the Cayman Islands. We don't want our casinos in Nevada to be used as a currency exchange service."

Banks and other financial institutions have been filing suspicious activity reports to the Treasury's Financial Crimes Enforcement Network since 1996. Other money services businesses, such as check cashing outlets, were required to begin filing such reports last year.

Last year, the Treasury Department adopted a rule requiring banks, credit card companies and other financial institutions to set up comprehensive programs to combat money laundering. It has also pushed insurance companies and investment companies such as hedge funds and real estate investment trusts to adopt such programs.

Companies would have to train employees to detect money laundering methods, establish policies and procedures to identify risks, minimize opportunities for abuse and commission independent audits.

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