One heroin trafficker from Baltimore, MD, laundered significant sums of cash through an Atlantic City casino. When arrested in 1982, the authorities seized $130,000 in cash from his safe deposit box; $50,000 of this money, mind you, was wrapped in $100 bill straps from the Atlantic City casino that he patronized.

Further investigations following this suspect's arrest indicated that he had also made a large withdrawal of one of his cash deposits at the Atlantic City casino in the form of a casino check.

The suspect then used this casino check to purchase a grocery store in the name of a corporation he had organized. The grocery store was then used to further launder his heroin profits.

Another major heroin trafficker from the Washington, DC, area, made cash deposits and withdrawals in excess of $1 million at Atlantic City casinos during a 4-month period in 1982. This same individual used an Atlantic City casino to transfer funds to a bank account in the Cayman Islands, a well-known, offshore tax haven.

Laundering money in Atlantic City casinos is not a recent phenomenon. In late 1978 and early 1979, just about 2 years after casinos began operating in Atlantic City, an alleged member of a Philadelphia organized crime family, who has been recently convicted of aggravated assault, utilized an Atlantic City casino to deposit and then withdraw over $500,000 in cash.

This individual, at that time, had no apparent legitimate source of income. While these specific instances of money laundering are significant in and of themselves, they are really the tip of the proverbial iceberg.

At the present time, the division of gaming enforcement's review of cash deposits at Atlantic City casinos indicates that cash flows through casinos at a rate much faster than it flows through most branch office banks.

Furthermore, our investigations have revealed a disturbing number of persons with criminal records and associates utilizing the present cash deposit procedures at Atlantic City casinos.

The division of gaming enforcement has been studying in detail the cash deposits of the nine Atlantic City casinos. For instance, in June 1983, over $28 million was deposited directly by patrons with the casino cages at the nine operating entities.

Only those depositors who made cash deposits in excess of $10,000 were reviewed for possible criminal involvement.

During that month, 356 individuals made direct cash deposits in excess of $10,000 at the Atlantic City casinos. Of these 356 depositors, 55 had serious criminal records involving such offenses as extortion, illegal gambling, bookmaking, narcotics trafficking, and income tax evasion.

This represents an alarming 15 percent of the total number of cash depositors who had made large cash deposits during that 1month period.

A second month, September 1983, is currently under review. It is interesting to note that over $43 million was deposited with the casino cages at the nine Atlantic City gambling establishments during this short period of time. This represents a substantial increase from the $28 million deposited in June 1983. Large cash depositors also increased significantly with 460 individuals representing in excess of $10,000 for September 1983.

When you see large cash deposits being made by so many people, you may rightfully speculate whether these funds represent legitimate after tax dollars.

Our experience now makes it clear that present State regulations do not provide sufficient controls to effectively trace all money laundering activities in Atlantic City casinos.

One such deficiency is the fact that casinos are not required under current State gaming laws to verify identification credentials of its cash depositors.

At the present time, when a person makes a direct cash deposit at a casino cage, the cashier accepting the deposit must maintain a file for that depositor which contains their name, the date, and amount of the deposit, and the date and amounts of any withdrawals or refunds.

The cashier must also prepare a receipt form, which includes the depositor's name, the date, and amount of the deposit, and the signature of the depositor.

The cashiers, however, do not have to obtain valid identification credentials or taxpayer identification numbers from the cash depositor.

Likewise, no standardized verification procedures are required when withdrawals are made. This facilitates, if not encourages, the use of fictitious names and aliases, especially by persons intent upon illegal activity.

As a result, we are in need of additional tools to enhance our efforts to trace the very kinds of financial transactions which deserve the strictest law enforcement attention and scrutiny.

As a step to strengthen the State's ability to monitor and deter money laundering in Atlantic City casinos, I have instructed Director O'Brien of the division of gaming enforcement, to propose before the casino control commission regulatory amendments tightening current cash deposit and withdrawal procedures.

