Mr. MCMULLEN. With our notice and publication requirements for State regulation, probably the earliest would be August, and we would hope to do that, at least in Nevada, and I think it would certainly be well within the 120 days given by Treasury, if I understand correctly that that is what they will allow for implementation of regulations.

Mr. HUGHES. And New Jersey?

Mr. BOYNTON. I would think that perhaps a little more lengthy timetable in New Jersey. August would really be a rather short time. We would require drafting of regulations and of course publication of comments and implementation. I don't believe the implementation would take long at all, and I would not presume to speak for the regulators also, but I think it could be done very speedily.

Mr. HUGHES. I gather that the State authorities have been working very directly with the industry. They are well aware of the proposals. I presume you have discussed the proposals with the State regulatory authorities so that they are conversant with the proposals.

Mr. MCMULLEN. Nevada is very conversant with them. We don't anticipate much time in terms of drafting for Nevada.

Mr. HUGHES. What about in New Jersey, Mr. Boynton?

Mr. BOYNTON. The division of gaming enforcement and the casino control commission are generally aware of our proposals. I think we have to really get down and discuss the specific implementation, and, as you may know, the commission has already published in the New Jersey Register a proposed regulation that would require positive identification of front money deposits.

So bits and pieces of this are already moving through the system. Mr. MCMULLEN. That is true in New Jersey. We think that some regulations are being held up so that it can include these and incorporate the provisions.

Mr. HUGHES. The gentleman from Michigan.

Mr. SAWYER. I have no questions, Mr. Chairman.

Mr. HUGHES. It is my intention to communicate-and I presume the Treasury will, too-to the authorities that oversee gaming in the three jurisdictions, so that they are aware of the regulations and some of the concerns, and we will attempt to furnish them with some of the concerns that have been expressed at this hearing and some other expressions of concern that we have seen.

I just want to conclude by saying that I think that the industry has acted very responsibly. I know we had some difficulties early on because the industry, I think, feared that a public disclosure would not be in the industry's interest, but I think that the industry does have a story to tell, and I think that they have done it admirably.

We have seen tremendous progress in the last few months, and I just want to commend the industry. I think that the 15 points that you have advanced is a major step in the right direction.

I personally prefer to see us rely upon the States handling the regulatory authority; they are already equipped to do so. As long as we receive the information, I see no need for us to try to duplicate that recordkeeping, as long as we are able to close the loophole and

develop the kind of relationship, which I see coming out of these negotiations and hearings.

I am very hopeful that we can implement something within the next few months. I think it's clear that we need your help, that even though we may develop regulations, there are all kinds of exceptions.

Obviously, when you start talking in terms of arbitrary standards of $10,000, there are all kinds of devices to avoid the reporting and other requirements, so it is going to be incumbent upon a vigilant industry, really, to work with the authorities in developing a system that will get us the information.

I am convinced that you folks don't want the drug traffickers or organized crime officials. They are bad news for you, they give you a black eye, and they don't provide the economic and other rewards that you seek. So I'm convinced you have every reason to cooperate, and I'm just delighted that we have come the distance that we have come in just a few short months, and I commend you for that effort.

Mr. MCMULLEN. Thank you.

Mr. BOYNTON. Thank you.

Mr. HUGHES. Thank you very much. The hearing stands adjourned.

[Whereupon, at 1:35 p.m., the subcommittee was adjourned.]

ATTACHMENT G

DEPARTMENT OF THE TREASURY,
Washington, DC, October 13, 1983.

The Honorable THOMAS H. KEAN,
Governor of New Jersey, Trenton, NJ.

DEAR GOVERNOR KEAN: I am writing this letter pursuant to a recent telephone conversation with Greg Stevens of your staff regarding a regulation which the Treasury Department proposes to implement in the near future which would designate casinos as financial institutions under the Bank Secrecy Act.

There is increasing evidence that casinos in Nevada and Atlantic City are being used to facilitate the financial transactions of drug traffickers, organized crime figures and major tax evaders. Casinos perform many services similar to those rendered by banks. Among these are the following: they sell and cash money orders and travelers checks; cash personal and corporate checks; exchange currency; extend credit; issue cashier's checks and provide safe deposit boxes.

At the present time casinos are not subject to the reporting and recordkeeping requirements of the Bank Secrecy Act. Under this Act banks, savings and loans, credit unions, currency exchanges and brokers and dealers in securities are required to report all cash transactions in excess of $10,000 to the Treasury Department and also to maintain certain records of their business dealings for specified periods of time. These requirements have been determined to have a high degree of usefulness to the Treasury Department in criminal, tax and regulatory matters.

Gambling casinos have been used in a number of instances as substitutes for other financial institutions by narcotic traffickers, organized criminals and other major violators in order to avoid the reporting and recordkeeping requirements of the Bank Secrecy Act. In so doing these individuals have been able to launder large amounts of currency through casinos. Some examples of this type of activity are listed as follows:

Five defendants were indicated in Las Vegas in March, 1983 for using the Royal Casino and foreign bank accounts to conceal the source of $16 million in illegal drug profits. The defendants include the casino owner and its general manager. This case will go to trial in the very near future.

