Lawyer Peter German, a former deputy commissioner of both the RCMP and Correctional Service Canada has been appointed by B.C. Attorney General David Eby to carry out a review of the gaming industry, with the focus on the Lower Mainland casinos.
German is tasked with making recommendations, if necessary, for reforms that can counter money laundering. As part of the review, German will meet with government departments and corporations such as the Gaming Policy and Enforcement Branch, the British Columbia Lottery Corporation, the Joint Illegal Gaming Investigation Team within B.C.'s Combined Forces Special Enforcement Unit, casino service providers and employee organizations at any identified facilities.
The appointment comes on the heels of the New Democratic Party releasing a Liberal government-commissioned report by MNP LLP in Calgary that looked at suspicious money transactions at one of B.C.'s casinos. The 2016 report, which is labelled private and confidential, was never released to the public and is more than 400 pages long. Eby's ministry released a 25-page redacted version of its findings and recommendations in late September. While the summary underscores many of the problems encountered in the gaming industry, it cautions relating them to the specific casino studied as that casino may have changed its procedures and rules since the report was issued.
Nevertheless, the suppressed report has been troubling to the NDP. "I received a series of briefings that caused me to believe that our province could do more to combat money laundering at B.C. casinos," Eby said in a government statement when the report, available on the government's website, was released.
The report was prepared for GPEB's director of operations, Dave Boychuk. According to the report's background statement, the investigation was triggered when GPEB's Compliance Division compiled a document that identified $13.5 million in $20 bills was accepted at a Richmond casino during July 2015. The cash, believed to be connected to individuals involved in crime, was dropped off at the casino or just off casino property to patrons, usually late at night.
“The majority of this cash is being presented by a person commonly referred to as high roller Asian VIP clients,” the report said, adding that the casino had accepted single cash buy-ins in excess of $500,000 with no known source of funds. (The common practice for money laundering at casinos is to convert large amounts of cash to playing chips, then cash in the chips for a cashier’s cheque, which can then be taken to a Canadian bank account. Or funds may come in offshore to a player’s casino account.)
The report findings point to problem areas within the B.C. gaming industry such as difficulty in tracking funds as there is an inconsistency in documentation and understanding of when casinos and regulatory bodies need to report large sums to the Financial Transactions and Reports Analysis Centre. There is also a high staff turnover at casinos, which leads to difficulty in spotting suspicious or high-risk players. Casinos by nature are also revenue driven rather than enforcement driven, the report findings conclude.
Language was another barrier as the report found that casino employees in high-stakes rooms spoke mainly Cantonese or Mandarin, while training on money laundering by BCLC, which manages the gaming industry, is presented in English.
Casinos only report large cash transactions after they have accepted the cash as they are required to do. "The GPEB should consider implementing a policy requirement that service providers (casinos) refuse unsourced cash deposits exceeding an established threshold and time period, until the source of the cash can be determined and validated," the report said.
It also wanted GPEB to look at alternatives for casinos accepting cash.
While the BCLC follows federal requirements for assessing risky patrons who might be gambling with proceeds of crime or laundering money, the report said the process could be enhanced from both a risk-management and revenue-generation perspective.
"This may include confirmation of or verification of key customer data including source of wealth, source of cash and occupation by the service provider (casino) or BCLC for higher risk patrons," the report said.
"The BCLC should consider whether its risk assessment process adequately reflects current thinking around money laundering and terrorist financing risk," it said, adding that rather than drawing geographical areas where risk might exist, risk should be related to specific casinos.
The report says that the “Know Your Player” rule goes beyond simply when that individual frequents the casino. "It is about understanding the potential money laundering risk the patron poses to the facility and managing that risk accordingly," it said.
The report looked at the BCLC's two lists of individuals that required enhanced due diligence in terms of monitoring. The first list was comprised of the Top 100 players by dollar volume while the second list relates to known associates of a high-risk player who have been identified by law enforcement to be involved in the provision of large volumes of unsourced bulk cash to individuals that casinos deem as VIP or high-roller players. The lists have overlap, the report said, with 36 individuals on the second list appearing on the Top 100 list.
The 2016 report also pointed to VIP players using an "underground" banking system, especially Asian players who were not able to send money from China because of currency restrictions. Gamblers interviewed for the report said they were provided with a contact in Vancouver, either locally or prior to arriving in Vancouver. The contact person delivers the money locally.
"The funds are later repaid through cash holdings in China," it said, with the result that the unsourced B.C. funds flowed into the casino system.
The report pointed out the need to evaluate the resourcing and function of existing investigative units. "Effective multi-agency units would promote the sharing of information and resources."
German has been asked to assess money laundering activities in casinos and recommendations need to prevent it. He has also been asked to provide advice to Eby about connections between identified issues and other areas of the economy or provincial laws or policies that may require attention as a result of the information he gathers.
The review will be completed by the end of March 2018, but German has been asked to make recommendations as soon as issues are identified so remedial actions can be implemented rather than waiting for a final report.
German is the author of Proceeds of Crime and Money Laundering (Thomson Reuters), a textbook on anti-money laundering laws.