Specifically, I have asked that there be a requirement that all cash depositors at the Atlantic City casinos produce proper identification credentials prior to the casino being able to accept their money for deposit, and that such records be maintained and preserved.

The State of New Jersey, gentlemen, would support any effort by the Federal Government to establish some sort of control mechanism so that the casino industry cannot readily be used as a convenient vehicle to shelter ill-gotten gains.

Based upon the volume and the nature of cash deposits accepted by legal gaming establishments, a casino should come under similar controls as do financial institutions.

There is a tremendous underground economy in the United States today. By its very nature, the casino industry is a channel for substantial amounts of cash passing through this underground economy.

Of course, we cannot legislate human nature. For better or for worse, it exists and will continue to exist. But, we should take all steps necessary to ensure that the rights and privileges of the vast and overwhelming majority of the law-abiding segment of our society are not prejudiced and are not made to bear more than their

legitimate share of the burden of society by this underground and oftentimes illegal economy.

In that context, we maintain that there is indeed a strong governmental interest in monitoring large cash transactions, and both the State and Federal law enforcement authorities should do all they can to deter the criminal element from using casinos as a handy tool and medium to conceal illicit profits and to evade the payment of taxes.

We thank you very much for your attention.

[Complete statement of General Kimmelman follows:]

STATEMENT OF THE HONORABLE IRWIN I. KIMMELMAN

Congressman Hughes, members of the subcommittee: thank you for inviting my views on the issue succinctly identified by this subcommittee as "money laundering" in gambling casinos. This is a problem with which my office is concerned since New Jersey is one of two jurisdictions in this country which has legalized casino gaming, although several other States are actively considering the proposal. Casinos were allowed into Atlantic City for the purpose of facilitating and advancing several public purposes and, therefore, New Jersey has a significant stake in preventing their use by criminal elements to further and facilitate illegal ends.

One such abuse is the subject matter presently under consideration by this committee.

The process of legitimizing profits gained from an unlawful venture or criminal enterprise is often described as the "laundering" of money. Specifically, it is the method whereby unlawfully obtained funds are converted or substituted into new money or other assets, generally through establishments which are not required by law to maintain records and file reports or large currency transactions as would be the case for established financial institutions. Although money laundering can be accomplished in a number of different ways, the purpose behind this scheme is twofold:

(1) It is a means to evade criminal detection and prosecution for the underlying criminal activity, and

(2) It is a means to evade income taxes on the illicit profits derived from either the criminal activity itself or from legitimate sources.

The initial question that I am sure all of you wish to ask is whether money laundering is a problem in Atlantic City casinos? The unqualified answer to that question is yes. Secondly, how pervasive is the problem of money laundering in Atlantic City casinos? That question is more difficult to answer, but the preliminary indications are that it is a very serious problem-and one that must be addressed firmly by the regulatory authorities of New Jersey, the law enforcement community both on the State and the Federal levels, and the casino industry itself.

Let me emphasize that my comments here today are not intended in any way to be unduly critical of the casino industry. The casino industry is, by its very nature, a cash intensive industry. Whenever you are dealing with a cash intensive business, there is a heightened proclivity for the criminal element of society to use that industry as a conduit or vehicle to "launder" their illicit profits. At the same time, unfortunately, there is a tendency on the part of casino management employees to accept cash inflow from any source and not ask too many questions.

Consequently, in order to preserve and to foster the integrity of legalized gaming in New Jersey, all interested parties must take whatever steps are necessary to deter and hopefully eliminate this unwelcomed infusion of the criminal elements into the casino industry.

