[Federal Register Volume 63, Number 95 (Monday, May 18, 1998)]
[Proposed Rules]
[Pages 27230-27240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13053]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA22


Proposed Amendment to the Bank Secrecy Act Regulations; 
Requirement That Casinos and Card Clubs Report Suspicious Transactions

AGENCY: Financial Crimes Enforcement Network, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Financial Crimes Enforcement Network (``FinCEN'') is 
proposing to amend the Bank Secrecy Act regulations to require casinos 
and card clubs to report suspicious transactions involving at least 
$3,000 in funds or other assets, relevant to a possible violation of 
law or regulation; reports would be made on a reporting form 
specifically designed for use in the gaming industry. The proposed 
amendments to the Bank Secrecy Act regulations would also require 
casinos and card clubs to establish procedures designed to detect 
occurrences or patterns of suspicious transactions and would make 
certain other changes to the requirements that casinos maintain Bank 
Secrecy Act compliance programs. The proposal is a further step in the 
creation of a comprehensive system (to which banks are already subject) 
for the reporting of suspicious transactions by financial institutions. 
Such a system is a core component of the counter-money laundering 
programs of the Department of the Treasury.

DATES: Written comments on all aspects of the proposal are welcome and 
must be received on or before September 15, 1998.

ADDRESSES: Written comments should be submitted to: Office of Chief 
Counsel, Financial Crimes Enforcement Network, Department of the 
Treasury, Suite 200, 2070 Chain Bridge Road, Vienna, Virginia 22182-
2536, Attention: NPRM--Suspicious Transaction Reporting--Casinos. 
Comments also may be submitted by electronic mail to the following 
Internet address: <a href="/cdn-cgi/l/email-protection#b9d9d9cbdcdedad6d4d4dcd7cdcaf9dfd0d7dadcd797cdcbdcd8ca97ded6cf">``<span class="__cf_email__" data-cfemail="62100705010d0f0f070c161122040b0c01070c4c16100703114c050d14">[email protected]</span></a>,'' with the following 
caption in the body of the text: ``Attention: NPRM--Suspicious 
Transaction Reporting--Casinos''. For additional instructions on the 
submission of comments, see SUPPLEMENTARY INFORMATION under the heading 
``Submission of Comments.''
    Inspection of Comments: Comments may be inspected, between 10:00 
a.m. and 4:00 p.m., at FinCEN's Washington office, in the Franklin 
Court Building, 1099 14th Street, N.W., Fourth Floor,

[[Page 27231]]

Washington, D.C. 20005. Persons wishing to inspect the comments 
submitted should request an appointment by telephoning (202) 216-2870.

FOR FURTHER INFORMATION CONTACT: Leonard C. Senia, Senior Financial 
Enforcement Officer, Office of Program Development, FinCEN, (703) 905-
3931 or Cynthia L. Clark, Deputy Chief Counsel, Office of Chief 
Counsel, FinCEN, (703) 905-3758.

SUPPLEMENTARY INFORMATION:

I. Introduction

    This document proposes to add a new Sec. 103.21 to 31 CFR part 103, 
to require casinos and card clubs to report to the Department of the 
Treasury suspicious transactions to the extent provided in such section 
relevant to a possible violation of law or regulation.<SUP>1</SUP> The 
proposal would extend to casinos and card clubs the suspicious 
transaction reporting regime to which the nation's banks, thrift 
institutions, and credit unions have been subject since April 1, 
1996.<SUP>2</SUP> Related changes are made to the provisions of 31 CFR 
103.54 relating to casino compliance programs. FinCEN has previously 
proposed a rule that would require suspicious transaction reporting by 
(i) money transmitters, (ii) issuers, sellers, and redeemers of money 
orders, and (iii) issuers, sellers, and redeemers of traveler's checks, 
see 62 FR 27900, which is a part of the set of rules proposed at 62 FR 
Part V (May 21, 1997). It intends in the near future to propose a rule 
extending the suspicious transaction reporting requirement to brokers 
or dealers in securities.
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    \1\ As used hereafter in this document, the phrase ``casino'' 
when used singly includes a reference both to casinos and to card 
clubs, as the latter term is defined in 31 CFR 103.11(n)(8), unless 
the context clearly indicates otherwise. See 31 CFR 
103.11(n)(7)(iii). 31 CFR 103.11(n)(7)(iii) and (n)(8) were added to 
the Bank Secrecy Act Regulations by the final rule published at 63 
FR 1919 (January 13, 1998).
    \2\ The suspicious transaction reporting rules for banks are at 
present found at 31 CFR 103.21, which is proposed to be renumbered 
as 301 CFR 103.18 as part of the pending rulemaking relating to the 
reporting of suspicious transactions by money transmitters and other 
money services businesses (discussed immediately below in the text).
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II. Background

A. Statutory Provisions

    The Bank Secrecy Act, Pub. L. 91-508, as amended, codified at 12 
U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5330, authorizes 
the Secretary of the Treasury, inter alia, to issue regulations 
requiring financial institutions to keep records and file reports that 
are determined to have a high degree of usefulness in criminal, tax, 
and regulatory matters, and to implement counter-money laundering 
programs and compliance procedures. Regulations implementing Title II 
of the Bank Secrecy Act (codified at 31 U.S.C. 5311-5330), appear at 31 
CFR part 103.<SUP>3</SUP> The authority of the Secretary to administer 
the Bank Secrecy Act has been delegated to the Director of FinCEN.
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    \3\ Bank Secrecy Act provisions relating specifically to gaming 
establishments are discussed at paragraph B, below.
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    The provisions of the Bank Secrecy Act relating to the reporting of 
suspicious transactions are contained in 31 U.S.C. 5318(g).<SUP>4</SUP> 
That subsection grants the Secretary of the Treasury the authority to 
require the reporting of such transactions by financial institutions 
subject to the Bank Secrecy Act, and contains provisions protecting 
reporting institutions from liability to customers on account of the 
making of such reports. Subsection (g)(1) states generally:
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    \4\ Subsection (g) of section 5318(g) was added to the Bank 
Secrecy Act by section 1517 of the Annunzio-Wylie Anti-Money 
Laundering Act (``Annunzio-Wylie Act''), Title XV of the Housing and 
Community Development Act of 1992, Pub. L. 102-550; it was expanded 
by section 403 of the Money Laundering Suppression Act of 1994, to 
require designation of a single government recipient for reports of 
suspicious transactions.
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    The Secretary may require any financial institution, and any 
director, officer, employee, or agent of any financial institution, 
to report any suspicious transaction relevant to a possible 
violation of law or regulation.
    Subsection (g)(2) provides further:

    A financial institution, and a director, officer, employee, or 
agent of any financial institution, who voluntarily reports a 
suspicious transaction, or that reports a suspicious transaction 
pursuant to this section or any other authority, may not notify any 
person involved in the transaction that the transaction has been 
reported.

    Subsection (g)(3) provides that neither a financial institution, 
nor any director, officer, employee, or agent.

    That makes a disclosure of any possible violation of law or 
regulation or a disclosure pursuant to this subsection or any other 
authority * * * shall * * * be liable to any person under any law or 
regulation of the United States or any constitution, law, or 
regulation of any State or political subdivision thereof, for such 
disclosure or for any failure to notify the person involved in the 
transaction or any other person of such disclosure.

    Finally, subsection (g)(4) requires the Secretary of the Treasury, 
``to the extent practicable and appropriate,'' to designate ``a single 
officer or agency of the United States to whom such reports shall be 
made.'' <SUP>5</SUP> The designated agency is in turn responsible for 
referring any report of a suspicious transaction to ``any appropriate 
law enforcement or supervisory agency.'' Id., at subsection (g)(4)(B).
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    \5\ This designation is not to preclude the authority of 
supervisory agencies to require financial institutions to submit 
other reports to the same agency or another agency ``pursuant to any 
other applicable provision of law.'' 31 U.S.C. 5318(g)(4)(C).
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    The provisions of 31 U.S.C. 5318(h) grant the Secretary authority 
to

    Require financial institutions to carry out anti-money 
laundering programs, including at a minimum,
    (A) the development of internal policies, procedures, and 
controls,
    (B) the designation of a compliance officer,
    (C) an ongoing employee training program, and
    (D) an independent audit function to test programs.

