[Federal Register Volume 67, Number 61 (Friday, March 29, 2002)]
[Proposed Rules]
[Pages 15138-15140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7558]


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DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA22


Amendments to the Bank Secrecy Act Regulations; Requirement That 
Casinos and Card Clubs Report Suspicious Transactions; Request for 
Additional Comments

AGENCY: Financial Crimes Enforcement Network (``FinCEN''), Treasury.

ACTION: Proposed regulations: Reopening of comment period and request 
for additional comments.

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SUMMARY: FinCEN is soliciting additional comments concerning the 
proposed standard for the reporting by casinos and card clubs of 
suspicious activity. To allow the submission of such comments, it is 
re-opening for 60 additional days the comment period for the relevant 
notice of proposed rulemaking.

DATES: Additional written comments about the reporting standard must be 
received on or before May 28, 2002.

ADDRESSES: Written comments should be submitted to: Office of Chief 
Counsel, Financial Crimes Enforcement Network, Department of the 
Treasury, Post Office Box 39, Vienna, VA 22183, Attention: NPRM--Casino 
SAR Rule. (Comments may also be submitted by electronic mail to the 
following Internet address: ``[email protected]'' with the 
caption in the body of the text ``Attention: NPRM--Casino SAR Rule.'') 
For additional instructions and terms for the submission of comments, 
see Supplementary Information under the heading ``IV. Submission of 
Comments'' in the notice of proposed rulemaking, published on May 18, 
1998, about casino reporting of suspicious transactions. 63 FR 27230, 
27237 (May 18, 1998).

FOR FURTHER INFORMATION CONTACT: Peter G. Djinis, Executive Assistant 
Director (Regulatory Policy), FinCEN, (703) 905-3930; Judith Starr, 
Chief Counsel, and Christine L. Schuetz, Attorney-Advisor, Office of 
Chief Counsel, FinCEN, (703) 905-3590.

SUPPLEMENTARY INFORMATION: On May 18, 1998, FinCEN issued a notice of 
proposed rulemaking, 63 FR 27230 (the ``Notice''), under the terms of 
the Bank Secrecy Act,\1\ concerning the reporting by casinos \2\ of 
suspicious transactions.\3\ The comment period for the Notice ended on 
September 15, 1998.
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    \1\ Titles I and II of Public Law 91-508, as amended, codified 
at 12 U.S.C. 1829b, 12 U.S.C. 1951-59, and 31 U.S.C. 5311-5330. The 
Bank Secrecy Act 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, or in the 
conduct of intelligence or counter-intelligence activities, to 
protect against international terrorism, and to implement counter-
money laundering programs and compliance procedures. Language 
expanding the scope of the Bank Secrecy Act to intelligence or 
counter-intelligence activities to protect against international 
terrorism was added by Section 358 of the Uniting and Strengthening 
America by Providing Appropriate Tools Required to Intercept and 
Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, P.L. 107-56.
    \2\ In this document, the term ``casino'' when used alone, 
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).
    \3\ The Notice also proposed related changes to the provisions 
of 31 CFR 103.54 (subsequently re-numbered as 103.64) relating to 
casino compliance programs.
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    FinCEN received 18 comment letters on the Notice. In addition, 
FinCEN held four public meetings on the Notice during the comment 
period. The meetings were held in New Orleans, Louisiana on July 14, 
1998; Chicago, Illinois on July 23, 1998; Scottsdale, Arizona on August 
6, 1998; and New York City, New York on September 9, 1998.
    One of the primary issues raised in the written comments and public 
meetings was the nature of the proposed standard for reporting of 
suspicious transactions. As explained more fully below, FinCEN has 
determined to reopen the comment period with respect to that issue.

I. The Proposed Reporting Standard.

    The rule proposed in the Notice would require a casino to report a 
transaction to the Treasury Department, if that transaction 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.\4\ (Emphasis 
added.)
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    \4\ See proposed 31 CFR 103.21(a)(2)(i)-(iii), 63 FR at 27239 
(May 18, 1998).

    The proposed reporting standard (except for differing dollar 
thresholds) is the same as that adopted by the Treasury Department for 
suspicious transaction reporting by depository institutions, money 
transmitters, and issuers, sellers, and redeemers of money orders and 
traveler's checks. See 31 CFR 103.18(a)(2), relating to suspicious 
activity reporting by banks, and 31 CFR 103.20(a)(2), relating to 
suspicious activity reporting by certain money services businesses.\5\ 
It is also the same reporting standard that the Treasury Department 
proposed in a Notice of Proposed Rulemaking relating to extension of 
the requirement to report suspicious activity to brokers and dealers in 
securities.\6\
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    \5\ Banks have been required to file suspicious activity reports 
since April 1, 1996. The suspicious transaction reporting rules for 
depository institutions were renumbered as part of the rulemaking 
relating to the reporting of suspicious transactions by certain 
money services businesses. See 65 FR 13683 (March 14, 2000). The 
suspicious transaction reporting rules for the categories of money 
services businesses described in the text took effect on January 1, 
2002.
    \6\ See 66 FR 67670 (December 31, 2001).
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    Commenters on the Notice have argued strongly, however, that 
requiring reporting if a casino ``has reason to suspect'' that a 
transaction falls into one of the three categories of reportable 
transaction,\7\ is inappropriate, because the ``fast-paced, 
entertainment-filled environment'' at casinos is vastly different from 
the environment of most other financial institutions. They assert that 
customers in a casino cannot be relied upon to act in ways consistent 
with any particular norm of financial transaction, but may be motivated 
in the way they transfer and wager funds by factors such as gambling 
strategies, intuition, or gambling superstitions. The wider range of 
motivations reflected in

