2015 article predicting the de-risking crisis looming for the Caribbean casino and gambling industry

1. 2015-12-18
BACKGROUND
Recently some Caribbean casinos face difficulty in establishing and maintaining bank
accounts, including operating an automated teller machine (ATM) facility, some:
 international banks with headquarters in G20 countries are known to have
dropped some casinos as clients; and
 regional banks have also declined to have casinos as customer or to operate
ATMs.
Casinos and gambling operators provide an important component of the tourism
industry, broadening the tax base and revenue collection capabilities and employing
large numbers of people, as such the sector is important to many governments
throughout the Caribbean.
Typically banks do not advise reasons for their actions, we can only surmise why
banks do not want to do business with casinos. It is currently also unclear if this is
an emerging trend to become systemic to regional banking-gambling relationships,
or is undertaken on a genuine risk assessed, case-by-case basis.
There’s significant conjecture that the concerns of banks are AML/CFT-related, if this
is the case then there are a number of treatment tactics for the gambling industry,
which will reduce banks’ risk of doing business with the casinos and gambling outlets.
The issue can be considered at both a macro-level, with gambling operators being
caught up in the major banks’ policies of not accepting gambling operators as clients,
and at the micro-level, with the issue being prompted by matters with specific
operators.
We stress from the outset that we have no information suggesting the latter. Even
so, it is helpful to address this aspect in order to examine how to give greater comfort
to banks as to the risks posed by individual gambling businesses.
Macro-level
On the macro-level, US Department of the Treasury, Financial Crimes Enforcement
Network (FinCEN) has been more aggressive on penalising money laundering

2. through US casinos. In 2015 it has imposed at least three significant penalties on
casinos, see Table 1 - FinCEN's 2015 casino penalties.
Date Title URL USD amount
2015-03-06
FinCEN Fines Trump Taj Mahal Casino Resort
$10 Million for Significant and Long Standing Anti-
Money Laundering Violations
https://www.fincen.gov/news_room/nr/html/20150306.html
$ 10,000,000
2015-06-03
FinCEN Fines Tinian Dynasty Hotel & Casino $75
Million for Egregious Anti-Money Laundering
Violations
https://www.fincen.gov/whatsnew/html/20150603.html
$ 75,000,000
2015-09-08
FinCEN Reaches $8 Million Settlement with
Caesars Palace for Lax Anti-Money Laundering
Controls on High Rollers
https://www.fincen.gov/news_room/nr/html/20150908.html
$ 8,000,000
Table 1 - FinCEN's 2015 casino penalties
It seems this may have flowed through to the banks’ appetite to have casinos and
other gambling venues as clients. It is understood that several Las Vegas casinos
have subsequently encountered difficulties in obtaining and maintaining banking
facilities.
On 2014-08-15 an article appeared in Reuters entitled, “Banks Don't Want To Be
Responsible For Busting People For Laundering Money At Casinos”, attributed to
Peter Rudegeair and Brett Wolf (http://www.businessinsider.com/r-regulators-pushing-banks-to-rid-casinos-of-money-laundering-
2014-15). This article asserts that:
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…
… the U.S. crackdown has resulted in unprecedented scrutiny and collaboration between the two industries,
includingbanksvettingcasinocustomers'anti-moneylaunderingsystems,checkingtomakesurecasinosdon’t
accept anonymous wire transfers, and offering databases and other information to help the gaming industry
identify risky transactions.
… 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
Anecdotally, the article appears to accurately reflect current sentiment, influencing
banking and casino operators alike. However, we have not seen a specific quote
from “US regulators” as alluded to in the article.
It seems that some US banks are making a simple assessment – whether the value
of the business from casino and gambling operators outweighs the risk of substantial
penalties. For some, the risk is best avoided by declining business with any gaming-
related businesses altogether.
This may impacts Caribbean banks because of correspondent-banking relationships
with US banks. If a Caribbean bank has a relationship with a US banks (which all
do), the US correspondent bank may insist on the local bank severing relationships

