Post at a glance:

  • FinCEN imposes $8 million penalty against California’s biggest and oldest card club
  • Club failed to implement and maintain an effective anti-money laundering (AML) program and failed to detect, deter, and report suspicious transactions
  • Enforcement action serves as valuable reminder of scope of Bank Secrecy Act (BSA)

As mentioned in our prior AML Update, the U.S. Financial Crimes Enforcement Network (FinCEN) continues to aggressively enforce anti-money laundering and other financial crimes laws.

The latest target? California’s biggest and oldest card club, Artichoke Joe’s.

Casino Fined $8 Million for “Willfully Violating” AML Requirements under the BSA

On November 17, 2017, FinCEN announced the fine, of $8 million, against Artichoke Joe’s.  The club has been operating in San Bruno, California, since 1916.  (For the uninitiated, a card club is a type of gambling business where the games pit players against each other, not, as in a casino, against the house.)

According to FinCEN, the club was penalized for “willfully violating” AML requirements under the BSA. Like casinos, card clubs are defined as financial institutions under the BSA and are therefore subject to FinCEN’s rules.

What Should Financial Institutions Do to Comply with the Bank Secrecy Act?

Under Section 5318 of the BSA, financial institutions (like Artichoke Joe’s) are required to maintain appropriate procedures to ensure compliance with BSA regulations and to guard against money laundering.

In particular, financial institutions must do the following to comply with the Bank Secrecy Act:

  1. Maintain internal policies, procedures and control
  2. Designate a compliance officer
  3. Provide ongoing employee training
  4. Establish an independent audit function to test programs.

Section 1021.210 of the BSA provides even further guidance as to what program elements must be implemented at card clubs and casinos in order to satisfy these regulations.

Failing to Report Suspicious Activity Was Only One Reason Artichoke Joe’s Was Penalized

According to FinCEN, for the eight year span of 2009-2017, Artichoke Joe’s failed to implement and maintain an effective AML program. FinCEN also determined that the club failed to detect, deter and timely report many suspicious transactions. FinCEN asserted that these failings constituted willful violations of the BSA.

In addition, FinCEN determined that Artichoke Joe’s violated reporting requirements under Section 1021.320 of the BSA by turning a blind eye to loan sharking, suspicious transfers of high-value gaming chips, and criminal activity occurring in plain sight.

In announcing the fine, FinCEN stated that the significant penalty was warranted based on the duration and severity of Artichoke Joe’s violations, the size and sophistication of the club, its awareness of criminal activity within its premises, and the club’s inadequate culture of compliance.

Financial Institutions Should Take Measures to Comply with the BSA in the Wake of Recent Penalties

This penalty is another reminder of the reach of the BSA in particular and of U.S. AML laws more generally. What constitutes a financial institution under the BSA is broadly defined.

The penalty against Artichoke Joe’s—and the penalty against a small community bank last month—suggest that FinCEN intends to enforce the laws vigorously and to the full extent it can.  Any financial institution that is subject to the BSA needs to understand its obligations and take appropriate measures to meet them.

If you have questions about the BSA Secrecy Act, please contact the authors.

The author would like to thank Nicole Giles, a Bass, Berry & Sims legal intern based in our Washington, D.C. office, for her assistance in drafting this post.