#168 © Copyright 2010, I. Nelson Rose, Encino, California. All rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com.

Agents of the Internal Revenue Service are meeting informally with casino employees, asking them to voluntarily report suspicious activity.

Liz Benston broke the story in the August 5, 2010 Las Vegas Sun. But, so far, the idea that the IRS would ask casinos to turn in some of their best customers has received little national attention. Perhaps this is because gaming operators are already required to spy and report on their high-rollers.

Tax authorities dislike legal gambling. They know that many players will not voluntarily report their winnings.

So, they enacted laws and regulations to require casinos, race tracks, bingo halls, card clubs and state lotteries to become agents of the federal government. The U.S. Congress passed laws requiring gaming operators to withhold and forward to the IRS part of certain big winnings, to make sure taxes get paid.

But the IRS went even further, requiring operators to report certain big winners, even when no taxes were withheld.

Tax revenue is still the number one priority of the IRS. But federal prosecutors and investigators also know that businesses that routinely deal with large cash transactions can also be useful for spotting criminal activity.

This can be as simple as tax evasion unrelated to not reporting winnings. For example, a restaurant owner who claims business is bad on his tax filings, but is reported betting frequently with large amounts of cash, is going to get audited.

Or it can be real money laundering. Treasury wants to know about the drug dealer who arrives with suitcases of fives, tens and twenties, makes a few bets and then asks for a check or stacks of hundred dollar bills. Of course, when was the last time that actually happened?

After 9/11, there is increased concern about Islamist terrorists. Muslim extremists are not normally thought of as big gamblers, unless you count Palestinian suicide bombers who blow themselves up in the hope of getting 72 virgins in the afterlife. But anti-gambling activists have argued that legal gaming commonly deals with cash, and terrorists use cash, so therefore there is the possibility that terrorists are somehow using casinos.

Over the last 25 years, the federal government has greatly expanded the duty of casinos to report large or suspicious transactions. The result has been a turning on its head of American law.

Unlike many European countries, the United States does not have a history of “good Samaritan” laws. Just as Americans are normally under no duty to rescue a person in trouble, they are not required to report crimes being committed, even when they can do so with no danger to themselves.

American law normally does not require sellers to know where their buyers got their money. Without a special statute or regulation, a casino is under no duty to verify that a player is gambling with honestly obtained funds. In fact, a casino executive would normally not be required to report a customer even if he knew the player was using ill-gotten gains.

Of course, intentionally helping a criminal is another matter.

It has always been against the law for a casino employee to help a high-roller launder money. The crime is called conspiracy, usually a felony, and consists of agreeing with another person to commit some other crime. There must be an actual agreement, although it need not be words on paper, or even words at all. Certainly, a nod of the head would be enough.

The law also imposes criminal liability on anyone who intentionally helps another commit a crime. This is commonly known as aiding and abetting, accomplice liability or complicity. But where conspiracy is a separate crime, aiding and abetting is merely a way of making the accomplice liable for crimes someone else has committed. So, helping a crook launder money makes the accomplice guilty of the crime of money laundering.

The feds sometimes have trouble separating true money laundering from gambling. The examples used to impose currency reporting requirements on casinos included Antonio Cruz Vasquez, a major heroin distributor, who “lost almost $3 million at the gambling tables during a two-year period that ended in December, 1977.” As I wrote in my 1986 book, Gambling and the Law, “Losing $3 million shows that he was gambling: a money launderer only makes token bets to cover his exchange of dirty money for clean.”

Ironically, it was the Administration of conservative Republican Ronald Reagan, who campaigned on getting government off the backs of citizens, which imposed those currency reporting requirements on casinos, in, appropriately, 1984.

So, casinos have been required to file CTRCs, Currency Transaction Reports Casinos, on cash transactions over $10,000 for 25 years. For a while, Nevada had an exemption, Regulation 6A, which still required reports be filed with state officials. Nevada’s representatives were able to convince the Reagan Administration that if a patron won, say, a $20,000 jackpot, than we know it is not drug money.

After 9/11, the feds took over completely. It took years for Treasury to get rid of CTRCs on large slot machine jackpots, even though these were already being reported to the IRS for tax withholding.

And government investigators realized data from legal gaming could be mined for even more information. The federal Financial Crime Enforcement Network (FINCen) imposed a requirement that casinos act as police officers, and report mere suspicions that a crime had taken place.

The form is SARCs, Suspicious Activities Report by Casinos, and it differs significantly from CTRCs.

CTRCs require casinos to ask the patron for two forms of identification. It is actually against the law for a casino to tell a patron that a SARC has been filed on him.

CTRCs are triggered by an actual cash transaction of more than $10,000. There is normally a minimum of $5,000 for SARCs. But the casino is required to file a SARC if it knows, or suspects, or even has reason to suspect, that a transaction involves funds derived from illegal activities.

A casino will be fined if no SARC is filed when an executive has an actual suspicion, or with 20/20 hindsight when the casino employee should have had a suspicion.

The IRS is now pushing for more. A SARC does not have to be filed for 30 days. The IRS wants casino employees to call, now, when they think a patron is playing with stolen money.

Obviously, there is a conflict of interest, especially with casino hosts, whose livelihood depends on keeping high-rollers happy. Reporting your best customers to the IRS is not a way to make friends. But failure to do so could lead to being fired by casino bosses who don’t want fines, or even heat, from Treasury.

About the only good news for casino executives is that a federal law gives whistle-blowers complete protection from civil suits, even when they are wrong. So, at least making that call on the whale with bundles of cash won’t result in a nasty lawsuit by the actually innocent high-roller.

It just means he will take his business to Macau or Singapore.

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© 2010, I. Nelson Rose. Prof. Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments and industry. His latest books, Internet Gaming Law (1st and 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.