Compliance Confidential, Part Four: Blind Spot: Regulators Can't See What's Happening Inside Their Own Casinos

This isn’t the first time casinos on the Las Vegas Strip have been embroiled in an anti-money laundering scandal.

About a decade ago, Las Vegas Sands, then the operator of The Venetian, and Caesars Entertainment both were under fire for lapses in reporting suspicious transactions.

Sands paid the federal government $47.4 million for failing to file Suspicious Activity Reports about Zhenli Ye Gon, an alleged international drug trafficker who was once The Venetian’s largest cash bettor. Caesars paid FinCEN an $8 million civil penalty for failing to appropriately police its private gaming salons, allowing what the agency called “some of the most lucrative and riskiest financial transactions to go unreported.”

Before the dust settled, the Nevada Gaming Control Board joined in and brought complaints against both operators in 2015 and 2016. Sands and Caesars agreed to fines of $2 million and $1.5 million, respectively. (The Sands complaint also covered allegations that the company kept inaccurate records about payments to a consultant in Asia, a violation of the Foreign Corrupt Practices Act for which it paid a $9 million fine to the Securities and Exchange Commission.)

Leading the NGCB at the time was AG Burnett, a well-respected figure in Nevada gaming circles. After he left the board in 2017, Burnett joined the Nevada law firm of McDonald Carano, where he began a new career helping “companies with their compliance programs and compliance obligations,” according to his official bio.

One of those companies was Resorts World Las Vegas, where he served as chair of the casino’s gaming compliance committee after it opened in 2021.

Burnett has remained unsullied by Resorts World’s involvement in the current AML scandal because the compliance committee he oversaw is different from the casino’s AML compliance committee. The AML committee was the one responsible for repeatedly allowing bookie Mathew Bowyer to continue gambling despite the property being unsure about the source of his funds.

In February, Nevada regulators approved Burnett and former Nevada Gov. Brian Sandoval as new directors of Resorts World.

Their appointments were widely seen as an attempt by the property to show that it had fixed its problems, with Burnett’s AML enforcement experience lending credibility to the reform effort. But ironically, Burnett’s resume also complicates the narrative because not overseeing AML is what kept him clear of Bowyer while he oversaw other Resorts World compliance functions.

Burnett and Resorts World declined to comment for this series.

What didn’t happen

Nevada regulators responded to the recent scandals by amending nine sections of gaming establishment operations and independent agent regulations.

The changes include requiring operators to designate an employee with oversight of AML programs and player development and obtain key employee licenses for compliance directors as well as mandating that independent agents receive AML training.

The NGCB in January also launched a voluntary pilot program to allow casinos to share information with each other to help identify possible money laundering activities. Mike Dreitzer, the NGCB chair, said a “significant” number of casinos have agreed to participate in the program, which leverages Section 314(b) of the USA Patriot Act.

“All these things have made a tangible impact, bringing greater amounts of suspicious activity to the light of day,” said Dreitzer, who credits the Section 314(b) program with a recent increase in Suspicious Activity Reports and greater communication between licensees about questionable individuals.

“There may be some who think this is not enough, but this is a very purposeful, comprehensive, detailed effort to make changes that matter,” he said.

None of those changes, however, conclusively address the financial incentive hosts have to not report red flags about their customers.

Typical AML practices at casinos require employees to notify compliance if they become aware of anything that could be suggestive of money laundering — say, a patron who is an illegal bookmaker.

But hosts receive bonuses based on the play of the customers on their roster, making it not in their interest to say anything that could cause compliance to cut off one of them.

This dynamic was illustrated in anecdotes documented by Nevada regulators during the scandal. Former Cosmopolitan host Jeremiah Chambers didn’t tell his compliance department that Wayne Nix was a bookmaker when it asked him to get documentation from Nix about his income. Nix later paid Chambers a kickback for referring a client to him — Yasiel Puig, the former major league baseball player.

Dreitzer said the reforms Nevada has made include codifying that operators may withhold compensation to employees or independent agents if there are questions about a customer’s source of funds.

He admitted the authority is discretionary, but he said the NGCB worked with industry insiders and other experts to develop the reforms, so “these are tools they intend to use.”

Of course, operators have always had the authority to put whatever conditions they want on employee compensation. There’s no statutory requirement that host bonuses be tied to customer play.

See no evil

These changes also don’t address one of the fundamental obstacles Nevada regulators face with AML: a lack of visibility into casino transactions.

For more than two decades, Nevada regulators enforced currency reporting requirements under what was known as Nevada Gaming Commission Regulation 6A. But in 2003, FinCEN began pushing for Nevada’s standards to match the federal Bank Secrecy Act, which ultimately led to the agency taking over AML enforcement from state regulators.

Since the repeal of Regulation 6A in 2007, Nevada regulators have not been able to see Suspicious Activity Reports or Currency Transaction Reports filed by casinos within the state, blinding them to the financial data essential for rooting out serial money launderers.

That’s why the NGCB’s AML enforcement efforts often piggyback on federal actions. The state’s investigators do not have broad, unfettered access to the data to proactively identify potential money laundering.

AML experts say this is a problem, especially when you consider that casinos make up just a tiny segment of the financial institutions that FinCEN regulates and they are not its biggest priority.

The agency has brought only 15 enforcement actions against entities it classifies as casinos since 2000. Just two of those concerned Nevada operators and only one targeted a Strip property, the Caesars Palace case more than a decade ago. Meanwhile, FinCEN brought 38 enforcement actions against money services businesses and 49 against depository institutions like Capital One and USAA Federal Savings Bank.

That creates an opportunity for Nevada, said Joseph Martin, who heads a tech company providing AML software solutions for casinos. He would like to see the state gain broad visibility into the financial transactions of all its gaming operators, not just Strip casinos, to catch money launderers wherever they go.

“You can see surface patterns and trends immediately through large datasets, and I think that should be the backbone of AML risk management, and it’s been the backbone of AML risk management in many industries like financial services for long periods of time,” he said.

While much attention is naturally focused on Strip properties, Martin said they only represent a small portion of the total number of licensed operators in Nevada, and those major resorts tend to have extensive surveillance operations and sophisticated monitoring systems.

As a result, he believes savvy criminals who want to avoid detection are much more likely to attempt to launder money through the state’s legion of smaller licensees, including grocery stores and corner taverns, which generally have few or no AML controls.

But without visibility into transaction data, Nevada regulators don’t know what’s going on and it’s unclear what, if any, reviews FinCEN may be doing of the information it collects.

Martin’s company, Kinectify, has contracts with 10 Strip properties, a small fraction of the state’s roughly 2,800 licensees. Over 15 months, he said casinos using Kinectify flagged more than $3 billion in suspicious activity.

To Martin, that suggests the scope of the AML problem may be much larger than what the recent scandal has revealed.

Next, in Part 5 of Compliance Confidential: A lack of transparency, a culture of fear, and a problem that won’t go away.