FinCEN Enforcement Action: Artichoke Joe’s penalized $8 million

FinCEN Issues $8 Million Penalty on California Card Club for Willful Violation of Anti-Money Laundering Controls

 
Contact
Steve Hudak 703-905-3770
Immediate Release
November 17, 2017
Artichoke Joe’s Casino Turned a Blind Eye to Loan Sharking, Suspicious High-Value Chip Transfers, and Flagrant Criminal Activity for Years

WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) today announced an $8 million civil money penalty against Artichoke Joe’s, a California corporation, doing business as Artichoke Joe’s Casino (AJC). AJC, one of the largest card clubs in California, willfully violated U.S. anti-money laundering (AML) laws from October 2009 to November 2017. During this 8-year period, AJC failed to implement and maintain an effective AML program, and failed to detect, deter, and timely report many suspicious transactions.

 

“For years, Artichoke Joe’s turned a blind eye to loan sharking, suspicious transfers of high-value gaming chips, and flagrant criminal activity that occurred in plain sight.  FinCEN’s $8 million civil penalty results from the card club’s failure to establish adequate internal controls and its willful violations of the Bank Secrecy Act,” said Jamal El-Hindi, Acting Director of FinCEN. “Casinos, card clubs and others in the gaming industry should consider their risk of exploitation by criminal elements, and understand that they will be held accountable if they disregard anti-money laundering and illicit finance laws.  This significant action highlights the need for all entities, including those in the gaming industry, to build a robust culture of compliance into their policies and procedures to ensure they are not facilitating illicit activities.”

 

AJC, a card club located in San Bruno, California, has been in operation since 1916. In March 2011, AJC was the subject of a raid by state and Federal law enforcement which led to the racketeering indictment and conviction of two AJC customers for loan-sharking and other illicit activities conducted at AJC. AJC senior-level employees knew that loan-sharks were conducting criminal activity through the card club and using AJC gaming chips to facilitate illegal transactions. Nonetheless, AJC failed to file any Suspicious Activity Reports (SARs) on this activity. For example, there were several instances in which loan-sharks provided AJC chips to customers on the gaming floor within plain sight of AJC employees.

 

AJC also failed to implement adequate internal controls, which exposed the card club to a heightened risk of money laundering and other criminal activity.  In particular, AJC failed to adopt adequate policies and procedures to address risks associated with gaming practices that allow customers to pool or co-mingle their bets with relative anonymity. Further, AJC did not establish procedures for obtaining and incorporating information from propositional players (players paid by casinos or card clubs to wager at a game) or other employees who may have observed suspicious transactions. AJC also failed to file complete and timely reports on suspicious transactions involving potentially structured chip redemptions and purchases, and redemptions of large volumes of chips with no cash-in or gaming activity. FinCEN’s Assessment of $8 million recognizes the duration and severity of AJC’s violations, the size and sophistication of the card club, AJC’s awareness of criminal activity on its premises, and its deficient culture of compliance.

 

Acting Director El-Hindi expressed his appreciation to the Internal Revenue Service Small Business/Self-Employed Division, the Federal Bureau of Investigation, the State of California Department of Justice’s Bureau of Gambling Control, and the U.S. Attorney’s Office for the Northern District of California for their support and strong partnerships with FinCEN. This is the third enforcement action against a card club for FinCEN, the only Federal regulator with AML enforcement authority over card clubs.

 

Unfortunately, this was not the first enforcement action – as per the assessment:

On May 9, 2011, AJC entered into a stipulated settlement with the California Bureau of Gambling Control.  AJC agreed to pay a fine of $550,000, with $275,000 stayed for a two-year period, and agreed to modify its surveillance, work with the city of San Bruno to improve coordination with law enforcement, replace employees at the Pai Gow tables, and provide additional training on loan-sharking, illegal drugs, and compliance with the BSA.

The assessment is fascinating, detailing a raft of non-existent controls and the open prescence (and facilitation) of loan sharking activities. Read it when you can.

Interestingly, there is a detailed explanation of why the civil monetary penalty ended up where it did:

FinCEN has determined that AJC willfully violated the BSA and its implementing regulations and that grounds exist to assess a civil money penalty for these violations.26  FinCEN has determined that the appropriate penalty in this matter is $8,000,000. 

FinCEN may impose a civil money penalty of $25,000 for each willful violation of AML program requirements that occurs on or before November 2, 2015.27  The BSA states that a “separate violation” of the requirement to establish and implement an effective AML program occurs “for each day that the violation continues.”28  FinCEN may impose a penalty not to exceed the greater of the amount involved in the transaction (but capped at $100,000) or $25,000 for each willful violation of SAR requirements that occurs on or before November 2, 2015.29 

FinCEN reviewed financial statements provided by AJC and considered AJC’s financial condition and ability to pay.  FinCEN considered the size and sophistication of AJC, one of the larger clubs operating in California, generally with few customers from outside the state.  Furthermore, FinCEN noted the severity and duration of AJC’s BSA violations.  During the eight-year period covered by this Assessment, AJC failed to implement adequate internal controls, to conduct sufficient independent testing, and to comply with SAR requirements.  FinCEN also considered AJC’s awareness of loan-sharking activity on its premises, as well as AJC’s culture of compliance.  AJC’s adoption of remedial measures and its cooperation with the IRS examination and FinCEN’s investigation were factored into FinCEN’s determination.  FinCEN considered its recent enforcement actions against casinos and card clubs and the impact that its penalty against AJC would have on compliance with the BSA by the casino and card club industry.    

FinCEN hereby imposes a penalty in the amount of $8,000,000 due in 30 days.  

Links:

FinCEN Press Release

FinCEN Assessment

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