    These provisions, enacted at the same time as the explicit 
provisions relating to reporting of suspicious transactions, complement 
the latter provisions.

B. Application of the Bank Secrecy Act to Gaming Businesses

    State licensed gambling casinos were generally made subject to the 
Bank Secrecy Act as of May 7, 1985, by regulation issued early that 
year. See 50 FR 5065 (February 6, 1985).<SUP>6</SUP> The 1985 action 
was based on Treasury's statutory authority to designate as financial 
institutions for Bank Secrecy Act purposes (i) businesses that engage 
in activities ``similar to'' the activities of the businesses listed in 
the Bank Secrecy Act, as well as (ii) other businesses ``whose cash 
transactions have a high degree of usefulness in criminal, tax, or 
regulatory matters.'' See 31 U.S.C. 5312(a)(2)(Y) and (Z) <SUP>7</SUP>. 
Special Bank Secrecy Act regulations relating to casinos were issued in 
1987, and amended in 1989 and (more significantly) in 1994. See 52 FR 
11443 (April 8, 1987), 54 FR 1165 (January 12, 1989), and 59 FR 61660 
(December 1, 1994) (modifying and putting into final effect the rule 
originally published at 58 FR 13538 (March 12, 1993)). These actions 
reflect the continuing determination not only that casinos are 
vulnerable to manipulation by money launderers and tax evaders but, 
more generally, that gaming establishments provide their customers with 
a financial product--gaming--and as a corollary offer a broad array of 
financial services,

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such as customer deposit or credit accounts, facilities for 
transmitting and receiving funds transfers directly from other 
institutions, and check cashing and currency exchange services, that 
are similar to those offered by depository institutions and other 
financial firms.
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    \6\ Casinos whose gross annual gaming revenue did not exceed $1 
million were, and continue to be, excluded from Bank Secrecy Act 
coverage.
    \7\ In 1985, these provisions were numbered 31 U.S.C. 
5312(a)(2)(X) and (Y). The numbering changed with the addition to 
section 5312(a)(2) of a new subparagraph (X), described in the text, 
dealing with gaming establishments, by the Money Laundering 
Suppression Act of 1994.
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    In recognition of the importance of the application of the Bank 
Secrecy Act to the gaming industry, section 409 of the Money Laundering 
Suppression Act of 1994 (the ``Money Laundering Suppression Act''), 
Title IV of the Riegle Community Development and Regulatory Improvement 
Act of 1994, Pub. L. 103-325, codified the application of the Bank 
Secrecy Act to gaming activities by adding casinos and other gaming 
establishments to the list of financial institutions specified in the 
Bank Secrecy Act itself. The statutory specification reads:

    (2) financial institution means--
* * * * *
    (X) a casino, gambling casino, or gaming establishment with an 
annual gaming revenue of more than $1,000,000 which--
    (i) is licensed as a casino, gambling casino, or gaming 
establishment under the laws of any State or any political 
subdivision of any State; or
    (ii) is an Indian gaming operation conducted under or pursuant 
to the Indian Gaming Regulatory Act other than an operation which is 
limited to class I gaming (as defined in section 4(6) of such Act) * 
* *.

31 U.S.C. 5312(a)(2)(X). Gambling casinos authorized to do business 
under the Indian Gaming Regulatory Act became subject to the Bank 
Secrecy Act on August 1, 1996. See 61 FR 7054 (February 23, 1996), and 
the class of gaming establishments known as ``card clubs'' will become 
subject to the Bank Secrecy Act on August 1, 1998.<SUP>8</SUP> See 63 
FR 1919 (January 13, 1998).
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    \8\ Generally card clubs would be subject to the same rules as 
casinos, unless a specific provision of the rules in 31 CFR part 103 
applicable to casinos explicitly requires a different treatment for 
card clubs. As in the case of casinos, card clubs whose gross annual 
gaming revenue is $1 million or less are excluded from Bank Secrecy 
Act coverage. See 31 CFR 103.11(n)(8).
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    Casinos in Nevada were exempted from direct coverage under the Bank 
Secrecy Act as a result of Treasury action taken in 1985 at the request 
of state authorities. See 50 FR 5064 (February 6, 1985). The exemption 
carries with it a continuing requirement that Nevada casinos must be 
subject to a state ``regulatory system [that] substantially meets the 
reporting and recordkeeping requirements'' of 31 CFR part 103, in the 
judgment of the Department of the Treasury, see 31 CFR 103.45(c)(1), 
and that meets certain additional conditions specified in 31 CFR 
103.45(c)(2).
    Nevada Gaming Commission Regulation 6A, Cash Transactions 
Prohibitions, Reporting, and Recordkeeping, has required Nevada casinos 
to report currency transactions in excess of $10,000 as part of its 
continuing responsibilities pursuant to a May 1985 cooperative 
agreement between the State of Nevada and the U.S. Department of the 
Treasury that implements the exemption. As a result of a recent 
Treasury review of Nevada's regulatory system, Regulation 6A was 
amended, inter alia, to enhance the counter-money laundering rules to 
which casinos are subject. The enhanced state rules require casinos to 
report directly to the Department of the Treasury both: (i) Large 
currency transactions (on Internal Revenue Service Form 8852, Currency 
Transaction Report by Casinos--Nevada), and (ii) potentially suspicious 
transactions and activities (under rules reflecting the same concerns, 
in the context of Nevada's state regulatory system, as the rules 
contained in 31 CFR 103.21 as proposed in this document, and as 
reflected in Treasury Form TD F 90-22.49 (Suspicious Activity Report by 
Casinos)).<SUP>9</SUP>
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    \9\ At present, the use of the form is required only for casinos 
that file reports subject to Nevada Gaming Commission Regulation 6A. 
A more thorough discussion of the current status of Form TD F 90-
22.49 appears below, under the heading ``Paperwork Reduction Act 
Notices.''
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C. Importance of Suspicious Transaction Reporting in Treasury's 
Counter-Money Laundering Programs

    The Congressional mandate to require reporting of suspicious 
transactions recognizes two basic points that are central to Treasury's 
counter-money laundering and counter-financial crime programs. First, 
it is to financial institutions that money launderers must go, either 
initially, to conceal their illegal funds, or eventually, to recycle 
those funds back into the economy. Second, the employees and officers 
of those institutions are often more likely than government officials 
to have a sense as to which transactions appear to lack commercial 
justification (or in the case of gaming establishments, transactions 
that appear to lack a reasonable relationship to legitimate wagering 
activities) or that otherwise cannot be explained as constituting a 
legitimate use of the casino's financial services. Moreover, because 
money laundering transactions are designed to appear legitimate in 
order to avoid detection, the creation of an effective system for 
detection and prevention of money laundering is impossible without the 
cooperation of financial institutions, including, in this case, gaming 
establishments. Indeed, many non-banks have come increasingly to 
recognize the increased pressure that money launderers have come to 
place upon their operations and the need for innovative programs of 
training and monitoring necessary to counter that pressure.
    The provisions of the Annunzio-Wylie and Money Laundering 
Suppression Acts recognize that the traditional reliance of Treasury 
counter-money laundering programs on the reporting of currency 
transactions between financial institutions and their customers and the 
reporting of the transportation of currency and certain monetary 
instruments into or out of the United States, is not adequate to 
prevent or detect money laundering activities. This document is thus 
one of a group of proposed rule changes that signals a move from 
reliance solely on currency transaction reporting to reliance as well 
upon the timely reporting of information equally, if not more, likely 
to be of use to law enforcement officials and financial regulators, 
namely, information about suspicious transactions and activities. 
Suspicious transaction reporting is a key component of a flexible and 
effective compliance system required to prevent the use of the nation's 
financial system for illegal purposes.
    The reporting of suspicious transactions is also a key to the 
emerging international consensus on the prevention and detection of 
money laundering. One of the central recommendations of the Financial 
Action Task Force--recently updated and reissued--is that:

    If financial institutions suspect that funds stem from a 
criminal activity, they should be required to report promptly their 
suspicions to the competent authorities.