3. with local gambling providers because of the risk that they (the US bank) seek to
avoid altogether.
There is no way to know for certain if there is a looming systemic banking crisis for
casinos and gaming businesses in the Caribbean. But any systemic ban could have
materially adverse impact on the sector and the thousands of jobs dependent on it.
For example web-shop industry in The Bahamas has struggled with banks despite
legislation being enacted this year (http://www.tribune242.com/news/2015/mar/18/canadian-banks-stand-firm-web-shop-bar/).
Micro-level
As noted above, we have no information regarding any concerns relating to any
specific casino with regard to money laundering or other regulatory requirements.
Casinos throughout the Caribbean are currently supervised by national financial
intelligence units and some by gambling regulators. If the truth be known some
gambling sectors have been able to grow in the context of minimal regulation.
Caribbean Financial Actions Task Force (CFATF) 3rd round Mutual Evaluation
Reports cite many deficiencies relating to AML/CFT regulation of various gambling
sectors.
Effective AML/CFT and gambling regulation could assist casinos and gambling
establishments establish objective evidence of low-risk for banks to have as
customers.
TREATMENT OPTIONS
Clarify the issue
Understanding the issue is critical to formalising treatment strategies.
Casinos and gambling businesses might:
(1) make enquiries of banks to understand the reasoning behind the source of
their stance;
(2) make enquiries of FIU and regulators to understand if there’s satisfaction in
the businesses state-of-compliance; and
(3) read the 3rd round CFATF Mutual Evaluation Report for the country where
the casino or gambling business operates to understand if the jurisdiction
has a suitable AML/CFT regulatory capability.
Effective regulatory regime
If the issue is, as suspected, a systemic policy position of US and Canadian banks,
then it will be a difficult task to persuade them to alter their position.
Both gambling and AML/CFT regulators should ensure comprehensive and
effective regulation is in place - this is required for the 4th round Mutual Evaluation,
simply having statutes without effective regulation in practice is insufficient.

4. Casino–specific enhancements
Casinos and gambling operators are immediately and directly impacted by the
banking policies, casinos and gambling operators must act in a timely manner
rather than simply rely on governments to implement effective regulation.
The following are options for addressing the risk profile that each casino or
gambling business poses to the banks. The treatments cited below will be
necessary as jurisdictions establish effective regulation as required by the
Financial Actions Task Force (FATF).
Due diligence of beneficial owners and management
Each casino and gambling business could engage an external entity to manage
probity and due diligence assessment of its owners and management. While the
findings will not carry the weight of probity assessment/licensing by a regulatory
authority, this provides a level of comfort that such inquiries have been made.
Formal, adequate, and effective AML/CFT program
Each casino and gambling business could implement a best-practice AML/CFT
program based on a formal risk management approach. This would provide
documentary evidence that the risk of casino customers participating in money
laundering or financing of terrorism (ML/FT) is acceptably low.
If such a program already exists, then the casino or gambling business could
engage external experts to examine the AML/CFT program and comment on its
suitability and effectiveness against world’s best practice.
Formal, adequate, and effective casino accounting and management
The casino could implement a formal best-practice casino accounting and
management program, to provide supervision and documentary evidence that the
risk of the casino participating in money laundering or financing of terrorism
(ML/FT) is acceptably low.
If such a program already exists, then the casino could engage external experts
to examine the accounting and management program and comment on its
suitability and effectiveness against world’s best practice.
Oversight and review
The casino could engage suitable external entity to undertake oversight and
review of the above programs and prepare reports for 3rd parties such as banks.
ga could undertake the activities mentioned above, manage such assessments
and prepare reports for 3rd parties such as banks.
Establish a non-casino company to operate ATM
If there’re issues in establishing ATM facilities by casinos or gambling businesses
may consider opening related companies separate to the gambling business to
operate ATM facilities in or in proximity to the gambling business. A nightclub,