Jimmy Chagra, a major drug trafficker from San Antonio, was a heavy gambler in Las Vegas. He moved millions of dollars through the casinos there during the period 1975-1979. In one instance he paid off a gambling debt with $915,000 in cash.

Reports of his cash transactions at casinos could have been very useful to law enforcement officials.

Antonio Cruz Vasquez was a major heroin distributor in the New York and New Jersey areas. Testimony during his trial in New York indicated that he lost almost $3 million in gambling during a 2-year period in Las Vegas which ended in December 1977. He had a $700,000 line of credit at a major casino. He brought large amounts of cash into the casino. Reports of his cash transactions at casinos would have been very helpful to law enforcement officers.

Joseph Richardson was a major heroin trafficker in Washington, D.C. He made cash deposits and withdrawals of over $1 million at Atlantic City casinos during a four-month period in 1982. He also used the casino to transfer funds to an account in the Cayman Islands. Richardson was laundering money in these casinos.

Maurice D. "Peanuts" King was a heroin trafficker from Maryland. He laundered cash through several New Jersey casinos. Following his arrest in 1982 $130,000 in cash was seized in a safe deposit box. This currency was in stacks of $5,000 in $100 bills wrapped with casino bank wrappers from Resorts International in Atlantic City.

Richard Mamarell is an insurance fraud scammer who moved approximately $350,000 in cash in and out of five Atlantic City casinos in 1982.

These cases illustrate the point that narcotic traffickers and other criminals are utilizing casinos to launder cash and evade the reporting requirements of the Bank Secrecy Act. Numerous other cases can be cited. To combat this loophole the Treasury Department is considering the issuance of a regulation which would designate casinos as financial institutions under the Bank Secrecy Act. Pursuant to this regulation we intend to impose reporting and recordkeeping requirements on casinos similar to those currently imposed on banks and other financial institutions. Under these requirements casinos would have to fill out a Currency Transaction Report for all cash transactions of more than $10,000. Recordkeeping requirements would also be imposed. I do not believe that the recordkeeping requirements would pose an undue burden because state and local laws together with regular business practices require casinos to maintain almost all of the records that we would want.

It is my belief that the regulation which the Treasury Department proposes to issue is a positive law enforcement step which will assist law enforcement efforts against organized crime and major drug traffickers.

I am enlisting your support in this matter and would appreciate a reply expressing your views on this proposal. If you have any questions, need any further additional background information about this matter or would like to meet in person to discuss it please feel free to call me on (202) 566-2568 or Deputy Assistant Secretary for Enforcement Robert Powis on (202) 566-5054.

Assistant Secretary, Department of the Treasury, Washington, DC.

DEAR MR. WALKER: This is to inform you that my administration supports the Treasury Department's proposal to designate casinos as financial institutions under the Bank Secrecy Act.

I am in full accord with efforts that assist the Treasury Department and law enforcement agencies in minimizing illegal activities, particularly on the part of organized crime, in New Jersey casinos. It would certainly appear that a designation of casinos as financial institutions under the Bank Secrecy Act would assist in reaching that goal.

Once again, Mr. Walker, thank you for bringing this to our attention.

Sincerely,

THOMAS H. KEAN,

Governor.

The Honorable WILLIAM J. HUGHES,

GOLDEN NUGGET, Atlantic City, NJ, February 8, 1984.

Member of U.S. Congress, Cannon House Office Building, Washington, DC.

DEAR CONGRESSMAN Hughes: I had previously indicated my willingness to testify before your Subcommittee on Crime at its hearing on the use of casinos to launder the proceeds of organized crime and drug traffickers. However, in trying to prepare for the hearing it has become apparent that there is little I can contribute to the hearing at this point.

It is most difficult to address the issue with which your hearing is concerned from our perspective unless or until there are specific allegations that can be addressed. I am not aware of any instances of alleged laundering of funds in our casino and I believe that our policies and procedures make it unlikely that we would be the victim of such an effort. I say victim because we would not willingly aid a drug trafficker or other criminal in laundering funds and we would therefore be the victim of any effort to use our business for their benefit.

I will be surprised-and disappointed-if your hearings produce tangible evidence of use of Atlantic City casinos to launder illicit drug funds. The only facts alleged, which if true would constitute laundering, of which I am aware, arose in a wellpublicized case involving a small Las Vegas casino.

If casinos were used for laundering in other than isolated cases, I am sure it would have come to the attention of the U.S. Senate Drug Enforcement Caucus which held hearings last year on drug trafficking.

Speaking before the Senate on January 30th of this year, Senator Hawkins, Chairman of the Senate Drug Enforcement Caucus said: "Drug money is laundered through legitimate businesses set up as 'fronts' for drug dealers. The profits are then plowed back into the drug business, just as in a legitimate major enterprise. Increasingly, some of the profits are actually invested in legitimate businesses, including real estate in Florida, restaurants in California, and other businesses across the nation.'

I hope your Subcommittee will carefully examine claims by law enforcement that casinos are used to launder illegally generated money, and not merely accept conclusionary statements that funds were laundered. I believe you will find few, if any, factual situations where "dirty" money is brought to a casino and in some manner exchanged for "clean" money that is taken from the csasino, cleaned up and untraceable to an lilicit enterprise.

