Sunday, June 9, 1996 | 11:59 a.m.
Human error, not criminal activity, is behind the recent increase in complaints against Nevada casinos for violating money-laundering laws, gaming regulators and resort officials say.
Sixteen of 39 money-laundering complaints filed since 1987 have come in the past nine months. Almost all involved "participatory transactions" -- regulators' jargon for sting operations involving undercover State Gaming Control Board agents.
But that doesn't necessarily mean regulators believe drug dealers and other criminals are flocking to Nevada casinos to cleanse dirty money by disguising it as gambling wins.
"The complaints were mainly just human error, simply bonehead transactions," Control Board Chairman Bill Bible says. "In one case, a trainer in the casino's auditing department mistakenly allowed a prohibited transaction.
"If we felt a licensee didn't have adequate programs or was negligent or willful in violating the law, we'd take a different tack than imposing a minimal fine. That hasn't been the case recently."
What has been the case is the Control Board's increasing use of undercover agents to ensure casino cashiers are complying with Regulation 6A, the strictest anti-laundering law in the nation. It's so strict, in fact, that Nevada is the only state that polices casino compliance with the Bank Secrecy Act for the U.S. Treasury Department.
Congress passed the act in 1970 to help track drug dealers and other criminals by requiring financial institutions to create a "paper trail" of transactions exceeding $10,000. Law-enforcement officials hoped this would stifle criminal attempts to launder an estimated $100 billion to $300 billion a year of illegitimate profits by creating false sources for the funds.
The bill required every U.S. bank to keep a record of each check drawn for more than $100 on one of its accounts. It also said banks had to report transactions involving more than $10,000 in cash within 15 days.
In 1985, the Treasury Department said casinos grossing more than $1 million a year had to file currency transactions reports, or CTRs, detailing the name, address, Social Security number and occupation of anyone buying or cashing more than $10,000 in chips. About 220 Nevada casinos -- 120 in Las Vegas -- qualified as of mid-1994.
The Internal Revenue Service said casinos were "particularly vulnerable to the initial stage of money laundering, called the 'placement' stage, in which money from illegal activities is introduced to the financial system through banks or cash-intensive businesses," according to a General Accounting Office report.
"Casinos are also vulnerable to money launderers because of the fast-paced nature of the games and because casinos can provide their customers with many financial services nearly identical to those generally provided by banks," says the GAO, the investigative arm of Congress.
The Treasury Department and Nevada agreed in 1985 that the Control Board would assume responsibility for collecting CTRs from casinos and filing them with Internal Revenue Service data banks in Detroit. Some of that information is accessible to law-enforcement officials in all 50 states, as well as federal agencies.
The Control Board also files Currency Transaction Incidence Reports (CTIRs) even though the IRS considers them useless. CTIRs don't identify customers on certain transactions involving legitimate gaming activity. That includes cash payouts of more than $10,000 on verifiable wagers and redemption of chips in excess of $10,000 if a casino employee certifies the winnings resulted from gambling at the casino.
Nevada also bars certain transactions the Bank Secrecy Act allows. Specifically, it says casinos can't:
* Exchange more than $2,500 in cash for bills of a larger denomination.
* Issue a casino check in exchange for more than $2,500 in cash.
* Transfer more than $2,500 by wire or other means.
The $2,500 threshold is designed to stop a person from coming in with, say, $6,000 in fives, tens and twenties and trading up to hundreds, the largest bills in general circulation.
Any deposit above $10,000 is reported on a CTR.
IRS gaming agents, Control Board officials and some casino executives believe the more stringent prohibitions deter money laundering, and the GAO urges similar regulations be adopted nationwide.
Other gaming executives complain that Nevada law creates costly compliance problems and turns casino cashiers into government agents. And the Treasury Department's Financial Crimes Enforcement Network (FinCEN) agrees, saying there's no evidence that Nevada's regulations "do, in fact, deter money laundering to any appreciable extent."
Adopting the GAO recommendation could "increase the regulatory burden placed upon the gaming industry," according to Stanley Morris, FinCEN director.
"It would be difficult, if not impossible, to set standards at the federal level," Morris says. "Given the diversity of casino gaming operations among the states, and their experience with a broad range of regulatory concerns, Treasury believes it should be up to each state to determine the appropriateness of prohibiting certain transactions."
The impetus for Nevada's tough regulation was to protect the state's biggest industry, according to Gregory Gale, chief of the Control Board's audit division.
"Our focus was to keep casinos from being used for money laundering," he says. "If you talk to the casinos, they don't want that type of business either.
"A drug dealer can be selling cocaine and come in with ones, fives, tens and twenties and try to trade up to hundred-dollar bills because a large number of small bills is hard to transport.
"In a similar scenario, a dealer can walk in with a large number of bills and try to get a casino check or a wire transfer to a bank of his choosing. All of those transactions are prohibited in amounts of more than $2,500."
"You'd be surprised at the feasibility of something like that actually occurring," says a casino controller who asked for anonymity. "If you have $10,000 in hundred-dollar bills, it makes a big wad. If you have that much in twenties, it's five times as big.
"Reg 6A has brought an awareness of what can happen if, say, a guy comes in with 60 grand and wants to change it. Nobody's interested in laundering money on a $2,500 basis. They do it in hundreds of thousands."
The controller agrees federal law is less strict that Nevada's.
"You can walk into any casino outside of Nevada and exchange twenties for hundreds up to $10,000 and not get reported. Reg 6A is 75 percent aimed at taxpayer intelligence, 25 percent at stopping money laundering. In the grand scheme of things, the biggest goal is to gain data for the IRS. And there's no other place but Nevada where this occurs."
In 1987, the Control Board filed its first complaint against a Nevada casino -- the Dunes -- for failing to report certain transactions. The board has filed a total of 39 complaints since then, and collected $1.9 million in fines from 29 casinos. Fines on the other 10 are pending.
The biggest fine -- $1 million -- was levied against Binion's Horseshoe in 1993.
"We looked at all of their cage and pit records and all of their books and found a large number of violations where reports weren't filed with the IRS or they weren't logging bill denominations," Gale says.
"But we found no evidence of money laundering. There's a difference between that and violating record-keeping provisions of the law."
Gale says violations usually result from lack of training or knowledge among casino cage cashiers.
"They say they just spaced out, lost track of what they were doing or were too busy to fill out the forms."
The 39 complaints resulted from one of three Control Board compliance reviews -- interim audits conducted each year, full audits performed every two to three years and covert "participatory transactions."
In covert checks, a Control Board agent might try to buy more than $10,000 in chips to see whether the cashier fills out a currency transaction report. Alternatively, an undercover agent might try to get the cage to trade up small bills for larger ones, issue a check in exchange for cash or wire funds to a bank, brokerage house or some other financial institution.
Several recent cases have involved agents who deposited more than $2,500 in cash -- a large part of it in twenties -- at casino cages, then returned up to several days later and received bills in different denominations.
"We don't have to give back the exact same bills," says a cage manager who asked not to be identified. "If someone comes in and gives us $3,600 in cash, it gets commingled with the rest of our funds.
"But what we do is use a 'front-money' form or receipt giving a breakdown of each denomination of bills. When the customer comes back to claim the money, we have to pay it out in the same denominations as he gave us originally. It prevents somebody from giving you $20,000 in $20 bills and trading up to $100 bills."
Between 1986 and 1990, the IRS audited 10 of the 12 casinos in Atlantic City and found that each one had failed to file transaction reports and otherwise committed Bank Secrecy Act violations. As a result, the Treasury Department assessed a total of $2.5 million in fines against them.