    Financial Action Task Force Annual Report (June 28, 1996), 
<SUP>10</SUP> Annex 1 (Recommendation 15). The recommendation, which 
applies equally to banks and non-banks, revises the original 
recommendation, issued in 1990, that required institutions to be

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either ``permitted or required.'' (Emphasis supplied.) The revised 
recommendation reflects the international consensus that a mandatory 
suspicious transaction reporting system is essential to an effective 
national counter-money laundering program and to the success of efforts 
of financial institutions themselves to prevent and detect the use of 
their services or facilities by money launderers and others engaged in 
financial crime.
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    \10\ The Financial Action Task Force, commonly referred to as 
the ``FATF,'' is an inter-governmental body whose purpose is 
development and promotion of policies to combat money laundering. 
Originally created by the G-7 nations, its membership now includes 
Australia, Austria, Belgium, Canada, Denmark, Finland, France, 
Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan, 
Luxembourg, the Kingdom of the Netherlands, New Zealand, Norway, 
Portugal, Singapore, Spain, Sweden, Switzerland, Turkey, the United 
Kingdom, and the United States, as well as the European Commission 
and the Gulf Cooperation Council.
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    Similarly, the European Community's Directive on prevention of the 
use of the financial system for the purpose of money laundering calls 
for member states to--

    Ensure that credit and financial institutions and their 
directors and employees cooperate fully with the authorities 
responsible for combating money laundering * * * by [in part] 
informing those authorities, on their own initiative, of any fact 
which might be an indication of money laundering.

EC Directive, O.J. Eur. Comm. (No. L 166) 77 (1991), Article 6. Accord, 
the Model Regulations Concerning Laundering Offenses Connected to 
Illicit Drug Trafficking and Related Offenses of the Organization of 
American States, OEA/Ser. P. AG/Doc. 2916/92 rev. 1 (May 23, 1992), 
Article 13, section 2. <SUP>11</SUP> All of these documents recognize 
the importance of extending the counter-money laundering controls to 
``non-traditional'' financial institutions, not simply to banks, both 
to ensure fair competition in the marketplace and to recognize that 
non-banks as well as depository institutions are an attractive 
mechanism for, and are threatened by, money launderers. See, e.g., 
Financial Action Task Force Annual Report, supra, Annex 1 
(Recommendation 8).
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    \11\ The Organization of American States (OAS) reporting 
requirement is linked to the provision of the Model Regulations that 
institutions ``shall pay special attention to all complex, unusual 
or large transactions, whether completed or not, and to all unusual 
patterns of transactions, and to insignificant but periodic 
transactions, which have no apparent economic or lawful purpose.'' 
OAS Model Regulation, Article 13, section 1.
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    The FATF's research and national mutual evaluation projects have 
expanded in recent years the degree of attention paid to non-banks, 
including gaming establishments. The Caribbean Financial Action Task 
Force (or ``CFATF''), a 24 nation regional counterpart of the FATF, has 
also paid special attention to the vulnerability of the gaming industry 
in the Caribbean to penetration by money launderers.

D. Importance of Suspicious Transaction Reporting by Casinos and Card 
Clubs

    Billions of dollars of U.S. currency are laundered each year, 
through many different types of financial institutions and businesses. 
The corrosive effects of money laundering are well understood. Growing 
government knowledge about the way illegally-obtained proceeds are 
laundered has led to a more sophisticated understanding of the steps 
that can and should be taken to counter this crime.
    The placement of illegally-derived currency into the financial 
system and the smuggling of such currency out of the country remain two 
of the most serious issues facing financial law enforcement efforts in 
the United States and around the world. But as financial institutions 
have responded to the challenges posed by money laundering, it has 
become far more difficult than in the past to pass large amounts of 
currency unnoticed directly into the nation's financial system and far 
easier to identify and isolate those institutions and officials that 
remain willing to assist or turn a blind eye to money launderers.
    Moreover, the placement of currency into the financial system is at 
most only the first stage in the money laundering process. The money 
launderer's objective is to integrate the funds into the financial 
system, passing the funds through multiple transactions, financial 
instruments, or layers of formal ownership, so that they can be used 
for consumption or reinvestment in either legitimate or criminal 
activity without calling attention to their origin. While many currency 
transactions are not indicative of money laundering or other violations 
of law, many non-currency transactions can indicate illicit activity, 
especially in light of the breadth of the statutes that make money 
laundering itself a crime. See 18 U.S.C. 1956 and 1957.
    Owing in part to different business and transactional patterns, 
non-banks have historically not been subject to the same counter-money 
laundering controls as depository institutions. As government and 
industry programs have made it more difficult for customers to launder 
money at banks and other depository institutions, the interest of money 
launderers in moving funds into the financial system through non-bank 
financial services providers has increased.
    Gaming establishments have not been spared from this 
trend.<SUP>12</SUP> The experience of law enforcement and regulatory 
officials suggests that the gambling environment can attract criminal 
elements involved in a variety of illicit activities, including fraud, 
narcotics trafficking, and money laundering. With large volumes of 
currency being wagered by legitimate gaming customers from throughout 
the United States (and, indeed, from around the world), the fast-paced 
environment of casino gaming can create an especially valuable 
``cover'' for money launderers. The explosive growth of casino gaming 
in the United States in the last decade vastly increases the ``targets 
of opportunity'' for such criminals, as casino sites, amounts wagered, 
and casino attendance have multiplied.<SUP>13</SUP>
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    \12\ U.S. v. Marks, 97 CR 20069 (District Court Western District 
of Louisiana), June 1997 (defendants indicted for laundering drug 
proceeds by buying and cashing casino tokens); U.S. v. Zottola 
(District Court Western District of Pennsylvania) and U.S. v. 
Zottola, 97 CR 0953T (District Court Southern District of 
California), April 1997 (defendants indicted for laundering $2.1 
million in organized crime proceeds to open a casino on tribal 
lands); New Jersey Division of Gaming Enforcement v. Freedman, 
October 1996, 96-0609-RC NJ-DGE (defendants charged with structuring 
transactions to avoid reporting by cashing $20,000, in increments of 
$1,000, in casino chips); U.S. v. Vacanti, 96 CR 593(SMO) (District 
Court New Jersey), September 1996 (structuring token purchases to 
avoid transaction reporting requirements); U.S. v. McClintock, 96 CR 
91(JEI) (District Court New Jersey), February 1996 (structuring 
transactions totalling $124,000); U.S. v. Baxter, 95 CR 116 
(District Court Eastern District of Louisiana), August 1995 
(president of a casino laundered $200,000 by manipulating the books 
of the casino to show the funds were from legitimate gambling); U.S. 
v. Grittini, 1:95 CR 17GR (District Court Southern District of 
Mississippi), May 1995 (rigged blackjack games used to launder 
$520,000 for organized crime); New Jersey Division of Gaming 
Enforcement v. Meyerson, 96-0393-RC (casino employee advised 
gamblers to structure $360,000 and assisted in structuring $30,000 
to avoid transaction reporting requirements); U.S. v. Freapane, 94 
CR 287 (District Court Eastern District of Louisiana), November 
1994, (owner of illegal video slot machine business indicted for 
laundering profits from the business through casino slot machines in 
another state).
    \13\ The General Accounting Office cites in its January 1996 
report on money laundering that ``the proliferation of casinos, 
together with the rapid growth of the amounts wagered, may make 
these operations highly vulnerable to money laundering.'' General 
Accounting Office, Report to the Ranking Minority Member, Permanent 
Subcommittee on Investigations, Committee on Governmental Affairs, 
U.S. Senate, Money Laundering: Rapid Growth of Casinos Makes Them 
Vulnerable GAO/GGD-96-28. According to International Gaming and 
Wagering Business (August 1997), the amount of money legally wagered 
in casinos exceeded $480 billion in 1996. This is a substantial 
increase from the $101 billion wagered in casinos in 1982. Casino 
gaming accounts for 82 percent of the total amount of money wagered 
for all gaming activities throughout the United States. Similarly, 
according to International Gaming and Wagering Business (August 
1997), the amount of money legally wagered in card rooms constituted 
an additional $9.8 billion in 1996 (i.e., 1.7 percent of the total 
amount of money wagered). It is estimated that 125 million people 
visit government licensed casinos each year.