We are engaged in the development of a close working relationship among the various involved State and Federal law enforcement agencies which are concerned with the Atlantic City scene. To date, the New Jersey State Police and the Division of Gaming Enforcement, which is the arm of the Attorney General's Office responsible for regulating casinos, have worked very closely with the Federal Bureau of Investigation, The Internal Revenue Service and the United States Customs Service in attacking the problem of Money laundering in Atlantic City. As a result of this cooperative arrangement and with the assistance of the security and surveilance departments of the Atlantic City Casinos themselves, a number of significant arrests have recently been effectuated. In January of 1983, five suspects in a multi-million dollar theft of monies were apprehended and arrested at Atlantic City Casinos while attempting to "wash" serialized $100 bills that had been stolen at the John F. Ken

nedy Airport in 1982. The five suspects, acting separately, were exchanging these $100 bills for chips at the craps tables, playing one roll of the dice, and then exchanging the chips for clean money at the casino cage intending to leave with the so-called "laundered" money.

In May of 1983 through the cooperative efforts of the New Jersey State Police, the division of gaming enforcement, the Federal Bureau of Investigation, and the New Jersey Insurance Commission, a multi-million dollar insurance fraud scam was detected and broken up. The primary suspect in this fraudulent scheme had utilized six Atlantic City Casinos to make various cash deposits totaling $350,000 in the form of fraudulent cashiers checks. This suspect has recently been convicted of perjury and is currently under Federal arrest for extortion.

In another recent investigation, New Jersey State Police arrested two suspects who had allegedly committed a bank robbery in California. On the same day of the bank robbery, the two suspects flew to Atlantic City and deposited the proceeds of the robbery at an Atlantic City casino in order to "wash" the marked bills from the robbery.

In a similar although more tragic situation, on October 2, 1983, the wife of a successful restauranteur was abducted from her home in northern New Jersey. On October 5, 1983, a $150,000 ransom was paid by the husband of the victim. The serial numbers of the ransom money were recorded and one of the suspects in the kidnapping attempted to "wash" the marked bills at several Atlantic City casinos. This led directly to his apprehension and arrest on October 18, 1983. Unfortunately, the victim has not been found and the case is now considered a homicide.

Also, in October of 1983, FBI Agents in New York arrested four individuals for an alleged theft by embezzlement of over $5 million from Prudential-Bache Securities, Inc. All four of the individuals arrested had made large cash deposits at various Atlantic City casinos over the past year and a half totaling in excess of $2.6 million. Perhaps even more disturbing have been the number of cases involving the laundering of illicit profits from major narcotics trafficking operations. One heroin trafficker from the Baltimore, Maryland area laundered significant sums of cash through an Atlantic City casino. When arrested in 1982, authorities seized $130,000 in cash from his safe deposit box, $50,000 of this money was wrapped in $100 bill straps from the Atlantic City casino he patronized. Further investigation following this suspect's arrest indicated that he had also made a large withdrawal of one of his cash deposits at the Atlantic City casino in the form of a casino check. The suspect then used this casino check to purchase a grocery store in the name of a corporation he had organized. The grocery store was then used to further launder his heroin profits.

Another major heroin trafficker from the Washington, DC area made cash deposits and withdrawals in excess of one million dollars at Atlantic City casinos during a four month period in 1982. This same individual used an Atlantic City casino to transfer funds to a bank account in the Cayman Islands—a well-known offshore tax haven.

Laundering money in Atlantic City casinos is not a recent phenomenon. In late 1978 and early 1979, an alleged member of a Philadelphia organized crime family, who has been recently convicted of aggravated assault, utilized an Atlantic City casino to deposit and then withdraw over $500,000 in cash. This individual, at that time, had no apparent legitimate source of income.

While these specific instances of money laundering are significant in and of themselves, they are really only the tip of the proverbial iceberg. At the present time, the division of gaming enforcement's review of cash deposits at Atlantic City casinos indicates that cash flows through casinos at a rate much faster than through most branch office banks. Furthermore, our investigations have revealed a disturbing number of persons with criminal records and associations utilizing the present cash deposit procedures at Atlantic City casinos.

