NEW YORK, Aug 15 (Reuters) - Large global banks are facing increased pressure from U.S. regulators to clamp down on casino money-laundering as the government pushes the industry to police not only its own transactions but customers' as well.
Bankers, casino executives and consultants said the U.S. crackdown has resulted in unprecedented scrutiny and collaboration between the two industries, including banks vetting casino customers' anti-money laundering systems, checking to make sure casinos don't accept anonymous wire transfers, and offering databases and other information to help the gaming industry identify risky transactions.
While the idea of money-laundering through casinos is nothing new - and has been fodder for plots in Hollywood movies like "Casino" - until recently, banks haven't been expected to take part in regulators' and prosecutors' pursuit of such criminals.
Some bank executives grumble about the extent of the work they have to do for government enforcement agencies now, and the penalty for failure. Standard Chartered Plc said on August 6 that a computer in its anti-money-laundering surveillance system made an error, which a source said could trigger fines between $100 million and $340 million payable to New York State's financial regulator. In an interview with Reuters on August 7, Standard Chartered Chief Executive of Asia, Jaspal Bindra, said the penalties are unfair.
"We are supposed to police that our counterparties and clients are not money laundering," said Bindra, "and if when we are policing we have a lapse, we don't get treated like a policeman who's had a lapse, we are treated like a criminal."
Casinos were historically a popular place for criminals to launder money because it was easy to make large-scale transfers through casino accounts, and swap ill-gotten gains for chips, and back into clean cash. Because of this, regulators have required casinos to report suspicious or abnormally large transactions for a number of years. That hasn't stopped the flow of illicit funds because criminals have grown more sophisticated in working around the rules, and because casinos have not always fully complied with the rules, according to anti-money-laundering consultants.
In recent years, regulators have also become more aggressive about enforcing the rules - on both casinos and banks. In 2012 financial institutions agreed to pay $3.5 billion in anti-money laundering infractions, up from the $26.6 million in 2011, according to the Association of Certified Anti-Money Laundering Specialists.
In light of the enforcement actions and tough public statements by federal authorities, banks have begun taking further steps to ensure their casinos customers' accounts are legitimate. As opposed to merely asking whether a casino has anti-money laundering programs, banks are now reviewing them and conducting onsite work to test their efficacy, said Adam Shapiro, a director specializing in preventing money laundering at Promontory Financial Group.
"What we're seeing is some catch-up in oversight of other institutions involved in transferring money," such as casinos, Shapiro said.
The casino industry is just one of many that enforcement officials have started targeting through banks to enforce laws.
The Department of Justice's "Operation Choke Point," which aims to protect consumers from online scammers, has subpoenaed 50 banks that process transactions for companies like payday lenders. Meanwhile, the Consumer Financial Protection Bureau is penalizing banks including Ally Financial Inc that fund loans made by auto dealers, if the car sellers are found to have discriminated against minorities or other protected groups.
Spokespeople at the CFPB and the Justice Department did not respond to requests for comment. Spokespeople at Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co and Wells Fargo & Co declined to comment.
TIME TO STEP UP
Preventing money laundering has become a higher priority for the Department of Justice and other enforcement officials in recent years, and banks have been a key target of enforcement actions. HSBC Holdings PLC and JPMorgan Chase have been censured for lax controls that did too little to prevent money laundering by Latin American drug cartels and Ponzi schemer Bernie Madoff, respectively.
The increased scrutiny on banks in regards to money-laundering has only recently extended to the casino industry. In August 2013, Las Vegas Sands Corp agreed to pay the Justice Department more than $47 million over anti-money laundering lapses linked to high-roller Zhenli Ye Gon, a Mexican pharmaceutical magnate.
Prosecutors said Ye Gon transferred around $45 million to Las Vegas Sands, mostly from accounts of Mexican currency-exchange companies with which he had no obvious affiliation. His actions did not arouse any serious suspicion from casino staff, prosecutors said. Ye Gon is currently fighting extradition to Mexico, which has charged him with drug trafficking. His case is pending, according to his attorney.
Pressure on the gambling industry intensified over the past year as the head of a U.S. Treasury agency that monitors the financial system for evidence of money laundering gave two speeches reminding the casino industry of its compliance obligations. Jennifer Shasky Calvery, who has led the agency - called the Financial Crimes Enforcement Network, or FinCEN - since September 2012, has a background in prosecuting organized crime.
A spokesman for FinCEN declined to comment.
"Banks that do business with casinos would be wise to pay attention to what the FinCEN director is talking about," said Kevin Rosenberg, a former federal prosecutor in Los Angeles. "Banks are years ahead of casinos when it comes to anti-money laundering compliance. Now it's the casinos' turn to step up."
But there are limits to how much banks should be expected to know about the casino customers because casinos are either unwilling or unable to hand over detailed information about individuals to bankers, said one anti-money laundering executive at a large bank.
In addition to regulators' own actions, bank examiners are pressing institutions they oversee to better manage the risk associated with the casino-related transactions they process, compliance officers in both industries said.
The anti-money laundering executive said his bank has forbidden casinos from accepting transfers of large sums of money from corporations or limited liability companies if the identity of the person that controls the account is unknown. Owners of private businesses and operators of junkets to Las Vegas commonly transfer money from such entities to gamble, but they could also be used for illicit purposes.
A spokesman for the American Gaming Association said in an email that the industry group is currently developing a list of best practices around anti-money laundering and "know your customer" issues that it expects to have completed in the coming months.
An executive at another large U.S. bank whose clients include gaming companies said that when the bank's compliance team comes through Las Vegas, he sometimes arranges meetings between them and the compliance staffs of different casinos. The meetings are an opportunity to share know-how about what the latest money-laundering threats are and how each side is updating systems and screening transactions, said the executive. Powwows like these have been encouraged by regulators, including FinCEN's Calvery.
Additionally, even though banks want to obey regulators' directives, they are reluctant to have too much oversight and validation outsourced to them if it comes with having to assume legal liability when something goes awry with casinos' compliance programs.
"Banks don't want to be casinos' de facto regulators," said James Dowling, the founder of Dowling Advisory Group, a consulting firm specializing in regulatory compliance. "I think you'll get a lot of pushback from the banking industry if they have to do that."
(Reporting by Peter Rudegeair and Brett Wolf in New York; editing by Dan Wilchins, Lauren Tara LaCapra and John Pickering)