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E. Coordinated System for Reporting Suspicious Transactions

    The proposed rule is one of a series of rulemakings designed to 
extend suspicious activity reporting to institutions subject to the 
Bank Secrecy Act.<SUP>14</SUP> As in the case of the other rules, this 
proposed rule is designed to permit creation of a unified system for 
all reports of suspicious casino and card club transactions and 
activities. Under that system, all such reports will be filed with 
FinCEN and made available, in a single data base, to federal and state 
law enforcement authorities and gaming regulators nationwide. The 
single data base will not only permit rapid dissemination of reports to 
appropriate law enforcement agencies, but will facilitate more thorough 
analysis and tracking of those reports, and, in time, the provision to 
the financial community of information about trends and patterns 
gleaned from the information reported. The single filing location will 
also facilitate development of procedures for magnetic and ultimately 
electronic filing of such reports.
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    \14\ Several casinos have already voluntarily reported 
suspicious transactions and activities by filing on Form TD F 90-
22.47, Suspicious Activity Report (SAR), which is the form required 
for banks and other depository institutions. Other casinos have 
reported such transactions by telephone to local offices of federal 
law enforcement or gaming regulatory agencies.
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    FinCEN is developing a form, the Suspicious Activity Report by 
Casinos (``SARC''), that will be used by casinos and card clubs around 
the nation to report a suspicious transaction or activity under the 
proposed rule. A variant of that form is already in use by casinos in 
Nevada that (as described above) became subject to a state requirement 
to report suspicious transactions to FinCEN on October 1, 1997. See 62 
FR 44032 (August 18, 1997) (Paperwork Reduction Act Notice for Form TD 
F 90-22.49 to be used initially by casinos in Nevada).
    No system for the reporting of suspicious transactions can be 
effective unless information flows from as well as to the government. 
FinCEN anticipates working on an ongoing basis with gaming 
establishments and state regulatory officials in their efforts to 
detect suspicious activities.
    Treasury ultimately must rely on the creation of a working 
partnership with the gaming industry that will assist gaming 
establishments to apply their knowledge of both their customers and 
business patterns to identify and report suspicious activity and permit 
the implementation of suspicious activity reporting by gaming 
establishments in an efficient and cost-effective manner. Joint efforts 
will include exchanges of information, training, and advisory guidance 
as to examples and patterns of potentially suspicious casino 
transactions and activities. (Of course no list of potentially 
suspicious activities will apply with equal force to all gaming 
establishments or all jurisdictions in which gaming is permitted, due 
in part to differences in the range of gaming activities permitted in 
various areas.)
    In addition, FinCEN intends to hold several public meetings, which 
will be announced by notice published in the Federal Register, to 
provide additional opportunities for the industry and other interested 
parties to discuss the various provisions of this proposed rule. During 
such meetings, FinCEN will also welcome discussion of a new advisory 
entitled ``Guidance for Detecting and Reporting Suspicious Casino 
Transactions and Activities,'' which is in preparation.

III. Specific Provisions <SUP>15</SUP>

A. 103.11(ii)--Transaction

    The definition of ``transaction'' in the Bank Secrecy Act 
regulations for purposes of suspicious transaction reporting conforms 
generally to the definition Congress added to 18 U.S.C. 1956 when it 
criminalized money laundering in 1986. See Pub. L. 99-570, Title XIII, 
1352(a), 100 Stat. 3207-18 (Oct. 27, 1986). This notice proposes to 
amend that definition to include explicit references to ``the purchase 
or redemption of casino chips or tokens, or other gaming instruments,'' 
to eliminate any question of the application of the definition to 
transactions of a sort common to gaming establishments. These changes 
are necessary so that the reporting rules will cover all activity that 
should be reported under the proposed rule.
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    \15\  Because proposed Sec. 103.21 reflects the terms of the 
reporting rule for banks, readers of this document may wish to 
consult the notice of proposed rulemaking and the document 
containing the final reporting rule for banks, at 60 FR 46556 
(September 7, 1995) (proposed rule) and 61 FR 4326 (February 5, 
1996) (final rule). The bank rule is found at Sec. 103.21, but is 
proposed by this notice to be renumbered as Sec. 103.18.
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B. 103.21--Reports of Suspicious Transactions

General
    Proposed Sec. 103.21 contains the rules setting forth the 
obligation of casinos and card clubs to report suspicious transactions. 
The rule itself does not contain a separate reference to card clubs, 
since 31 CFR 103.11(n)(7)(iii) generally provides that ``[a]ny 
reference in [31 CFR part 103] . . . to a casino shall also include a 
reference to a card club, unless the provision in question contains 
specific language varying its application to card clubs or excluding 
card clubs from its application.'' See 63 FR 1919, 1923 (January 13, 
1998). No such varying provision is contained in the proposed rule.
    Proposed paragraph (a)(1) contains a general statement of the 
obligation to file a suspicious activity report, as well as language 
designed to encourage the reporting of transactions that appear 
relevant to violations of law or regulation, even in cases in which the 
rule does not explicitly so require, for example in the case of a 
transaction falling below the $3,000 threshold in the rule. The 
Department of the Treasury continues to believe that such a voluntary 
report (that is, the report of a suspicious transaction relevant to a 
possible violation of law or regulation, in circumstances not required 
by the rule proposed in 31 CFR 103.21(a)(1)) is fully covered by the 
rules against disclosure and protections against liability specified in 
31 U.S.C. 5318(g)(2) and (g)(3) and in proposed 31 CFR 103.21(d).
    Proposed paragraph (a)(2) provides that with respect to casinos, a 
transaction requires reporting under 31 CFR 103.21 if it is conducted 
or attempted by, at, or through the casino, involves or aggregates at 
least $3,000 in funds or assets, and the casino knows, suspects, or has 
reason to suspect that the transaction is one that must be reported.
    Proposed paragraph (a)(2) embodies two important points. First, 
FinCEN is proposing a $3,000 threshold to the reporting of suspicious 
casino and card club transactions and activities, so that reports will 
be required for a transaction (or a pattern of transactions of which 
the transaction is a part) that involves at least that amount in funds 
or assets and that otherwise satisfies the terms of the proposed rule. 
The proposed language makes it clear that related suspicious 
transactions ``aggregating'' $3,000 or more in funds or assets are also 
reportable under the Bank Secrecy Act. Transactions are reportable 
under proposed paragraph (a) whether or not they involve currency.
    The proposed $3,000 threshold is intended to focus attention on 
customers who are conducting suspicious transactions at a level that 
warrants attention and, at the same time, to limit the application of 
the reporting requirement to a small, but important percentage of total 
customer transactions that occur at a casino each day. Casino 
regulations in several

[[Page 27235]]

