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FinCEN Watching Cryptocurrency Transactions

The rise in sports wagering in the U.S. has caused a rise in the use of digital currencies to fund betting transactions. At a recent conference on money laundering prevention, Kenneth Blanco (l.), director of the Washington, D.C.-based Financial Crimes Enforcement Network, warned operators to observe all appropriate AML procedures with the new currencies.

In the eyes of financial watchdogs, there’s no difference between cold hard cash, credit card funds, and digital currencies.

As far as America’s federal financial crimes agency is concerned, there should be no difference in how casinos monitor gambling transactions, whether they’re made at a mobile sportsbook with bitcoin or at a slot machine with pocket change.

At the 12th Annual Las Vegas Anti-Money Laundering Conference on August 13, Kenneth Blanco, director of the Washington, D.C.-based Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury, said he’s noticed “a gap” in the reporting of suspicious transactions involving digital currencies, especially in the sports-betting realm, especially in transactions conducted online.

“FinCEN expects that your casino or card club is monitoring your sports betting programs for potentially suspicious activity,” Blanco said. “This includes offering sports betting through a mobile app.” He warned operators to use all available information “to detect and report suspicious transactions…(and) ensure that this is accounted for in your policies, procedures, internal controls and risk assessments.”

Las Vegas-based gaming attorney Jeffrey Silver advised operators to pay close attention to the content—and the timing—of Blanco’s remarks.

A former Clark County Chief deputy district attorney and onetime member of the Nevada State Gaming Control Board, Silver recalls a similar compliance warning from a former FinCEN director, at that time aimed at bricks-and-mortar operators.

“It was quickly followed by some pretty significant fines” against major operators, Silver told GGB News. In 2015, Caesars Entertainment was hit with an $8 million penalty for “willful and repeated violations of the Bank Secrecy Act,” and ordered to engage in a “look-back” for suspicious transactions. The same year, Trump Taj Mahal in Atlantic City was hit with a $10 million fine for similar offenses. Smaller operators didn’t escape notice—in 2016, a $1 million civil penalty was levied against John Ascuaga’s Nugget of Sparks, Nevada, which was commanded to “re-think its AML defenses.”

The big daddy of fines–$75 million—was handed down to the Tinian Dynasty Hotel & Casino in the Northern Mariana Islands, a U.S. territory, for Bank Secrecy Act violations.

All these operators “didn’t do the proper background work on their customers,” Silver said, and if the industry is not monitoring digital currency transactions, it should expect painful consequences.

“FinCEN has just delivered a shot across the bow,” he said. “It’s telling the industry to realize that cryptocurrencies are just as important and just as subject to AML regulations. And when they hand down millions in fine, they can say, ‘I told you so.’”

A certain amount of confusion may be inevitable as new sports betting operators flood the market, Silver suggested.

“There are no casinos that are not subject to the Bank Secrecy Act and Know Your Customer protocols; they all must file reports in case of suspicious activities,” including any transaction that exceeds $10,000.

But these new online operators are not, strictly speaking, casinos, he said, and therefore do not legally fall under the Bank Secrecy Act. That loophole will probably be quickly closed, Silver suggested.

In the meantime, “FinCEN “is reminding all these new operators, who are popping up everywhere in every state, that there are certain obligations they’ll have to follow.”

Blanco said reporting of suspicious use of cryptocurrencies, in particular, needs to be more “robust.” But gaming attorney Jeff Ifrah, a foremost expert in iGaming law, said U.S. gaming operators “have extremely robust compliance programs, and so do all betting operators. They’re used to that.”

He foresees a rise in branded currencies and compares them to “Chuck E. Cheese coins, which essentially make it easier when you’re inside Chuck E. Cheese. When you walk in you get a bucket of coins, and there’s a certain level of efficiency to having some alternative token form. They can encourage you to buy more now, so you can hold the coins and return the next week. There’s some appeal to that” for gaming operators, he said.

Meanwhile, the essential message in Blanco’s presentation can be summed up in this passage, in which he pointed out that FinCEN has noted a reduction in the number of SARs overall, in traditional currencies and in the virtual kind:

“There is a misconception that just because FinCEN has not publicly issued enforcement action against a casino or card club since last year that FinCEN is not looking at this financial sector,” Blanco said. “Let me assure you, this is not the case.”

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