FinCEN demands Casinos do KYC too

FinCEN, the U.S. financial crimes enforcement arm of the Treasury Department, is demanding that casinos do more to prevent their use as vehicles for money laundering.

To this effect, casinos will be required to know the source of their customers’ funds.  Of course, the first step in understanding the source a customer’s funds is to Know Your Customer.

Source: Wikimedia Commons

Secondly, FinCEN also demands that casinos adopt a Risk Based Approach to managing their exposure to financial crime, particularly money laundering and terrorist financing.  A successful Risk Based Approach requires several well planned and functioning elements.  These include 1) the process and guidelines in place to ensure that the approach is methodically applied within the organization, 2) well trained staff with the authority to make decisions related to the assessment of risk and a corporate culture that gives them the freedom and respect to make independent assessments of risk based on the situation and their experience, and 3) professional tools to support the research and evaluation of subjects of risk facing the organization.

As a third demand, FinCEN insists that casinos improve their information sharing with regulatory and law enforcement authorities.  This means that casinos are required to voluntarily file Suspicious Activity Reports for any suspicious activity that would be identified within the casino.  They also request that the casinos provide additional specific customer information for any unusual activity.  As a matter of fact, it is well known that within the Department of Treasury Law Enforcement community there are many who believe that Suspicious Activity Reports should be changed to Unusual Activity Reports, but that is a topic for another post.

Finally, FinCEN has issued a warning against a high risk behavior called, “Chip Walking”.  This involves using casino chips as a placement instrument for purposes of money laundering or facilitating illegal transactions.  For example, suppose a bad guy obtains a hundred thousand dollars worth of chips and places those in a casino lock box.  The bad guy can then take the key to that box out and give it to the bad guy who has brought him a load of illegal drugs.  Deal done and no messy briefcases of cash to handle.

Of course, if the casino would know its customers, this suspicious activity would be noted and may eventually lead to reporting and arrest of the bad guys.  And this is the whole point of the FinCEN demand.

 

What are Sanction and Watchlists?

Sanction lists and watchlists are lists of problematic entities (usually people, companies or vessels) that have been identified by relevant government authorities and are targeted for asset freezing or prohibited from doing business in that country or with nationals of that country, whether they are people or companies.

Usually the lists concern individuals and companies owned or controlled by, or acting for or on behalf of, targeted sanctioned countries. They also list individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific, but concern law enforcement or national security. In the U.S. such individuals and companies are called “Specially Designated Nationals” or “SDNs.”  Their assets are blocked and persons are generally prohibited from dealing with them.

KYC3 automates the list checking process by allowing a full text search of most of the lists published worldwide with a single click.  If there are any hits, further investigation and a risk based assessment can be made.

Why you need to watch the others’ watchlists…

Many people think that by verifying that their clients are not on the sanctions lists published by the competent authorities in their jurisdiction, be that the U.S. Treasury Office of Foreign Asset Control or Her Majesty’s Treasury Consolidated List of Targets, that they will be compliant and therefore safe.

This is a false sense of security garnered by a “tick the box” mentality.  In order to properly manage risk, a risk based approach must be taken to understand and address that risk. This is why all lists need to be screened with a comprehensive tool.  Because an individual identified and listed on one list is likely to show up later on lists in other jurisdictions.  Governments share information, and while intelligence can be shared quickly, it rarely is necessary to do so with such urgency.  Which means that the client who’s not on a list in your jurisdiction but on a list in another may become a serious problem for your organization in the near future.

After all, you don’t want to end up with an epic fail like Obama…

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