States, namely, Colorado, Illinois, Indiana, Missouri and Nevada, 
already require the recording and scrutiny of currency transactions 
occurring at this threshold on the gaming floor or at the cage. 
Moreover, in other States, such as Louisiana and Mississippi, and at 
some tribal casinos, customer activity is typically recorded at or 
slightly below this threshold on cage action control logs and gaming 
floor multiple currency transaction logs. And, as noted above, Nevada 
casinos have been subject to a $3,000 threshold for the filing of 
suspicious activity reports since October 1997.
    Second, the use of the term ``knows, suspects, or has reason to 
suspect'' is intended to introduce a concept of due diligence into the 
reporting procedures. Casino officials who monitor a customer's gaming 
activity or conduct transactions with a customer are in a unique 
position to recognize transactions and activities which appear to have 
no legitimate purpose, are not usual for a specific player or type of 
players, or have no apparent business explanation. The suspicious 
nature of the transaction may first be detected by an employee 
conducting the transaction, a supervisor observing the transaction, or 
a surveillance department employee monitoring the transaction. The 
scrutiny needed to identify suspicious transactions highlights the 
importance of casinos knowing their customers.
    The proposed rule designates three classes of transactions as 
requiring reporting by casinos. The first class, described in proposed 
paragraph (a)(2)(i), includes transactions involving funds derived from 
illegal activity or intended or conducted in order to hide or disguise 
funds or assets derived from illegal activity. The second class, 
described in proposed paragraph (a)(2)(ii), involves transactions 
designed to evade the requirements of the Bank Secrecy Act. The third 
class, described in proposed paragraph (a)(2)(iii), involves 
transactions that appear to have no business purpose or that vary so 
substantially from normal commercial activities or activities 
appropriate for the particular customer or type of customer as to have 
no reasonable explanation.
    The determination as to whether a suspicious report is required 
must be based on all the facts and circumstances relating to the 
transaction and the customer in question. Suspicious transactions and 
activities will often take place at a casino cage, gaming table or slot 
machine, but they can occur anywhere in the casino. Suspicious 
transaction reporting is not limited to transactions in currency such 
transactions may also involve monetary instruments or credit cards, or 
may involve funds transfers into, out of, or through casinos. In some 
situations casinos may be used in an attempt initially to place 
illegally-obtained funds into the financial system; in other 
situations, passage of funds through a casino may follow the initial 
placement of illegal proceeds at another financial institution, as part 
of the ``placement'' or ``integration'' stages of the money laundering 
cycle.
    Paragraph (a)(2)(iii) includes in the rule a requirement for the 
reporting of transactions that vary so substantially from normal 
practice that they legitimately can and should raise suspicions of 
possible illegality. Unlike many criminal acts, money laundering 
involves the taking of apparently lawful steps--opening deposit and 
credit accounts, wiring funds, or cashing checks--for an unlawful 
purpose. Thus, in attempting to appear to be wagering customers, 
persons may be willing to lose a nominal amount of chips by making 
small bets or offsetting larger bets and then exchanging their 
remaining chips for currency, a check or a wire transfer. They may 
attempt to structure deposits or withdrawals of funds from a casino 
account to avoid recordkeeping or reporting thresholds or to move 
substantial funds through a casino's facilities with little or no 
related gaming activity, or to provide false documents or identifying 
information to casino officials. A skillful money launderer will often 
split the movement of funds among different parts of a casino so that 
no one single person has a complete picture of the transactions or 
movement of funds involved, and may use agents to conduct multiple 
transactions for an anonymous individual, layering the transactions to 
disguise their source.
    A casino may also detect suspicious or suspected illegal activity 
pertaining to transactions involving a check cashing operator, junket 
operator, gambling tour company, supplier, vendor, etc. with which it 
has a contractual relationship. For example, a casino may observe a 
customer (other than an established junket operator) directly supplying 
large amounts of currency to individuals who then use the currency to 
make a deposit, purchase of chips, exchange of currency, etc.
    Finally, a determination whether a suspicious activity report is 
required to be filed may not result from face-to-face transactions 
between customers and casino personnel or from a review of the account 
of a customer, but instead may be discovered by information contained 
in the casino's own internal accounts and financial or other records. 
For instance, patterns of funds transfers by seemingly unrelated 
customers to a third party account, followed by little or no gaming 
activity and withdrawal of the consolidated funds, may raise questions 
that examination of no one transaction would reveal. Such patterns of 
suspicious activity may be detected during an unrelated review of a 
casino's internal records, as part of an independent audit of a 
casino's compliance systems, or as a result of a suspicious activity 
monitoring program designed to detect the occurrence of potentially 
suspicious transactions generally.
    Proposed paragraph (a)(2)(iii) recognizes the emerging 
international consensus that efforts to deter, substantially reduce, 
and eventually eradicate money laundering are greatly assisted by the 
reporting of unusual financial transactions for which no lawful purpose 
can be determined. The requirements of this section comply with the 
recommendations adopted by the FATF and the OAS, and are consistent 
with the European Community's directive on preventing money laundering 
through financial institutions.
    Given the breadth of the reporting requirement, and the variety of 
transactions conducted in or through gaming establishments, it is 
impossible to avoid the need for judgment in administering or applying 
the reporting standards to particular situations. Different fact 
patterns will require different types of judgments. In some cases, the 
facts of the transaction may clearly indicate the need to report. For 
example, the fact that a customer: (i) Furnishes an identification 
document which the casino believes is false or altered in connection 
with the completion of a Currency Transaction Report by Casinos (CTRC), 
or the opening of a deposit, credit account, or check cashing account; 
(ii) tries to influence, bribe, corrupt, or conspire with an employee 
not to file CTRCs; or (iii) converts large amounts of currency from 
small to large denomination bills; would all clearly indicate that a 
SARC should be filed.
    In other situations a more involved judgment may be needed to 
determine whether a transaction is suspicious within the meaning of the 
rule. The need for such judgments may arise, for example, in the case 
of transactions in which a customer (i) wires out of a casino funds not 
derived from gaming proceeds, or wires funds to financial institutions 
located in a country which is not his or her residence or place of

[[Page 27236]]

business; (ii) transmits or receives funds transfers without normal 
identifying information or in a manner that may indicate an attempt to 
disguise or hide the country of origin or destination or the identity 
of the customer sending the funds or the beneficiary to whom the funds 
are sent; (iii) repeatedly uses an account as a temporary resting place 
for funds from multiple sources; (iv) makes continuous payments or 
withdrawals of currency in amounts each below the currency transaction 
reporting threshold applicable under 31 CFR 103.22; or (v) inserts 
currency into a slot machine validator, accumulates credits with 
minimal or no gaming activity, and then cashes out the tokens or 
credits at the cage (or slot booth) for large denomination bills or a 
casino check. The judgments involved will also extend to whether the 
facts and circumstances and the institution's knowledge of its customer 
provide a reasonable explanation for the transaction that would remove 
it from the suspicious category. Again, it is crucial to recognize that 
suspicious transactions and activities are reportable under this rule 
and 31 U.S.C. 5318(g) whether or not they involve currency.
    For all of these reasons, casinos must know their customers to make 
an informed decision as to whether certain customer transactions are 
suspicious. Many casinos already maintain and rely for business 
purposes on a great deal of information about their customers from data 
routinely obtained through deposit, credit, check cashing, and player 
rating accounts. These accounts generally require casinos to obtain 
basic identification information about the accountholders, at the time 
the accounts are opened, and to inquire into the kinds of wagering 
activities the customer is likely to conduct.<SUP>16</SUP> Also, in 
certain instances, casinos use credit bureaus to verify information 
obtained from their customers. All of these sources of information can 
help a casino to better understand its customer base and to evaluate 
specific customer transactions that appear to lack justification or 
otherwise cannot be explained as falling within the usual methods of 
legitimate business.
---------------------------------------------------------------------------

    \16\ The deposit and credit accounts track customer deposits and 
casino extensions of credit. Casino customers can draw down on 
either account to fund their gaming, purchase chips and conduct 
other activities on casino properties. The player rating account 
tracks gaming activity and is designed primarily to award 
complimentary perquisites to volume players, and to serve as a 
marketing tool to identify customers and to encourage continued 
patronage.
---------------------------------------------------------------------------

Filing Procedures
    Paragraph (b) sets forth the filing procedures to be followed by 
casinos making reports of suspicious transactions. Within 30 days after 
a casino becomes aware of a suspicious transaction, the casino must 
report the transaction by completing a SARC and filing it in a central 
location, to be determined by FinCEN.
    Supporting documentation relating to each SARC is to be collected 
and maintained separately by the casino and made available to FinCEN 
and any appropriate law enforcement or gaming regulatory agency upon 
request. Special provision is made for situations requiring immediate 
attention, in which case casinos are to immediately notify, by 
telephone, the appropriate law enforcement authority in addition to 
filing a SARC.
    Reports filed under the terms of the proposed rule will be lodged 
in a central data base (on the model of the data base used to process, 
analyze, and retrieve bank suspicious activity reports). Information 
will be made automatically available to federal and state law 
enforcement and gaming regulatory agencies, to enhance the ability of 
those agencies to carry out their mandates to fight financial crime.
Maintenance of Records
    Paragraph (c) provides that filing casinos must maintain copies of 
SARCs and the original related documentation for a period of five years 
from the date of filing; the relevant records may include not only 
paper or electronic accounting or other entries but also (without 
limitation) appropriate segments of video or audio tapes recorded by 
the casino as part of its operations. Even though not required to be 
filed with the SARC, the supporting documentation is deemed to be a 
part of the SARC and is required to be held by the casino (in effect as 
agent for FinCEN). This provision is intended to relieve casinos of the 
need to transmit supporting documentation immediately to FinCEN without 
lessening the utility or availability of the supporting documentation. 
Thus, identification of supporting documentation must be made at the 
time the SARC is filed, and such supporting documentation is deemed 
filed with a SARC in accordance with paragraph (c); as such, FinCEN, 
law enforcement authorities and appropriate gaming regulatory agencies 
need not make their access requests through subpoena or other legal 
processes.<SUP>17</SUP>
---------------------------------------------------------------------------

