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

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: ``[email protected],'' 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,

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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.1 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,

1996.2 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 103.3 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).4

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.'' 5 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).6 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) 7.

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, 1998.8 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)).9

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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),

10 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. 11 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.12 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.13

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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.14 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 15

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.16 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.

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\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.

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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.17

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\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).

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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,'' 18 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.

19

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\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