Are Casinos Havens for Money Laundering?

More than $260 million was recently wiped off the value of New Zealand’s SkyCity Entertainment after the casino’s operator, Skycity Casino Management Ltd. (SCML) was revealed to be facing a lawsuit by New Zealand’s Internal Affairs Department for money-laundering violations. SCML could pay as much as $4.91 million for the alleged breach of AML/CFT regulations.

But SkyCity is certainly not an isolated case.

The Basel Institute on Governance assesses that the gambling industry is highly vulnerable for money laundering because of its exponential growth since the 2020 COVID pandemic and cash-intensive business operations.

The most common way to launder illicit funds through casinos is to simply convert the funds into chips, and then cash out after gambling and possibly losing a nominal amount. However, other methodologies also allow illicit actors to clean illegal profits.

• Offsetting arrangements (also known as mirror transactions) can be used to move funds abroad and evade sanctions. A gambler can deposit money into a casino junket account in one country and subsequently receives a corresponding amount of value abroad, theoretically for the purpose of gambling.
• Money services businesses (MSBs) can lend money to gambling patrons, allowing the gambler to repay the funds within another jurisdiction in which only a domestic transaction will occur.
• Organized crime networks in Southeast Asia also have been using the “Vancouver Model” for money laundering and underground banking—first uncovered through the Cullen Commission money laundering inquiry in Canada—in which Chinese gamblers would deposit money into local bank accounts controlled by criminal gangs, receiving Canadian cash in return. They would then visit Vancouver-area casinos, carrying bags full of Canadian bills, which they used to gamble, repaying the transnational criminal groups with clean money from their winnings, which would then be deposited into accounts in China and Hong Kong.
• Collusion between players, in which one gambler will intentionally lose a game to another gambler, can also help illicit actors evade AML detection policies, which often are triggered by excessive winnings. Criminals can also directly exchange proceeds of crimes for the legitimate gambling winnings of another player, by offering the winners cash at a higher price than their earnings.

The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) in 2021 announced it was increasing its enforcement of Title 31, the section of the Bank Secrecy Act that applies to casinos. Since the passage of the Anti-Money Laundering Act of 2020, FinCEN strengthened and expanded its regulatory powers, and increased the penalty for Title 31 BSA violations to $1 million and 10 years in prison.

Casinos are required to collect a certain amount of CDD information and file SARs and CTRs when they observe suspicious activity, but they are not required to collect beneficial ownership information, largely because collecting these details is impractical in a gambling environment that involves thousands of one-time customers. However, the Treasury Department in December expanded access to its new beneficial ownership registry to allow firms such as casinos and money services businesses to enhance their AML programs.

SkyCity had a program since late 2021 aimed at improving its AML compliance, but apparently the steps it had taken to address shortcomings in its AML compliance program were insufficient. In September 2023, New Zealand’s Internal Affairs Department had applied for a temporary suspension of SCML’s gambling license after a complaint from a former customer accusing the casino of not complying with requirements to detect incidents of continuous play.

A recent UN Office on Drugs and Crime (UNODC) report has found that casinos, junkets, and cryptocurrencies are exacerbating transnational organized criminal activity in East and Southeast Asia as part of the region’s underground banking and money laundering infrastructure. Although the use of casinos to launder money is not new, the proliferation of online gambling since the COVID 19 pandemic has aggravated the existing problem and has given rise to underregulated online gambling venues as more gamblers began playing from home.

Read the full report below.