    \17\  References to ``appropriate law enforcement and regulatory 
agencies'' naturally include the Examination Division of the 
Internal Revenue Service, to which authority to examine, inter alia, 
gaming establishments for compliance with the Bank Secrecy Act has 
been delegated. See 31 CFR 103.46(b)(8).
---------------------------------------------------------------------------

Prohibition From Disclosing SARCs; Safe Harbor From Civil Liability
    Paragraph (d) incorporates the terms of 31 U.S.C. 5318(g)(2) and 
(g)(3). This paragraph thus specifically prohibits persons filing SARCs 
from making any disclosure, except to law enforcement and regulatory 
agencies, about either the fact of the filing of the reports or the 
reports themselves, the information contained therein, or the 
supporting documentation. The non-disclosure provisions of section 
5318(g)(2) are intended to ensure that suspicious activity report 
information is restricted to appropriate law enforcement and regulatory 
personnel and are not otherwise made public. It is also designed to 
prevent the subject of a report from learning that his suspicious 
conduct has been reported to the government. SARC information, like 
other reports required to be filed under the Bank Secrecy Act, are not 
subject to disclosure to the public without the express authorization 
of FinCEN.
Auditing and Enforcement
    Finally, paragraph (e) notes that compliance with the obligation to 
report suspicious transactions will be audited, and provides that 
failure to comply with the rule may constitute a violation of the Bank 
Secrecy Act and the Bank Secrecy Act regulations, which may subject 
non-complying casinos to an enforcement action.

C. 103.54--Related Changes to Casino Compliance Program Requirements

General
    31 CFR 103.54 contains special compliance program rules for 
casinos, adopted by Treasury in 1994. See 59 FR 61660 (December 1, 
1994). The compliance program requirement contained in the 1994 final 
rule was revised to include procedures to determine the occurrence of 
unusual or suspicious transactions.
    As noted above, the compliance program and suspicious transaction 
reporting rules are complementary, and FinCEN believes that it is 
appropriate to propose modification of those rules in light of the 
projected commencement of suspicious transaction reporting for casinos. 
Two specific modifications are proposed.
    a. Testing for compliance. 31 CFR 103.54(a)(2)(ii) requires that 
casino compliance programs include ``[i]nternal and/or external 
independent

[[Page 27237]]

testing for compliance.'' FinCEN proposes to modify the requirement so 
that (i) the necessary testing must occur at least annually, and (ii) 
must include a specific determination whether programs at the casino 
are working effectively to: (i) detect and report suspicious 
transactions of $3,000 or more, and currency transactions of more than 
$10,000, to proper authorities, and (ii) comply with recordkeeping and 
compliance program standards. The change would emphasize a casino's 
responsibility to comply with all Bank Secrecy Act requirements and 
assure ongoing evaluation of the adequacy of casino compliance 
programs.
    b. Occurrence or patterns of suspicious transactions. 31 CFR 
103.54(a)(2)(v)(B) requires casinos to maintain procedures to determine 
``[w]hen required by [31 CFR part 103] the occurrence of unusual or 
suspicious transactions.'' FinCEN proposes to modify the requirement to 
make clear that the necessary procedures extend to analysis not only of 
customer accounts but also of the casino's own records derived from or 
used to record, track, or monitor casino activity. FinCEN believes that 
casinos should utilize available information, including information in 
existing computerized systems that monitor a customer's account 
activity to assist in identifying transactions, activities and patterns 
which appear to have no legitimate purpose, are not usual for a 
specific player or type of players, or have no apparent business 
explanation. This will encompass activity occurring through deposit and 
credit accounts, player rating accounts, as well as any other account 
that may be feasible.
    The proposal does not specify the method that must be used by a 
casino to determine the occurrence of or patterns of suspicious 
transactions that may be occurring nor does it require that all such 
activity be monitored at such establishments. Rather, it permits 
flexibility by allowing each casino to rely on its existing information 
systems and operational characteristics to determine how to identify 
such transactions and activities. The procedures developed by a casino 
should be designed to identify not only flagrant attempts to defeat the 
casino's counter-money laundering controls, but also to determine if 
customers are using more sophisticated schemes and techniques to the 
same end.

IV. Submission of Comments

    An original and four copies of any written hard copy comment (but 
not of comments sent via E-Mail), must be submitted. All comments will 
be available for public inspection and copying, and no material in any 
such comments, including the name of any person submitting comments, 
will be recognized as confidential. Accordingly, material not intended 
to be disclosed to the public should not be submitted.

V. Regulatory Flexibility Act

    FinCEN certifies that this proposed regulation will not have a 
significant economic impact on a substantial number of small entities. 
The Bank Secrecy Act authorizes Treasury to require financial 
institutions to report suspicious activities. 31 U.S.C. 5313(g). 
However, the Bank Secrecy Act excludes casinos or gaming establishments 
with annual gaming revenue not exceeding $1 million from the definition 
of ``financial institution.'' 31 U.S.C. 5312(a)(2)(X). Thus, certain 
small casinos and card clubs are excluded by statute from the operation 
of the proposed regulation. Other casinos, namely those in Colorado and 
South Dakota, are subject to state law limitations on the size of 
wagers that may be made at those casinos. In casinos such as these, the 
burden to establish procedures to detect suspicious activity should be 
substantially reduced since the low dollar amount of the limits makes 
it unlikely that customers would engage in transactions at these 
casinos large enough to trigger a reporting requirement under the 
proposed regulation.
    As to the remaining casinos and card clubs, many of the 
requirements of the proposed regulation may be satisfied, in large 
part, using existing business practices and records. For example, many 
casinos already obtain a great deal of data about their customers from 
information routinely collected from casino established deposit, 
credit, check cashing and player rating accounts. This existing data 
can assist casinos in making decisions about whether a transaction is 
suspicious. Many casinos also already have policies and procedures in 
place and have trained personnel to detect unusual or suspicious 
transactions, as part of their own risk prevention programs. In 
addition, it is common in the casino industry to perform annual, and in 
some cases quarterly, testing of their compliance programs. Further, a 
number of casinos have already begun voluntarily reporting suspicious 
transactions to Treasury.
    In drafting the proposed regulation, FinCEN carefully considered 
the importance of suspicious activity reporting to the administration 
of the Bank Secrecy Act. In light of the fact that Congress considers 
suspicious activity reporting a ``key ingredient in the anti-money 
laundering effort,'' <SUP>18</SUP> there is no alternative mechanism 
for the government to obtain this key information other than by 
requiring casinos and card clubs to set up procedures to detect and 
report suspicious activity. The legislative history of the Bank Secrecy 
Act demonstrates that money launderers will shift their activities away 
from more regulated to less regulated financial institutions. 
<SUP>19</SUP>
---------------------------------------------------------------------------

    \18\ H.R. Rep. No. 438, 103d Cong., 2d Sess. 15 (1994).
    \19\ ``It is indisputable that as banks have been more active in 
prevention and detection on money laundering, money launderers have 
turned in droves to the financial services offered by a variety of 
[non-bank financial institutions].'' Id., at 19.
---------------------------------------------------------------------------

    FinCEN has met with the casino industry to discuss issues relevant 
to suspicious transaction reporting and, as indicated in the preamble, 
plans to conduct a series of public meetings across the country to 
provide the members of the industry the opportunity to discuss the 
proposed regulation. In addition, FinCEN is preparing an industry guide 
to explain suspicious activity reporting.