[[Page 15139]]

the actions of casino customers, in turn, will multiply the 
difficulties that casinos face in seeking to determine which 
transactions are truly suspicious. The commenters thus assert that 
casinos should be subject to a standard in which reporting of 
suspicious activities is required only if a casino ``knows, suspects, 
or, in the judgment of the casino, has reason to suspect'' that a 
transaction is suspicious. (Emphasis added.) \8\
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    \7\ Because the standard requires reporting when a financial 
institution has ``reason to suspect'' that a transaction is 
suspicious, the standard is referred to in the comments and in this 
document as an ``objective reporting standard.''
    \8\ Regulations of the Nevada Gaming Control Board, requiring 
suspicious transaction reporting by casinos in that state, under the 
Nevada state regulatory system, adopt the ``subjective standard'' 
sought by the commenters.
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    FinCEN is concerned that the commenters may have misperceived the 
meaning of the reporting standard proposed in the Notice. A ``reason to 
suspect'' standard takes as its baseline the practical experience and 
expertise of industry officials in evaluating risks in the enterprise 
involved. Financial institutions (and different institutions within a 
particular segment of the financial industry) operate in different ways 
and under different conditions, and the self-adjusting quality of a 
``reason to suspect'' standard is what makes that standard sufficiently 
flexible to apply, for example, to international or money center banks, 
community banks, non-bank money transmitters, and sellers of money 
orders.
    Casino operations, themselves, have different parts. Transactions 
that take place at a casino's cage--where chips and tokens are 
purchased or redeemed, customers' deposit and credit accounts are 
opened or settled, checks are purchased or cashed, and funds transfers 
are initiated or received--are little different (other than for the use 
of gambling chips and tokens) than the sorts of transactions that can 
take place at a teller's window in a depository institution. 
Transactions on a gaming floor (such as wagering of currency or 
purchasing of currency for chips), take place in a far different 
environment. But a ``reason to suspect'' standard adjusts, by its very 
nature, to the different sorts of activities and the different 
environments in which financial transactions take place, whether within 
one financial institution or as between financial institutions. Whether 
a casino has reason to suspect that a transaction or series of 
transactions is suspicious under the terms of the rule may, and likely 
will, involve far different considerations for wagering activity (for 
precisely the reasons the commenters cite) than for transactions at a 
casino cage or a slot booth. But that does not mean that it is 
inappropriate to ask that an institution meet such a standard in 
evaluating the (different) relevant facts.
    Commenters also argued that language protecting a casino's judgment 
was absolutely necessary to bar after-the-fact determinations by 
enforcement officials about a casino's decision not to report a 
transaction. They suggested that casinos would find it necessary, in 
order to defend their judgment, to document their reasons for not 
filing a suspicious activity report with respect to transactions that 
meet the reporting threshold.\9\
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    \9\ Commenters predicted substantial overreporting in an attempt 
by casinos to avoid later questions, and some commenters even 
suggested that casinos might file suspicious activity reports with 
respect to all transactions that exceeded the reporting threshold.
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    Again, FinCEN believes that the commenters may have misperceived 
the ``reason to suspect'' standard. In adopting the rule requiring the 
reporting of suspicious transactions by depository institutions, FinCEN 
stated that it anticipated that, ``in general the area for inquiry in 
the case of failure to report will center upon both the facts of the 
particular failure and what the failure indicates about the bank's 
compliance systems and attention to the Bank Secrecy Act rules in 
general.'' 61 FR 4326, 4330 (February 5, 1996). The same logic applies 
to all categories of financial institutions.
    The determinative question, in all cases, is whether a ``reason to 
suspect'' existed at the time and in the circumstances, in which the 
transaction occurred whenever and by whomever the question is 
asked.\10\ By way of contrast, the standard proposed by the commenters 
would appear to leave the decision whether to file a suspicious 
activity report entirely to the discretion of the casino and to 
preclude altogether review of the casino's compliance with any 
reporting requirement, unless the government were able to show that the 
casino's employees possessed actual knowledge or suspicion that they 
were witnessing or participating in money laundering or structuring of 
transactions, or in other types of financial crime.
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    \10\ The determination whether a transaction at a casino cage or 
slot booth, or on the gaming floor, requires reporting will 
naturally require analysis and judgment on the part of casino 
personnel, in light of their experience and industry experience. But 
it is not the purpose of the proposed rule to ``second guess'' 
casino executives; in fact, articulation of a ``reason to suspect'' 
standard can as easily restrict government flexibility in 
challenging casino officials' judgments with the benefit of 
hindsight, as it can open questions about whether a particular 
casino's judgments, on particular facts, met that standard.
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    The proposed rule asks a casino to exercise due diligence in 
evaluating the facts before the institution and seeking to identify 
those transactions that should appear suspicious in light of the 
particular circumstances and industry experience.\11\ The corresponding 
rules ask the same of banks and money services businesses.
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    \11\ The rule proposed in the Notice specifically requires the 
incorporation of considerations relating to the reporting of 
suspicious transactions into a casino's Bank Secrecy Act compliance 
programs. See proposed 31 CFR 103.54(a)(2)(ii) and (a)(2)(v)(B), 63 
FR 27230, 27236-37, 27240. (Section 103.54 was subsequently 
renumbered as 103.64)
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    Casinos understand their business and the nature of the gaming 
industry. The extent to which casinos carefully monitor gaming 
activities for loss-protection and other business purposes is well 
documented. Within that context, a duty to investigate potentially 
suspicious activity further--to exercise due diligence--would appear no 
more or less difficult for a casino than for a bank or money 
transmitter.
    As a final note, the rule that Treasury ultimately promulgates 
requiring casinos to file suspicious transaction reports will apply to 
casinos located in Nevada. Since May 1985, casinos located in Nevada 
have been exempt from certain Bank Secrecy Act requirements pursuant to 
a memorandum of agreement between the Treasury Department and the State 
of Nevada on behalf of Nevada casinos under 31 CFR 103.45(c)(1) 
(subsequently renumbered as 103.55).\12\ By its terms, the memorandum 
of agreement only exempts Nevada casinos from the BSA requirements 
applicable to casinos at the time it was signed, including currency 
transaction reporting and recordkeeping requirements. Treasury's 
proposal to extend a requirement to report suspicious activity to 
casinos would therefore not be covered by the exemption contained in 
the memorandum of agreement.
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    \12\ 31 CFR 103.55(c)(1) provides that the Secretary of the 
Treasury may grant exemptions to the casinos in any state ``whose 
regulatory system substantially meets the reporting and 
recordkeeping requirements of this part.''
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    In order to obtain an exemption from a Bank Secrecy Act 
requirement, a state must subject the class of transactions for which 
the exemption is sought to requirements that the Secretary of the 
Treasury deems ``substantially similar'' to those promulgated by 
Treasury under Title 31 with respect to the class of transactions.\13\ 
In addition, there must be adequate provision for enforcement of the 
class of transactions to be exempted. If Treasury ultimately adopts

