First of Three Posts in a Related Series on Recent AML and Money Laundering Prosecutions

The Department of Justice (“DOJ”) has been very active in the Bank Secrecy Act (“BSA”) / Anti-Money Laundering (“AML”) space, as reflected by a recent series of individual prosecutions and corporate non-prosecution agreements (“NPAs”). 

In this first blog post, we will discuss a significant prosecution of an individual, and two related corporate NPAs, involving the gaming industry

In the next related post, we will discuss two unusual prosecutions involving, respectively, an individual executive of a bank and an alleged AML specialist working with small financial institutions.  

In our final post, we will discuss the prosecution and sentencing of a lawyer who allegedly became part of the fraud and money laundering scheme perpetrated by his crypto client.

Although these cases are all unique and interesting in their own way, they are also all united in certain ways – particularly in regards to the need for institutions to perform sufficient due diligence regarding the conduct and source of funds of high- or higher-risk customers, and the related need for institutions to ensure that their own employees are not undermining the institutions’ AML compliance programs.

The Individual Guilty Plea

Although casinos have been covered by the BSA for years, and although the potential AML risks associated with casinos have been noted regularly by both industry and watchdog groups, it has been several years since there has been an actual AML-related enforcement action or money laundering-related prosecution involving a casino in the U.S.  That just changed. 

Specifically, Scott Sibella, the former President of the MGM Grand Hotel, LLC (“MGM Grand”), pleaded guilty to violating the BSA by failing to file required Suspicious Activity Reports, or SARs.  According to the alleged facts set forth in his plea agreement, Sibella knew that a casino patron, Wayne Nix, ran and operated an illegal bookmaking business. Sibella nonetheless allowed Nix to gamble at MGM Grand with illicit proceeds earned from the illegal gambling business.  Sibella also allegedly authorized Nix to receive complimentary benefits at the casino, including meals, room, board and golf trips with senior executives and other high net-worth customers to further encourage Nix to patronize the casino. 

According to the DOJ, Sibella failed to report to MGM Grand compliance personnel that Nix was an illegal sports bookmaker. Because of Sibella’s failure to report the suspicious activity by Nix, the MGM Grand failed to file at least one SAR regarding Nix’s source of funds for cash payments to MGM Grand.  According to the government, Sibella admitted to law enforcement in 2022 that he believed Nix was involved in illegal sports bookmaking, but he “didn’t want to know because of my position, . . . If we know, we can’t allow them to gamble . . .  I didn’t ask, I didn’t want to know I guess because he wasn’t doing anything to cheat the casino.” 

These alleged facts set forth a classic case of willful blindness by a so-called “gatekeeper” or other professional regarding illicit activity by a customer or client paying with “dirty” funds.  Willful blindness is a powerful tool for the DOJ when trying to prove knowledge of a target of illegality by third parties. 

The Corporate NPAs: “All Available Information”

The MGM Grand and The Cosmopolitan of Las Vegas (“The Cosmopolitan”) casinos have entered into NPAs to resolve investigations related to Sibella’s prosecution and Nix.  The NPAs require them to pay a combined $7.45 million, undergo external review, and enhance their AML compliance programs. 

Specifically, MGM Grand has agreed to pay a fine of $6,527,728. The Cosmopolitan – which was purchased in May 2021 by MGM Resorts International – has agreed to pay a fine of $928,600.  Both casinos also have agreed to forfeit $500,000 in proceeds traceable to the alleged violations, which will be counted towards their fines.  If the casinos fulfill their obligations under the DPAs, which will last for two years, the DOJ will not prosecute them based on the conduct set forth in the Statement of Facts of the DPAs.  According to the DOJ, the alleged conduct would support charges of money laundering, failure to maintain an effective AML program, failure to file required SARs, and conspiring to commit these offenses.

As part of its NPA, and similar to the facts alleged as part of Sibella’s plea agreement, MGM Grand admitted that Sibella and two casino hosts knew about Nix’s illegal gambling business, allowed him to gamble at MGM Grand properties, allowed him to use illicit proceeds at the properties, and provided him with complementary benefits to encourage him to do so. Nix allegedly traveled frequently from California to casinos in Las Vegas transporting his illicit cash proceeds, typically in the form of high-denomination bills, in duffle bags and brown paper bags.  By 2020, MGM Grand allegedly had accepted $4,079,830 in cash representing the illicit proceeds of Nix’s illegal gambling business.