VI. Paperwork Reduction Act Notices

A. Suspicious Activity Report by Casinos

    In accordance with requirements of the Paperwork Reduction Act of 
1995, 44 U.S.C. 3506(c)(2)(A), and its implementing regulations, 5 CFR 
1320, the following information concerning the collection of 
information on the Suspicious Activity Report by Casinos is presented 
to assist those persons wishing to comment on the information 
collection.
    FinCEN anticipates that this proposed rule, if adopted as proposed, 
would result in the annual filing of a total of 3,000 Suspicious 
Activity Report by Casinos forms. This result is an estimate, based on 
a projection of the size and volume of the industry.
    Title: Suspicious Activity Report by Casinos.
    OMB Number: 1506-0006.
    Description of Respondents: All casinos and card clubs subject to 
this rule.
    Estimated Number of Respondents: 550.
    Frequency: As required.
    Estimate of Burden: Reporting average of 36 minutes per response; 
recordkeeping average of three hours per response, which includes 
internal review of records and other information to determine whether 
the activity warrants reporting under the rule.

[[Page 27238]]

    Estimate of Total Annual Burden on Respondents: 3,000 responses. 
Reporting burden estimate = 1,800 hours; recordkeeping burden estimate 
= 9,000 hours. Estimated combined total of 10,800 hours.
    Estimate of Total Annual Cost to Respondents for Hour Burdens: 
Based on $20 per hour, the total cost to the public is estimated to be 
$216,000.
    Estimate of Total Other Annual Costs to Respondents: None.

B. Notification to Law Enforcement in Cases Requiring Immediate 
Attention

    In accordance with requirements of the Paperwork Reduction Act of 
1995, 44 U.S.C. 3501 et seq., and its implementing regulations, 5 CFR 
part 1320, the following information concerning proposed 
Sec. 103.21(b)(3) is presented to assist those persons wishing to 
comment on the information collection. Section 103.21(b)(3) would 
require respondents, in cases requiring immediate attention, to notify 
a law enforcement agency by telephone of suspicious activity required 
to be reported under section 103.21.
    FinCEN estimates that this provision, if adopted as proposed, would 
result in casinos and card clubs making 100 telephone notifications of 
suspicious activity to law enforcement per year. This estimate is based 
on FinCEN's experience with financial institutions (other than casinos) 
which have provided similar telephone notice of suspicious activity to 
law enforcement.
    Title: Notification to Law Enforcement in Cases Requiring Immediate 
Attention.
    OMB Number: To be determined.
    Description of Respondents: All casinos and card clubs subject to 
this rule.
    Estimated Number of Respondents: 550.
    Frequency: As required.
    Estimate of Burden: Average of 15 minutes per telephone call to law 
enforcement.
    Estimate of Total Annual Burden on Respondents: 100 responses per 
year. Reporting burden estimate = 25 hours annually.
    Estimate of Total Annual Cost to Respondents for Hour Burdens: 
Based on $20 per hour, the total cost to the public is estimated to be 
$500 annually.
    Estimate of Total Other Annual Costs to Respondents: None.

C. Notification to FinCEN of a Request To Disclose SARC Information

    In accordance with requirements of the Paperwork Reduction Act of 
1995, 44 U.S.C. 3501 et seq., and its implementing regulations, 5 CFR 
part 1320, the following information concerning proposed 103.21(d) is 
presented to assist those persons wishing to comment on the information 
collection. Proposed 103.21(d) would require notice to FinCEN when a 
casino or card club has been requested to disclose a SARC form or the 
information contained in the form to anyone other than FinCEN or a law 
enforcement or regulatory agency authorized under the proposed rule.
    FinCEN estimates that this provision, if adopted as proposed, would 
result in less than 10 such reports annually. This estimate is based on 
FinCEN's experience with financial institutions (other than casinos) 
which have provided similar notice of requests for suspicious activity 
report information filed with FinCEN.
    Title: Notice to FinCEN of Request for Suspicious Activity Report 
Information.
    OMB Number: To be determined.
    Description of Respondents: All casinos and card clubs subject to 
this rule.
    Estimated Number of Respondents: 550.
    Frequency: As required.
    Estimate of Burden: 30 minutes per notice to FinCEN.
    Estimate of Total Annual Burden on Respondents: 10 responses per 
year. Reporting burden estimate = 5 hours.
    Estimate of Total Annual Cost to Respondents for Hour Burdens: 
Based on $20 per hour, the total cost to the public is estimated to be 
$100.
    Estimate of Total Other Annual Costs to Respondents: None.

D. Suspicious Transaction Compliance Testing and Monitoring

    In accordance with requirements of the Paperwork Reduction Act of 
1995, 44 U.S.C. 3501 et seq., and its implementing regulations, 5 CFR 
part 1320, the following information concerning Suspicious Transaction 
Recordkeeping and Reporting is presented to assist those persons 
wishing to comment on the information collection. The proposed rule 
would amend: (i) Sec. 103.54(a)(2)(ii) to specify, among other things, 
that required casino internal, and/or external compliance testing be 
done, at a minimum, annually and result in an annual statement whether 
internal control standards and procedures are working effectively to 
detect and report suspicious transactions, as required by this part; 
and (ii) Sec. 103.54(a)(2)(v)(B) to require casinos to establish 
procedures designed to detect the occurrence of any transaction or 
patterns of transactions required to be reported by this part, 
including any transactions or patterns of transactions indicated by 
accounts or records maintained by a casino to record or monitor 
customer activity.
    FinCEN estimates that these provisions, if adopted as proposed, 
would result in a total of 500 hours per respondent annually. Given the 
fact that the gross annual gaming revenue of casinos and card clubs 
covered by this part can vary between $1 million and several hundred 
million dollars, FinCEN's estimate is based on an average casino or 
card club expending about 500 hours annually complying with the 
proposed testing and monitoring requirements. (This number is an 
average; FinCEN recognizes that because there is a wide disparity 
between the size of casinos in the United States, the number could well 
be higher or lower than 500 for a particular casino.) This estimate is 
based on estimates developed for the banking industry for its 
suspicious transaction program, and takes into account the fact that 
the banking industry was subject to a criminal referral system prior to 
the suspicious transaction program. This 500 hour estimate does not 
include existing casino internal, and/or external Bank Secrecy Act 
compliance testing already required by Sec. 103.54(a)(2)(ii).
    Title: Suspicious Transaction Compliance Testing and Monitoring.
    OMB Number: 1506-0009 (formerly control number 1505-0063).
    Description of Respondents: All casinos and card clubs subject to 
this rule.
    Estimated Number of Respondents: 550.
    Frequency: As required.
    Estimate of Burden: Annual testing and monitoring of 500 hours per 
respondent.
    Estimate of Total Annual Burden on Respondents: Testing and 
monitoring program burden estimate = 275,000 hours.
    Estimate of Total Annual Cost to Respondents for Hour Burdens: 
Based on $20 per hour, the total cost to the public is estimated to be 
$5,500,000.
    Estimate of Total Other Annual Costs to Respondents: None.
    FinCEN specifically invites comments on the following subjects: (a) 
whether the proposed collection of information is necessary to further 
the purposes of the Bank Secrecy Act, including whether the information 
retained shall have practical utility; (b) the accuracy of FinCEN's 
estimate of the burden of the proposed collection of information; (c) 
ways to enhance the quality, utility, and clarity of the information to 
be retained; and (d) ways to minimize the burden of the collection of 
information on the affected industry, including through the use of 
automated storage and retrieval

[[Page 27239]]

techniques or other forms of information technology.
    In addition, the Paperwork Reduction Act of 1995, supra, requires 
agencies to estimate the total annual cost burden to respondents or 
recordkeepers resulting from the information collection. Thus, FinCEN 
also specifically requests comments to assist with this estimate. In 
this connection, FinCEN requests commenters to identify any additional 
costs associated with the information collection covered by the 
requirement. These comments on costs should be divided into two parts: 
(i) any additional costs associated with recordkeeping and reporting; 
and (ii) any additional costs associated with testing and monitoring.

