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All casinos in the United States have a number of obligations under the nation’s principal anti-money laundering (AML) law, but those regulations say little if anything about how online operators must comply.
When the Bank Secrecy Act (BSA) was signed into law in by President Richard Nixon in 1970, the earliest precursors to the internet were just being created.
It would be another 24 years before the first online gambling websites launched. It would take another 20 years before they became legal outside Nevada.
So, it is not exactly surprising that the federal law does not have a lot to say about online casino games. Instead, when it comes to gaming, it only mentions “casinos”.
“There’s a reasonably strong question as to whether an online operator counts as a casino,” said Dennis Ehling, an attorney and partner at Blank Rome who focuses on the gaming industry.
That has left something of an ambiguity in how online betting and casino operators are meant to fulfil their AML obligations. When it comes to filing suspicious activity reports (SARs) and other AML duties for online gambling, whose job is it?
In most states, a workable if somewhat inefficient solution has been found.
In jurisdictions where online gambling permits are tied to land-based licensees, the land-based casino will file the report.
But as American Gaming Association (AGA) president and CEO Bill Miller noted in a 2021 letter to Himamauli Das, then-director of the U.S. Department of the Treasury’ Financial Crime Enforcement Network (FinCEN), the land-based licensee “generally does not have visibility into the accounts or transactions of the customers of the operator”.
So, it is the online operator that provides all of the information casinos are required to report, but the land-based casino that ultimately makes the filing.
“Even though the online businesses have all the arrangements to monitor suspicious activity, they’re not the ones making the report,” Ehling said.
It is a roundabout way of getting there, but it has largely worked.
“The [BSA] certainly applies to casinos, but most online licenses are tied to a casino license,” noted Frank DiGiacomo, head of the gaming law practice at Duane Morris. “So those obligations are effectively ported by the land-based license.”
Still, the industry would like to see a change.
Miller wrote to Das’ successor, Andrea Gacki, last year, arguing that there was a “need for clarity” about how online gambling is treated by the BSA.
In the event of any compliance failures, Miller’s letter noted, it is unclear to what extent the online operator or the land-based licensee would be liable.
“Since the operator, and not the licensor, is typically handling all customer interactions, as well as processing all financial transactions, the AGA would appreciate guidance from FinCEN with respect to what AML obligations rest with the licensing casino, or whether those obligations may be fulfilled by the operator that actually runs the online gaming platform/sportsbook and establishes customer relationships and conducts customer transactions,” Miller wrote.
“The gaming industry is a leader in AML programs, implementing rigorous standards that protect against financial crimes,” Alex Costello, vice president of government relations at the AGA, said.
“As the casino industry grows, a detailed AML framework is essential for protecting the integrity of our operations,” Costello said.
Although most states have a system where online licenses are tied to land-based partners, in some states they are instead tied to sports teams or venues, or available freely without any sort of partner.
FanDuel has always taken the view that it is responsible for AML compliance on its platform, Jonathan Fishner, the company's senior director of financial crimes compliance, told delegates at last month's Global Gaming Expo (G2E) in Las Vegas.
But there are some states where the company makes its own AML filings, others where a casino partner files on its behalf, and others where they file jointly.
“It just creates further complications,” Fishner said.
“In those circumstances where you don’t have a retail casino partner, someone has to say, ‘we are a casino’,” said Ehling. “And in those states, the online operator is the only one that could reasonably register as a casino.”
“The regulations don’t address whether the operator should be treated as a casino. But logically they should,” Ehling added.
That has led to a somewhat unusual circumstance where the online gambling industry is asking to be subject to further regulation.
“The operator community wants to be on the good side of this,” said Ehling. “Nobody wants to put unnecessary burdens on themselves, particularly if they’ve got competitors who are not doing it.”
The obstacles to additional regulatory guidance are not so much rival interest groups, but instead bureaucracy and competing priorities. Passage of major AML reforms via the Anti-Money Laundering Act of 2020 has since given FinCEN less time to focus on the relatively minor question of online gambling reporting responsibilities.
At the same time, the status quo does not appear to be at a breaking point.
DiGiacomo noted that states’ ability to take action against online gambling operators, and the potential to revoke licenses, helps ensure that they uphold high standards of compliance.
“States have very robust regulations,” DiGiacomo said. “And the fact most are multi-state operators, you don't want to risk your license. If you have an investigation in one state, that could be reported to other states. So, there’s a ripple effect.
“Compliance is the lifeblood of all regulated gambling companies,” he added. “So, it serves them well to be consistent and to have policies in place that protect their licenses and their business. Just the publicity of unreported money laundering can be significant.”
Ehling expressed a similar sentiment.
In his view, operators are doing all they can to be compliant with the BSA the way it is written and enforced.
“They’re trying to figure out what they’re doing,” he said. “Are they trying to pay attention? Yes. Every operator is trying to figure it out. It isn’t a question of people not wanting to do it.
“What you desperately don’t want is for your name to end up in the headlines because you had a major problem with money laundering,” Ehling said.
Additional reporting by James Kilsby.
