Title 31, an essential part of the Bank Secrecy Act (BSA), was enacted in 1970 to fight money laundering and other illegal financial activities linked to organized crime and terrorism.
Its importance is significant. Although Title 31 applies broadly across multiple sectors, it is especially important in the Casino and Gaming Industry.
Casinos and card clubs are required by Title 31 to identify and report anyone conducting transactions exceeding $10,000 within 24 hours, using a current photo ID and Social Security number.
Failing to follow these strict reporting rules can result in severe penalties.
For example, earning over $1 million in gambling revenue without compliance could result in hefty fines or jail time.
BSA E-Filing System
FinCEN mandates the use of the BSA E-Filing System for submitting Currency Transaction Reports and Suspicious Activity Reports.
However, a final rule exempts casinos from filing CTRs for jackpot amounts from slot machines and video lottery terminals.
Additionally, the rule excludes reportable currency transactions related to specific money plays and bills inserted into electronic gaming devices, given certain conditions.
Chapter X of 31 CFR has been reorganized and renumbered from 31 CFR 103. Each regulation now clearly indicates whether it pertains to a specific industry or to all industries subject to BSA compliance.
What is the Relevance of Title 31 to Casinos?
The Bank Secrecy Act was created to prevent illegal activities such as drug trafficking and tax evasion, but now serves as a key part in combating terrorist financing.
As owners, managers, and staff of casinos and card clubs, you are essential to this effort. In 1985, the U.S. Department of the Treasury updated Title 31 to classify casinos and card clubs as "financial institutions specifically."
This change addressed concerns that these venues were being exploited for large-scale money laundering. Under Title 31, casinos are obliged to report any suspicious transactions that could be linked to money laundering or other illegal activities.
They must particularly identify anyone in the casino who engages in transactions exceeding $10,000 within a 24-hour timeframe. These reports are submitted to the Financial Crimes Enforcement Network (FinCEN), which is part of the US Treasury Department.
On March 1, 2011, FinCEN moved its regulations from 31 CFR Part 103 to 31 CFR Chapter X, continuing its efforts to improve the efficiency and effectiveness of its regulatory oversight.
Title 31 Compliance Requirements for Casinos
Casinos and card clubs are considered financial institutions under Title 31, which subjects them to rigorous compliance requirements. These establishments must adhere to several vital regulations to prevent money laundering activities:
- Currency Transaction Reports (CTRs): Casinos are required to file a CTR for any transaction or series of transactions surpassing $10,000 in a single day, including both cash-in and cash-out activities. The goal of the CTR is to establish a paper trail that helps identify and investigate suspicious activities.
- Suspicious Activity Reports (SARs): Besides CTRs, casinos are required to file Suspicious Activity Reports (SARs) whenever they notice activity indicating possible money laundering or other financial crimes. These reports must be submitted within 30 days of detecting suspicious behavior, and the information should remain confidential to prevent alerting potential offenders.
- Anti-Money Laundering (AML) Programs: Casinos must establish and uphold comprehensive Anti-Money Laundering (AML) programs. These should encompass internal policies, procedures, and controls designed to identify and prevent money laundering. Additionally, ongoing employee training and periodic independent audits are crucial for an effective AML framework.
- Record Requirements: Under Title 31, casinos are required to maintain detailed records of transactions, customer identification, and any filed reports. These records must be kept for at least 5 years and be accessible for review by regulatory authorities.
Common Money Laundering Techniques in Casinos
Despite strict regulations, some individuals and organizations continue to use methods to circumvent rules and launder illegal funds through casinos. Below are some common techniques that break Title 31 regulations.
- Structuring Transactions: Structuring means splitting large sums of money into smaller amounts, each under the $10,000 reporting threshold. These transactions happen over multiple days or at various locations to prevent triggering CTR obligations.
- Chip Washing/Minimal Gambling: The "cash-in, cash-out" technique, or chip washing, involves a money launderer buying casino chips with illegal cash, gambling very little, and then cashing out the chips. This process allows the criminal to pretend the money is from legitimate gambling winnings, obscuring its true source.
- Front Money Accounts: Certain casinos provide front money accounts, allowing patrons to deposit cash beforehand and use it for gambling. Money launderers may deposit substantial amounts, gamble minimally, and withdraw the remaining funds, disguising illicit money as gambling winnings.
- Third-Party Transactions: Money launderers may employ intermediaries to carry out transactions on their behalf, complicating efforts to trace the money to its illegal origin. This often involves multiple individuals making smaller deposits or withdrawals.
What Are the Criminal Penalties for Noncompliance?
Casinos and card clubs that do not report as required by Title 31 may incur substantial financial penalties. If the failure to comply is inadvertent or due to negligence, the fines are usually civil and can reach up to $50,000, or $25,000 per day if the casino lacks an AML policy.
If the failure to report is considered intentional, the government may pursue criminal charges against the organization and its leaders. Being charged and convicted of Title 31 violations could result in additional penalties beyond those civil penalties previously mentioned.
- Up to five years in federal prison and
- Fines can reach up to $250,000.
If a violation is committed alongside other illegal financial activities totaling over $100,000 within 12 months, the criminal fines could increase to $500,000. For more details, reach out to our federal criminal defense lawyers at Eisner Gorin LLP in Los Angeles, California.
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