The anniversary of 9/11 has passed again and serves as a tragic reminder of the tremendous destruction that terrorists can cause. The United States has committed record resources toward the prevention of terrorism to ensure that we will never again suffer another loss like that of 9/11. All industries and individuals, including the gaming industry, can support the government’s war on terrorism by knowing about the Office of Foreign Assets Control (OFAC) and following its regulations. In fact, OFAC is so critical to terrorism prevention that the fines for willfully failing to follow OFAC are significant, up to $10 million or up to 30 years imprisonment.
Following are five things all casinos and businesses should do to assist the government and avoid penalties under OFAC.
1. Understand OFAC
As their website states, the Office of Foreign Assets Control of the U.S. Department of the Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. The Treasury Department has a long history of dealing with sanctions. Dating back to prior to the War of 1812, Secretary of the Treasury Albert Gallatin administered sanctions that were imposed against Great Britain for the harassment of American sailors. OFAC itself was formally created in December 1950, following the entry of China into the Korean War, when President Truman declared a national emergency and blocked all Chinese and North Korean assets subject to U.S. jurisdiction.
2. Know OFAC Requirements
According to OFAC: “All U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, all U.S. incorporated entities and their foreign branches. In the cases of certain programs, such as those regarding Cuba and North Korea, all foreign subsidiaries owned or controlled by U.S. companies also must comply. Certain programs also require foreign persons in possession of U.S. origin goods to comply.” There are exemptions, depending on the program, but they must be authorized by OFAC.
Casinos are required to prohibit or reject financial transactions that occur with specified countries, entities and individuals, and in some cases, to block accounts and other property of specified countries, entities and individuals. Casinos that perform deposit account transactions such as safekeeping, front money, and credit or marker transactions and wire transfer transactions may be the most susceptible to performing a transaction that is subject to OFAC. There are other types of transactions that may be subject to OFAC as well, such as check cashing, jackpot processing, credit card advances, check payments or any other financial transaction that may be considered prohibited when performed with specific countries, entities and individuals. The fines for violations can be substantial. Depending on the program, criminal penalties can include fines ranging from $50,000 to $10 million and imprisonment ranging from 10 to 30 years for willful violations. Depending on the program, civil penalties range from $250,000 or twice the amount of each underlying transaction up to $1.075 million for each violation.
3. Develop a Program
While not required by specific regulation, but as a matter of sound financial practice and in order to ensure compliance, casinos should establish and maintain an effective, written OFAC program commensurate with their OFAC risk profile (based on products, services, customers and geographic locations). The program should identify high-risk areas, if any, and provide appropriate internal controls for screening and reporting, establish independent testing for compliance, designate an employee or employees as responsible for OFAC compliance and create a training program for appropriate personnel in all relevant areas of the casino. The program should be commensurate with its respective OFAC risk profile. Most casinos are including OFAC training based on employee position and their overall risk, similar to the anti-money laundering regulation, Title 31.
4. Take Action
Review financial transactions, credit and deposit accounts, wire transfers and any other transaction that may result in the benefit of a specially designated person against the OFAC Specially Designated Nationals (SDN) list to determine if the individual is listed with OFAC. The most recent SDN list is located on the OFAC website. If there is a name match, check the birth date and Social Security number (if available) to confirm a valid match. To avoid significant penalties, all casinos must check the individual’s status with OFAC prior to completing the transaction.
Certain vendors will check OFAC as part of the casino transaction and report matches prior to completing the transaction. For example, Equifax, a credit reporting company used by casinos, will complete an OFAC review during the credit inquiry process and list the results on the credit report. Casinos should check with their vendors to determine if OFAC is checked prior to completing the transaction or develop a program with procedures for checking against OFAC and steps to take if the OFAC match is valid.
If the casino does not notify OFAC of a transaction or stop the transaction, the casino’s bank has a regulatory duty to do so. The OFAC regulation is highly regarded and strictly adhered to in the banking industry. As such, a casino that sends check and marker deposits to these banks for deposit but does not review for OFAC may be subject to significant penalties. The casino’s bank will review all deposits against the SDN list, and if there is a valid match, the bank will immediately notify OFAC.
In the following example, this company’s bank notified OFAC of the non-compliant financial transaction. In 2006–2007, GEICO Insurance accepted two payments totaling $2,265 for an insurance policy; the individual who wrote the payments was named as a specially designated narcotics trafficker by OFAC. OFAC determined that GEICO did not voluntarily disclose this matter to OFAC and that the alleged violations constituted a non-egregious case. The base penalty for the two apparent violations was $11,000. The settlement amount reflected OFAC’s consideration of the following general factors: GEICO was not screening its existing policyholder database for SDNs, as GEICO only updated the SDN on an annual basis, and GEICO has committed to making improvements to remedy this gap in its OFAC compliance program.
5. Audit the OFAC Program
If a casino does not establish a program or establishes a program but fails to follow the program, it may expose its company to significant penalties. Auditing the OFAC program ensures protection against fines and penalties while keeping criminals out of the casino. Consider including OFAC in the overall anti-money laundering risk assessment for Title 31 and test the procedures, program and training to ensure that the casino is following the regulation.
Recent discussions in the gaming industry indicate that there is a potential memorandum of understanding between OFAC and the IRS. Casinos should expect the IRS to ask questions about OFAC during a Title 31 Bank Secrecy Act (BSA) audit. However, the IRS and OFAC have not issued any commentary regarding OFAC findings or penalties that resulted from the BSA audit interview.
The best defense against criminal activity, terrorism and penalties for non-compliance is a comprehensive program that includes internal controls, audit, and ongoing training and awareness. With the anniversary of 9/11, we should all remember the loss that was suffered and the continued losses by our military for the war on terrorism and do our part to support the prevention of terrorism.