Treasury Sees Casinos as Unofficial Banks

From the Washington Post

To their owners, casinos are places to play slot machines, roulette and blackjack.

But to the Treasury Department--and to people with large amounts of cash to launder--casinos are banks.

The dispute over definition has swept up a wide variety of interests as Treasury has moved to bring casinos under the jurisdiction of the Bank Secrecy Act, which requires financial institutions to report all transactions involving more than $10,000 in cash. For the time being, at least, Treasury seems to be holding the cards.

Under regulations the department published last week, casinos will have to start reporting the name, Social Security number and address of anyone who wins more than $10,000 or who buys more than $10,000 in chips.

People who have been using lines of credit for gambling will be required to complete more paper work, as will those who have been exchanging shopping bags filled with $20 bills at the cashier's cage for stacks of hundreds.

Sen. Paul Laxalt (R-Nev.) and other members of the Nevada congressional delegation spent a lot of time fighting the proposal, and casino executives in Nevada and New Jersey say shyer customers may take their business elsewhere. Nevada hopes to ease the pain of the new rules by administering them itself.

But Treasury officials argue that the new requirements don't amount to much of a burden. "We're not going to interrupt the flow of the game while someone fills out a report," said John M. Walker Jr., assistant secretary for enforcement and operations. The final version of the rule delicately noted, however, that it could cause "some difficulties in customer relations."

Law enforcement officials, however, have a different concern. "Casinos deal in cash, they perform a wide range of financial services and they are able to offer complete anonymity for customers," Gary D. Liming, a deputy assistant administrator of the Drug Enforcement Administration, told a congressional hearing in Atlantic City, N.J., in February of 1984. "As a result, casinos are susceptible to exploitation by organized criminal elements for the laundering of illicit drug proceeds."

That laundering can work in several ways. Two partners can buy chips and bet opposite sides of a game, such as craps, in which there are only two possible outcomes. Or people can buy chips with large amounts of cash and promptly trade them back in. In some cases, they simply trade small-denomination bills for larger denominations.

Some casino services do resemble those offered by banks. For example, some casinos accept cash into "accounts" from which a player can draw money or have it wired to another casino or to a bank, in the United States or overseas.

In one noted case described by U.S. Atty. W. Hunt Dumont at a congressional hearing, Maurice (Peanuts) King, who was later convicted on federal drug charges in Baltimore in 1983, opened an $118,000 account at an Atlantic City casino, departed with checks payable to a third party and deposited the money at a securities brokerage. When King was arrested, agents found in his possession $300,000 in cash, with the casino's wrappers still around the bills.

No one involved contends that casinos launder illicit money knowingly. But the regulation's opponents say that much of the appeal in gambling lies in its anonymity. To require customers to identify themselves will have what one executive called "a chilling effect" on business, especially because the reported information will be made available to the Internal Revenue Service.

The regulation "would force casinos to restructure internal procedures, create additional workload and negatively impact on relations with many patrons," the Nevada casino industry said in written comments submitted to Treasury.

Puerto Rico and New Jersey officials didn't contest the compliance measures, which also limit extensions of credit and wire transfers. But public officials from Nevada, where gambling accounts for more than a quarter of state employment and a gambling tax raises more than half of the state's tax revenue, have supported less stringent measures.

"Nevada's principal concern was to protect its biggest industry from whatever regulations might dissuade its customers," said a source familiar with the battle.

Laxalt met frequently with casino representatives and set up meetings between them and Treasury officials when the rules were under discussion. He also tried to solve the problem by amending last year's Deficit Reduction Act, according to congressional sources.

Laxalt Praised

After the regulations were published, the two Nevada casino trade associations issued a statement, praising Laxalt as "an effective and forthright spokesman on behalf of the state of Nevada and the gaming industry to ensure that Treasury understood our concerns and sensitivities."

Nevada did, indeed, win a significant compromise from Treasury: it will be allowed to seek an exemption that would let it administer the rules.

"What we have achieved is state regulation (by) our gaming control board, which we prefer to federal regulation because the state has more understanding in running the gaming business," said Jerry Higgins, executive director of the Nevada Gaming Industry Assn.

The same exemption is available to New Jersey, but the state has not requested it. Casino officials there may be waiting to see how irritated their customers are by the new rule, which takes effect May 1.

"What you'll probably see is a lot of multiple transactions under $10,000," said Peter G. Boynton, president of Caesars Atlantic City Casino Hotel. "We find that the more reporting and paper work that's required, the more creative people become in avoiding it."

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