The division of gaming enforcement has been studying in detail the cash deposits of the nine Atlantic City casinos. For instance in June of 1983, over $28 million was deposited directly by patrons with the casino cages at the nine operating entities. Only those depositers who made cash deposits in excess of $10,000 were reviewed for possible criminal involvement. During that month, 356 individuals made direct cash deposits in excess of $10,000 at the Atlantic City casinos. Of these 356 depositers, 55 had serious criminal records involving such offenses as extortion, illegal gambling, bookmaking, narcotics trafficing, and income tax evasion. This represents an alarming 15 percent of the total number of cash depositers who had made large cash deposits during that one month period.

A second month, September of 1983, is currently under review. It is interesting to note that over $43 million was deposited with the casino cages at the nine Atlantic

City Gaming establishments during this short period of time. This represents a substantial increase from the $28 million deposited in June of 1983. Large cash depositers also increased significantly with 460 individuals depositing in excess of $10,000 for September of 1983.

When you see large cash deposits being made by so many people, you may rightfully speculate whether these funds represent legitimate after-tax dollars.

Our experience now makes it clear that present State regulations do not provide sufficient controls to effectively trace all money laundering activities in Atlantic City casinos. One such deficiency is the fact that casinos are not required under current State gaming law to verify indentification credentials of its cash depositers. At the present time, when a person makes a direct cash deposit at a casino cage, the cashier accepting the deposit must maintain a file for that depositer which contains their name, the date and amount of the deposit, and the date and amounts of any withdrawals or refunds. The cashier must also prepare a receipt form which includes the depositers name, the date and amount of the deposit, and the signature of the depositer. The casinos, however, do not have to obtain valid identification credentials or taxpayer identification numbers from the cash depositer. Likewise, no standardized verification procedures are required when withdrawals are made. This facilitates, if not encourages, the use of fictitious names and aliases, especially by persons intent upon illegal activity. As a result, we are in need of additional tools to enhance our efforts to trace the very kinds of financial transactions which deserve the strictest law enforcement attention and scrutiny.

As a step to enhance the State's ability to monitor and deter money laundering in Atlantic City casinos, I have instructed Director O'Brien of the division of gaming enforcement to propose regulatory amendments tightening current cash deposit and withdrawal procedures. Specifically, I have asked that there be a requirement that all cash depositers at the Atlantic City casinos produce proper identification credentials prior to the casino accepting their money for deposit and that such records be maintained and preserved.

The State of New Jersey would support any effort by the Federal Government to establish some sort of control mechanism so that the casino industry cannot readily be used as a convenient vehicle to shelter ill-gotten gains. Based upon the volume and the nature of cash deposits accepted by legal gaming establishments, a casino should come under similar controls as do financial institutions.

There is a tremendous underground economy in the United States, by its very nature, the casino industry is a channel for substantial amounts of cash passing through this underground economy. Of course, we cannot legislate human nature. For better or for worse, it exists and will continue to do so.

But we should take all steps necessary to insure that the rights and privileges of the vast and overriding law abiding segment of our society are not prejudiced and are not made to bear more than their legitimate share of the burdens of society. In that context, we maintain that there is indeed a strong governmental interest in monitoring large cash transactions and both the State and Federal law enforcement authorities should do all they can to deter the criminal element from using casinos as a handy tool and medium to conceal illicit profits and to evade the payments of taxes.

Thank you for your attention.

Mr. HUGHES. Thank you for a very excellent statement, General. If it's agreeable with you, what I'd like to do is take the testimony from your colleagues, and then we can get into questions from there.

General KIMMELMAN. Fine. That's OK.

Mr. HUGHES. Colonel Pagano, welcome.

TESTIMONY OF COL. CLINTON L. PAGANO, NEW JERSEY STATE POLICE DEPARTMENT

Mr. PAGANO. Thank you very much, Congressman Hughes. I'd like in advance of the text that we prepared for this presentation today, just to recognize, if I may, again my colleague on the right, and to remind your subcommittee that New Jersey, in advance, well in advance, of the advent of casino gaming, saw fit to recognize, because of problems that we've had, the need to develop