[[Page 15140]]

a suspicious transaction reporting requirement that incorporates an 
objective reporting standard, the difference between such a standard 
and a subjective reporting standard, a distinction with respect to 
which commenters have expressed considerable concern, would be a 
significant factor in determining whether Nevada's suspicious 
transaction reporting rule would be ``substantially similar'' to 
Treasury's rule. For this reason, we are formally encouraging Nevada 
casinos to comment on the ``reason to suspect'' standard contained in 
the Notice.
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    \13\ See 31 U.S.C. 5318(a)(5), which was added to the BSA by 
section 410 of the Money Laundering Suppression Act, Title IV of the 
Riegle Community Development and Regulatory Improvement Act of 1994, 
Pub.L. 103-325 (September 23, 1994).
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II. Request for Additional Comments

    FinCEN is reopening the comment period for the reporting of 
suspicious transactions by casinos, in order to solicit responses to 
the discussion of the ``reason to suspect'' standard that appears 
above, and additional views about the best way to apply to casinos the 
due diligence obligations inherent in suspicious transaction reporting.
    Specifically FinCEN requests additional comments on the following 
issues:
    (1) The application of the objective ``reason to suspect'' standard 
(as proposed in the Notice and as further explained in this document) 
to the casino industry, given the self-adjusting nature of such a 
standard. In particular, FinCEN invites comment about whether it would 
be helpful to add language to the rule or preamble explaining that the 
objective standard necessarily takes into account differences in the 
operating environment in various parts of a financial institution (for 
example, as between casino cage and gaming floor activities).
    (2) The ability of casinos to satisfy a due diligence-based 
standard, especially given the nature of existing casino risk 
management and customer monitoring practices.
    (3) The extent to which the due diligence notion addresses concerns 
about possible subsequent review by the government of a financial 
institution's decisions that a report is (or is not) required in 
particular cases.
    (4) The meaning of the phrase ``in the judgment of the casino, has 
reason to suspect,'' proposed by several commenters, and the result of 
its application.

    Dated: March 22, 2002.
James F. Sloan,
Director, Financial Crimes Enforcement Network.
[FR Doc. 02-7558 Filed 3-28-02; 8:45 am]
BILLING CODE 4810-02-P