In MGM Grand’s NPA, the government stresses in part that 31 C.F.R. § 1021.210, a BSA regulation applying to casinos, requires an AML compliance program to have procedures “for using all available information” to identify and verify customer information, and to identify suspicious activity.  Indeed, the NPA states that the Financial Crimes Enforcement Network (“FinCEN”) previously had published an enforcement action against another casino for “failing to use all available information to identify and evaluation potentially suspicious activity or otherwise incorporate it into the casino’s [AML] controls, in violation of the BSA.”  The NPA notes that MGM Grand was aware of this prior enforcement action because its employees had been trained on AML requirements by being advised of it – but MGM Grand “nonetheless, failed to modify its own AML Compliance Program to require its compliance team to use available information in the possession of its own marketing departments.”  The NPA alleges that MGM Grand compliance staff should have reached out more often to marketing hosts, who have direct knowledge of customers and their sources of funds due to regular interaction and socializing. According to the DOJ press release, “[c]ompliance personnel did not regularly reach out to the marketing hosts, even where the compliance team could not substantiate or identify the customer’s source of funds, despite the fact that other departments would routinely reach out to hosts in connection with, for example, the collection of funds owed to the casino.”  Because of these alleged deficiencies, “MGM Grand failed to detect and report the extent of Nix’s suspicious activities in SARs and failed to prevent Nix’s money laundering.”

The MGM Grand NPA also emphasizes that internal auditors had recommended that a “risk-based approach” be used to determine whether to continue to monitor a customer after activity by a customer was deemed suspicious, including by considering whether SARs had been filed regarding a customer within a 12-month period, and the nature and amount of the suspicious activity.  However, “[t]he executive director of compliance declined to adopt the recommendation to apply a risk-based approach to examine continuing activity of customers already deemed suspicious and responded that its current approach of monitoring high-risk areas, such as subpoenas, negative news, structuring analysis, and book wagering analysis, was sufficient.” As a result, the NPA states that “the compliance team did not conduct an analysis to determine occurrences of additional large-denomination cash transactions or patterns of such transactions that would warrant the filing of SARs in relation to Nix.”

The NPA involving The Cosmopolitan is very similar to the NPA involving MGM Grand, and its factual allegations are also very similar.  A host at The Cosmopolitan allegedly knew that Nix ran an illegal gambling business, allowed him to use illicit proceeds at the casino without notifying the casino’s compliance department, and provided him with complementary benefits to encourage him to spend his illicit proceeds at the casino. The Cosmopolitan thereby accepted $928,600 in cash in illicit proceeds from Nix by 2020.  Again, the host failed to report to compliance personnel or law enforcement the source of the illicit proceeds provided by Nix, thereby causing The Cosmopolitan to fail to file one or more SARs regarding the source of Nix’s funds.  In particular, the NPA alleges as follows:

Specifically, in February 2019, the Company’s compliance department became suspicious of Nix’s source of funds and requested additional information from Nix’s host within the Marketing Department. On February 27, 2019, the host sent a text message to Nix and requested a copy of his business license, articles of incorporation, or a business card. The host explained that “it’s because you paid with cash that anything came up. It’s no big deal[.] I just have to get them something.” Nix, through his accountant/business manager, provided documentation of Nix’s purchase of stocks, investment agreements for a small restaurant and nightclub, and other expenditures; however, none of those documents showed income or any money flowing into Nix’s personal or business accounts. The host forwarded the documentation received from Nix’s accountant/business manager to the [Cosmopolitan] compliance department but did not disclose to compliance personnel that the host knew that Nix ran a lucrative bookmaking business. After receiving the documents from Nix’s accountant/business manager, the host told Nix that the Compliance department had accepted the documents and “it was[n’t] a big deal, we just needed to get something to show our compliance guy your source of income. With the amount that you play and pay they want to see something where income is coming from.”

Obviously, these allegations underscore the importance of requesting, reviewing and vetting sufficient AML due diligence information, particularly if there is a question regarding a customer’s source of funds, and not go through the motions of appearing to do so in order to obtain just “something.”  Similar to the NPA involving the MGM Grand, The Cosmopolitan’s NPA asserts that the casino’s AML compliance program failed to “use all available information” to identify and verify customer information, and to identify suspicious transactions.

Compliance Program Enhancements

In their NPAs, both casinos have agreed to enhance their AML compliance programs and to implement additional review and reporting requirements relating to the BSA. They likewise will amend internal audit protocols and review certain previously filed SARs, as well as related customer files and transactions.  Not surprisingly, the NPAs also require both casinos to cooperate with law enforcement in any additional investigations or proceedings arising from the conduct described in the NPAs’ statements of facts.

The DOJ press release stressed the importance of the casinos’ cooperation and remediation to the decision not to prosecute the entities:

Federal prosecutors entered into the NPAs in recognition of the casinos’ remedial efforts to strengthen their AML programs, their acceptance of responsibility, their cooperation with authorities during the investigation, their agreement to pay fines, and their agreement to invest an additional $750,000 for an external compliance review [to be reported to the DOJ] and further reporting requirements designed to prevent future violations of federal law.

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