Q&A: Kim McCabe
McCabe is founder of KMC, LLC, a professional consulting service firm specializing in the areas of compliance, audit and performance improvement. Her experience spans 20 years with the gaming and hospitality industry. She partners with OnCourse Learning to provide subject matter expertise in the area of gaming and regulatory compliance.
In this Q&A, OnCourse Learning asks McCabe her views about compliance issues and regulatory concerns facing the gaming industry.
Q: What are the key compliance challenges that face the gaming industry?
A: Knowing the patron is the key issue in the gaming industry. That means knowing the source of their funds. Compare the casino to the bank. When you walk into a bank, you conduct a specific transaction. Customers expect to have their identification and financial information on hand when they set up a bank account. But when they set up a casino account, it’s not necessarily that way. The biggest challenge casinos face is they’re required to comply with similar requirements as banks. However, casino clients often are not expecting that they are required to provide the same kind of information as they would at a bank.
Q: Why do consumers or patrons assume they should be able to retain their privacy related to their financial information?
A: Because when the patron goes to the casino, they’re primarily there for entertainment, and they aren’t looking at it as conducting a financial transaction. But casinos have reportable transactions. These days, most patrons know they have to provide their identification, or if they have a taxable jackpot, they know they need to provide their Social Security number and identification.
Q: When is it difficult to obtain personal information from patrons?
A: Many times consumers don’t want to give their Social Security number when they set up their player’s club account [which works like a rewards system where casinos offer promotional incentives and complimentary services, like free meals or hotel rooms].
Q: What’s the risk of not knowing your patron?
A: The risk of not knowing your patron is that the casino may be doing business with an undesirable person that could harm the reputation of the casino and they fail to report the activity to FinCEN or other authorities.
Q: Is there some gray area on the regulations?
A: The gray area is trying to apply the regulatory requirements. Casino operations don’t always fit into a perfect black-or-white regulatory environment. It requires thought and interpretation on how to comply with the requirements. The problem occurs when the casino assesses the risks, applies controls to address the risks, and FinCEN or the IRS doesn’t agree with the casino’s approach.
Q: What should casinos consider when creating a compliance program?
A: Your compliance program needs to be risk-based, and for each casino, that risk is different. If a lot of players gamble large amounts of money, it’s important to determine what constitutes a large amount, and know how that impacts your financials and revenues. Know when you need to ask additional questions about these specific patrons because they can impact your bottom line. You need to do due diligence and get to know your patrons.
Q: How do casinos get to know their patrons?
A: If you have a high roller wiring in $2 million, you need to know who they are and where the money is coming from. A third-party risk solution could help you identify a patron’s source of wealth and who they are.
Q: What steps are being taken by the gaming industry to address any confusion about regulatory compliance and guidelines?
A: The industry is working with FinCEN to make sure there is clear guidance. That’s why the AGA (American Gaming Association) published best practices in 2014 and updated it in 2015. The industry is working hard to close those gaps in understanding or interpreting the regulations.
Q: Considering the best practices outlined in the AGA report on training guidelines, what are some important areas for casinos to focus on?
A: A lot of casinos are training at the dealer level, even though the AGA best practices do not specifically say they need to do that. Casinos are offering very specific training based on the level of employee and the department.
Q: What are some specific roadblocks the gaming industry has had to overcome, related to AML training?
A: Not exactly roadblocks, but, in the past, the gaming industry may have given AML training to employees who needed to identify and report AML activity. And they primarily provided it to employees who handled cash, and possibly staff in surveillance and audit departments. Keep in mind, training varies from property to property. But now, under new AGA best practices, it suggests that casinos provide AML training to specific operational departments, like marketing staff and senior management. The new training standard is better because it’s extended to other departments that can assist in the compliance efforts. New AGA guidelines also set a standard where casinos need to regularly update their training programs, but they do not specifically define the frequency of training updates.
Q: Give an example, please.
A: Reporting is easy — you hit a threshold and you know you’ve hit it. There’s very little subjective analysis that goes into that. But with suspicious activity, it’s subjective. Train employees on what they might see on a day-to-day basis so they know what to be aware of. By providing training in this way, it resonates more with the trainees, compared to giving generic examples to all departments. If it’s not applicable to that trainee, they may tune it out. Customized training is better.
Q: Can you give an example of training that addresses suspicious activity?
A: Chip walking could be a suspicious activity that typically would be included within the table gaming department training. Training should vary based on the department. If it’s a department like race and sports book, keno or bingo, these employees don’t deal with chip walking, so it would not make sense to train them on the topic. How can you expect staff to identify a suspicious activity that does not occur in their department? Training should incorporate real examples of situations staff are most likely to encounter on the job. In the past, training included suspicious activity examples for all departments within the casino. A customized training approach that considers each department’s needs is the better approach.
Q: By the way, what is a chip walk?
A: When patrons leave the game with chips and don’t redeem them immediately. They may come back later to redeem them, which may be completely harmless. However, FinCEN and the AGA suggest that casinos pay attention to such scenarios, and possibly file a suspicious activity report.
Q: What makes chip walks suspicious?
A: Not all chip walking is suspicious; it needs to be evaluated. The premise is that those chips could be used to purchase drugs or for other illegal activity.
Q: In past trainings, what is the best example of how you have helped a casino learn to better understand suspicious activity?
A: I was training casino employees and noticed Tibetan monks gambling at slot machines. And it had been going on for several years, apparently. I asked one simple question: Where do monks get their money? Everyone’s eyes lit up. Monks get paid through donations. If the public donates money to them and they are gambling, I simply asked: Do you see this as possible suspicious activity? Sometimes it’s a matter of properties not realizing how they should view the activity. Especially when they see something all the time, it may seem normal to them. In fairness, it’s possible the monks got their money from other sources. However, you have to be willing to ask the right questions and evaluate the situations to determine if the activity would warrant a suspicious activity report filing.
Q: What are some components of a good training program?
A: Everything starts with a risk assessment. Casinos first need to identify risks. Then they need to develop internal controls and an AML program, which will drive their training and operations. Training also includes how to know the different types of patrons and understanding when it’s necessary to learn more about patron identity and their funding source.
Freelance writer Elise Oberliesen contributed to the writing and research of this article.