5. bar, or restaurant might serve this purpose. Alternately, a neighbouring business
might offer ATM facilities.
It is recognised that casinos and gambling businesses would prefer to have ATMs
on the main gaming floor to maximise business, but current bank policies appear
to preclude this.
ROLE OF GOVERNMENT AND ITS AGENCIES
If, as it seems likely, this is a systemic policy toward gambling providers by US
and Canadian banks, then a higher level approach in conjunction with the above
approaches will be necessary.
Where otherwise legal and regulated businesses are forced out of the regulated
banking systems then this increases the potential threats and vulnerabilities
consistent with money laundering and terrorist financing through the
establishment of layering schemes designed to hide the source of funds. This is
counter-productive to the global AML/CFT efforts.
Government and governmental agencies, such as financial services regulators,
financial intelligence units, gambling regulators, licensing departments, etc; may
through relationships with banking organisations and international financial
intelligence units (FIUs) embark on an education program to support the
adequacy of the gambling industry’s controls with regard to AML/CFT.
Coordinated representations to organisations such as Institute of International
Bankers; International Banking, Economics and Finance Association; CFTAF;
CARTAC; FTAF; IMF; FinCEN; etc; etc could be undertaken in order to have
banks change systemic policies.
In this regard the FinCEN document titled “FinCEN Statement on Providing
Banking Services to Money Service Businesses”, dated 2014-11-10 provides a
basis for the suggested approach. While this statement cites “money service
businesses” we consider the principles apply equally to “regulated gambling
businesses”.
Money services businesses (“MSBs”),1 including money transmitters important to the global flow of
remittances, are losing access to banking services, which may in part be a result of concerns about regulatory
scrutiny, the perceived risks presented by money services business accounts, and the costs and burdens
associated with maintaining such accounts.
MSBs play an important role in a transparent financial system, particularly because they often provide financial
services to peopleless likely to usetraditional bankingservices andbecauseof their prominentrolein providing
remittance services. FinCEN believes it is important to reiterate the fact that banking organizations can serve
the MSB industry while meeting their Bank Secrecy Act obligations.
Currently, there is concern that banks are indiscriminately terminating the accounts of all MSBs, or refusing to
open accounts for any MSBs, thereby eliminating them as a category of customers. Such a wholesale
approachrunscountertotheexpectationthatfinancialinstitutionscanandshouldassesstherisksofcustomers
on a case- by-case basis. Similarly, a blanket direction by U.S. banks to their foreign correspondents not to
processfundtransfersofanyforeignMSBs,simplybecausetheyareMSBs,alsorunscountertotherisk-based
approach. Refusing financial services to an entire segment of the industry can lead to an overall reduction in
financial sector transparency that is critical to making the sector resistant to the efforts of illicit actors. This is
particularly important with MSB remittance operations.

6. This article is co-authored by Governance Associates’ Tony Clark and Alan Pedley.
About the authors:
Alan Pedley was a gambling regulator in the Northern Territory of Australia from Apr-1990 to Dec-1998 overseeing technical regulation of the world’s first regulated online betting
operations at Centrebet; and all aspects on the Territory’s gaming machine industry.
Since Dec-1998 Alan has been consulting to government regulators worldwide in the fields of gambling regulation (including online, telephone, wagering, and AML/CTF). He has
developed dozens of standards in use by regulators worldwide; conducts specially commissioned audits and examinations for regulators; and provides compliance and AML/CFT
consulting, independent reviews, and externalauditor services to operators.
He is on the Editorial Board of Gaming Law Review and Economics; is a Member of the International Association of Gaming Lawyers; Member International Association of Gaming
Advisors; and approved by AUSTRAC as an externalauditor pursuant to the Anti-MoneyLaundering and Counter-Terrorism Financing Act.
Tony Clarkheld policyand legislativedraftingpositionsin both NewSouthWalesand theNorthernTerritoryofAustraliawhere he oversaw legislation and policydevelopmentforthe
world’s first regulated online casino. Buthis policy and legislation experience extends to lotteries, gaming machines, and land-based casinos.
After joining the private sector, Tony’s role was the formulation of policy positions with respect to interactive gambling. This has required submissions to, and interaction with, State
and Federal Governments (most recently on proposals to protect the integrity of sports), and bodies such as the Productivity Commission, Australian Crime Commission,Australian
Sports Commission and AUSTRAC, as well as sporting, racing authorities across all Statesand Territories, and community groups interested in gambling issues.
Tony was recently a member of AUSTRAC’s CEO’s Consultative Forum, [AUSTRAC is Australia’s principalanti-money laundering and counter-terrorism financing agency], and the
Executive Officer of the Australian Internet Bookmaker’s Association. He has recently undertaken reviews and prepared draft legislation and regulations for a number of Caribbean
jurisdictions.
Governance Associates is a Caribbean company committed to cost-effective solutions to meet world regulatory standards for gambling and AML/CFT compliance.