VII. Executive Order 12866

    The Department of the Treasury has determined that this proposed 
rule is not a significant regulatory action under Executive Order 
12866.

VIII. Unfunded Mandates Act of 1995 Statement

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act), March 22, 1995, requires that an agency 
prepare a budgetary impact statement before promulgating a rule that 
includes a federal mandate that may result in expenditure by state, 
local and tribal governments, in the aggregate, or by the private 
sector, of $100 million or more in any one year. If a budgetary impact 
statement is required, section 202 of the Unfunded Mandates Act also 
requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. FinCEN has 
determined that it is not required to prepare a written statement under 
section 202 and has concluded that on balance this proposal provides 
the most cost-effective and least burdensome alternative to achieve the 
objectives of the rule.

List of Subjects in 31 CFR Part 103

    Authority delegations (Government agencies), Banks and banking, 
Currency, Investigations, Law enforcement, Reporting and recordkeeping 
requirements.

Proposed Amendments to the Regulations

    For the reasons set forth above in the preamble, 31 CFR part 103 is 
proposed to be amended as follows:

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND 
FOREIGN TRANSACTIONS

    1. The authority citation for part 103 continues to read as 
follows:

    Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5330.

    2. Section 103.11(ii)(1) is revised to read as follows:


Sec. 103.11  Meaning of terms.

* * * * *
    (ii) Transaction. (1) Except as provided in paragraph (ii)(2) of 
this section, transaction means a purchase, sale, loan, pledge, gift, 
transfer, delivery or other disposition, and with respect to a 
financial institution includes a deposit, withdrawal, transfer between 
accounts, exchange of currency, loan, extension of credit, purchase or 
sale of any stock, bond, certificate of deposit, or other monetary 
instrument or investment security, purchase or redemption of any money 
order, payment or order for any money remittance or transfer, purchase 
or redemption of casino chips or tokens, or other gaming instruments, 
or any other payment, transfer, or delivery by, through, or to a 
financial institution, by whatever means effected.
* * * * *


Secs. 103.20 and 103.2  [Redesignated as Secs. 103.15 and 103.18]

    3. Sections 103.20 and 103.21 are redesignated as Secs. 103.15 and 
103.18, respectively, and a new Sec. 103.21 is added to read as 
follows:


Sec. 103.21  Reports by casinos of suspicious transactions.

    (a) General. (1) Every casino (for purposes of this section, a 
``reporting casino''), shall file with the Treasury Department, to the 
extent and in the manner required by this section, a report of any 
suspicious transaction relevant to a possible violation of law or 
regulation. A casino may also file with the Treasury Department, by 
using the Suspicious Activity Report by Casinos specified in paragraph 
(b)(1) of this section, or otherwise, a report of any suspicious 
transaction that it believes is relevant to the possible violation of 
any law or regulation but whose reporting is not required (whether 
because of its dollar amount, or otherwise) by this section.
    (2) A transaction requires reporting under the terms of this 
section if it is conducted or attempted by, at, or through a casino, 
and involves or aggregates at least $3,000 in funds or other assets, 
and the casino knows, suspects, or has reason to suspect that the 
transaction (or a pattern of transactions of which the transaction is a 
part):
    (i) Involves funds derived from illegal activity or is intended or 
conducted in order to hide or disguise funds or assets derived from 
illegal activity (including, without limitation, the ownership, nature, 
source, location, or control of such funds or assets) as part of a plan 
to violate or evade any federal law or regulation or to avoid any 
transaction reporting requirement under federal law or regulation;
    (ii) Is designed, whether through structuring or any other means, 
to evade any requirements of this part or of any other regulations 
promulgated under the Bank Secrecy Act, Pub. L. 91-508, as amended, 
codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-
5330; or
    (iii) Has no business or apparent lawful purpose or is not the sort 
in which the particular customer would normally be expected to engage, 
and the casino knows of no reasonable explanation for the transaction 
after examining the available facts, including the background and 
possible purpose of the transaction.
    (b) Filing procedures--(1) What to file. A suspicious transaction 
shall be reported by completing a Suspicious Activity Report by Casinos 
(``SARC''), and collecting and maintaining supporting documentation as 
required by paragraph (c) of this section.
    (2) Where to file. The SARC shall be filed with FinCEN in a central 
location, to be determined by FinCEN, as indicated in the instructions 
to the SARC.
    (3) When to file. A reporting casino is required to file each SARC 
no later than 30 calendar days after the date of the initial detection 
by the reporting casino of facts that may constitute a basis for filing 
a SARC under this section. If no suspect is identified on the date of 
such initial detection, a casino may delay filing a SAR for an 
additional 30 calendar days to identify a suspect, but in no case shall 
reporting be delayed more than 60 calendar days after the date of such 
initial detection. In situations involving violations that require 
immediate attention, such as ongoing money laundering schemes, the 
reporting casino shall immediately notify by telephone an appropriate 
law enforcement authority in addition to filing a SARC.
    (c) Retention of records. A reporting casino shall maintain a copy 
of any SARC filed and the original or business record equivalent of any 
supporting documentation for a period of five years

[[Page 27240]]

from the date of filing the SARC. Supporting documentation shall be 
identified as such and maintained by the reporting casino, and shall be 
deemed to have been filed with the SARC. A reporting casino shall make 
all supporting documentation available to FinCEN and any other 
appropriate law enforcement agencies or federal, state, local, or 
tribal gaming regulators upon request.
    (d) Confidentiality of reports; limitation of liability. No casino, 
and no director, officer, employee, or agent of any casino, who reports 
a suspicious transaction under this part, may notify any person 
involved in the transaction that the transaction has been reported. 
Thus, any person subpoenaed or otherwise requested to disclose a SARC 
or the information contained in a SARC, except where such disclosure is 
requested by FinCEN or another appropriate law enforcement or 
regulatory agency, shall decline to produce the SARC or to provide any 
information that would disclose that a SARC has been prepared or filed, 
citing this paragraph and 31 U.S.C. 5318(g)(2), and shall notify FinCEN 
of any such request and its response thereto. A reporting casino, and 
any director, officer, employee, or agent of such reporting casino, 
that makes a report pursuant to this section (whether such report is 
required by this section or made voluntarily) shall be protected from 
liability for any disclosure contained in, or for failure to disclose 
the fact of, such report, or both, to the extent provided by 31 U.S.C. 
5318(g)(3).
    (e) Compliance. Compliance with this section shall be audited by 
the Department of the Treasury, through FinCEN, or by delegees of the 
Department of the Treasury under the terms of the Bank Secrecy Act. 
Failure to satisfy the requirements of this section may constitute a 
violation of the reporting rules of the Bank Secrecy Act and of this 
part.
    4. Section 103.54 is amended by:
    a. Revising paragraph (a)(2)(ii),
    b. Removing the word ``hereafter'' in paragraph (a)(2)(iii); and
    c. Revising paragraph (a)(2)(v)(B).
    The revised paragraphs read as follows:


Sec. 103.54  Special rules for casinos.

    (a) Compliance programs. * * *
    (2) * * *
    (ii) Annual internal and/or external independent testing of 
compliance, including, without limitation, an annual statement whether 
internal controls and procedures are working effectively to detect and 
report suspicious transactions of $3,000 or more, and currency 
transactions of more than $10,000, to the proper authorities, as 
required by this part, and to comply with the recordkeeping and 
compliance program standards of this part;
* * * * *
    (v) * * *
    (B) The occurrence of any transactions or patterns of transactions 
required to be reported pursuant to Sec. 103.21, including, without 
limitation, any transactions or patterns of transactions indicated by 
accounts or records maintained by a casino to record or monitor 
customer activity.
* * * * *

    Dated: May 12, 1998.
William F. Baity,
Acting Director, Financial Crimes Enforcement Network.
[FR Doc. 98-13053 Filed 5-15-98; 8:45 am]
BILLING CODE 4820-03-P


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