If, however, your committee finds evidence of laundering that requires additional law enforcement tools, we believe the state gaming control agencies can devise regulations to prevent laundering. We would appreciate it if the record could remain open so that we can review the testimony and determine if we can provide additional information that would be helpful to your Subcommittee.

After making repeated efforts to prepare a statement on the subject of your hearing, without having any specific allegations to respond to, it became obvious that at this point in your investigation of the subject, there was little of value I could contribute. Because I can contribute little to your hearing and because I have a previous obligation requiring my presence in another city-which I was willing to miss when I thought I could make a meaningful contribution-I would ask to be excused so that I can attend to that obligation and ask you to accept this letter, which contains the substance of any testimony I would give if present, as part of your record in this matter.

Respectfully,

SHANNON L. BYBEE, Jr.,
Senior Vice President,
Golden Nugget, Inc.

CONGRESSIONAL RESEARCH SERVICE,

THE LIBRARY OF CONGRESS, Washington, DC, January 24, 1984.

To: House Judiciary Committee, Subcommittee on Crime, Attention: Eric Sterling. From: American Law Division.

Subject: Gambling_Casinos as "Financial Institutions" under the Definition of the Currency and Foreign Transactions Reporting Act.

This will respond to your request for assistance in preparing for hearings on the Currency and Foreign Transactions Reporting Act. Specifically, you asked for an examination of the legislative history of that Act to determine whether gambling casinos could be interpreted to fall within the definition of "financial institution" so as

to trigger reporting requirements should the Secretary of the Treasury so desire.1 Our examination of the statute and its legislative history has revealed no language suggesting that casinos were specifically considered for inclusion in that definition. Congress passed the Currency and Foreign Transactions Reporting Act (Title II, Pub. L. 91-508, 84 Stat. 1118, 31 U.S.C. 5311 et seq.) in 1970 to assist in tracking financial resources associated with criminal activities and to aid investigation regarding the use of foreign bank accounts to conceal the profits derived from such activities. The Act declares its purpose: "to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings." (31 U.S.C. 5311). The Act, commonly referred to as Title II of The Bank Secrecy Act (84 Stat. 1114), requires, inter alia, reports of cash transactions of an amount or denomination specified by the Secretary of Treasury (hereinafter, "The Secretary"). This requirement, as codified in 1982 (Pub. L. 97-258, 96 Stat. 995), reads in part:

2

31 U.S.C. 5313.-When a domestic financial institution is involved in a transaction for the payment, receipt, or transfer of United States coins or currency (or other monetary instruments the Secretary of the Treasury prescribes), in an amount, denomination, or amount and denomination, or under circumstances the Secretary prescribes by regulation, the institution and any other participant in the transaction the Secretary may prescribe shall file a report on the transaction at the time and in the way the secretary precribes. A participant acting for another person shall make the report as the agent or bailee of the person and identify the person for whom the transaction is being made. .

The Supreme Court, in California Bankers Assn. v. Shultz, 416 U.S. 21 (1974), said: "Congress felt that there were situations where the deposit and withdrawal of large amounts of currency or of monetary instruments which were the equivalent of currency should be actually reported to the government. While reports of this nature had been required by previous regulations issued by the Treasury Department [under the Trading With The Enemy Act, 40 Stat 411, as amended, and the First War Powers Act, 55 Stat. 839], it was felt that more precise and detailed reporting requirements were needed. The Secretary was therefore authorized to require the reporting of what may be described as large domestic financial transactions in currency or its equivalent" (at 27).

Whether gambling casinos are, or can be made subject to these reporting requirements would seem to depend largely on interpretation of the definition of "financial institution" included in the law. Unless casinos can be found to be "financial institutions" the Secretary would not appear to have authority under this statute to require them to report transactions. The definition of a "financial institution" as used in 31 U.S.C. 5313 is found at 31 U.S.C. 5312(a)(2), and includes twenty-one types of institutions:

(a) An insured bank (as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h));

(b) A commercial bank or trust company;

(c) A private banker;

(d) An agency or branch of a foreign bank in the United States;

(e) An insured institution (as defined in section 401(a) of the National Housing Act (12 U.S.C. 1724(a));

(f) A thrift institution;

(g) A broker or dealer registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.);

(h) A broker or dealer in securities or commodities;

(i) An investment banker or investment company;

(j) A currency exhange;

(k) An issuer, redeemer, or cashier of travelers' checks, checks, money orders, or similar investments;

(1) An operator of a credit card system;

(m) An insurance company;

(n) A dealer in precious metals, stones, or jewels;

1 For a discussion of allegations regarding the laundering of money through gambling casinos, see "Using Loophole in Treasury Rule, Casinos Said to Help Launder Illegal-Drug Money," The Wall Street Journal, Mar. 17, 1983, at 14.

2 The sections under discussion here were not substantially changed by Public Law 97-258 which codified title 31 of the United States Code. See H. Rept. 97-651, 97th Cong., 2d Sess. 172 (1982).