Optics of BC money laundering scandal problematic for casinos

Casinos may be bearing a disproportionate share of the blame in a massive money laundering scandal that has ensnared British Columbia in recent months, but the incident demonstrates how easy it is for the industry to be pinned as the bad guy in such schemes.

In late September, the Vancouver Sun published an expose on a criminal operation that allegedly laundered money from wealthy Chinese and Mexican drug cartels through an undercover bank and casinos in British Columbia.

The report prompted an investigation by the province’s attorney general into anti-money laundering controls at B.C. casinos.

The crime ring centered around wealthy “whale” gamblers from mainland China who were recruited via Macau to come gamble at B.C. casinos, where they were loaned large sums of cash – originally deposited by drug traffickers – by the bank.

The whales would then trade in their cash for casino chips and, upon cashing out, receive a cashier’s check that was essentially “clean money” that could be used in Canada for a multitude of purposes – such as purchasing property in Vancouver’s sizzling real estate market.

The process provided a back door for wealthy Chinese to elude the country’s restrictions on capital outflows, as well as a sophisticated conduit for criminal organizations to transfer dirty money around the globe.

Anyway you shake it down, the details of the investigation are salacious and the optics are just plain ugly. The juiciest tell of Chinese gamblers – many of whom listed their occupation as “students” – showing up at B.C. casinos with hockey duffel bags stuffed full of as much as $100,000 in $20 bills.

“You’d be surprised how many studious people we have in Vancouver,” said an anonymous casino employee who called into a national radio program in early October, thus adding more fuel to the fire.

“Literally, I would see patrons come in with bags of money. These patrons [were] then quickly rushed to the cashier cage to convert their deposit, as it were, to chips so they can play the games,” he continued. “I’ve never seen anyone with a bag full of money turned away.  I’ve never seen, ever, anyone turned away. That’s how [casinos[ make money. They will do their best to make that person coming back.”

Great Canadian Gaming Corporation, which operates River Rock Casino outside Vancouver – which was allegedly the nexus of the crime ring, has repeatedly insisted that it engaged in no wrongdoing and is not under criminal investigation.

It also stressed that the notion that the criminals were simply exchanging cash for chips for cashier’s checks at their casinos is untenable because they only issue such checks for verified winnings and not for funds deposited.

This is a critical point of failure in the narrative broadcast by local and national press, which holds that the casinos were the pivotal last leg in the money laundering scheme.

The Canadian Gaming Association has come to Great Canadian’s defense, arguing that it if it were not the company’s judicious reporting of cash transactions in excess of $10,000 to authorities as required by law and conducting Know Your Customer screens on patrons, the money laundering operation would have never been uncovered.

But none of that has prevented Great Canadian from being pilloried by politicians and the media. For example, the opposition party in Ontario has seized the opportunity to call for a freeze in the process of awarding Great Canadian the highly-prized GTA Bundle, which would give it the right to operate several casinos in the Toronto metro area.

While this appears to be more political grandstanding than anything else, it illustrates how easy these situations can get out of control – particularly when the demand to pin the blame on somebody outpaces the demand to find out what actually happened.

In that regard, casinos serve as an easy scapegoat – even if the breakdowns, to the extent they occurred, were actually the fault of the provincial lottery corporation, gaming regulator or somebody else.

Ongoing investigations into both the criminal enterprise and AML controls in B.C. casinos should provide some clarity upon completion, and it seems fair to assert that given the flow of East Asian money flowing into Vancouver in recent years, any illicit funds that may have been successfully laundered through local casinos was just a small subset of the total amount sloshing around.

Even if one accepts the gaming industry’s argument, which is a strong one, that the reason the bad guys got caught was because casinos and frontline employees were doing their job, the optics of this incident are extraordinarily bad will take a long a time to clean up.

The lesson here is that even the appearance of impropriety can lead to a world of problems, especially when your industry presents an easy target.

It’s all the more reason for casinos to make sure their AML compliance policies and procedures are airtight. It will save a lot of headaches down the road.