ing the type of information to be recorded in the log, could be accomplished at the State level.

I would like to make it clear that the regulatory authorities in New Jersey are willing to expand the scope of State regulations concerning currency transactions in all Atlantic City casinos.

Furthermore, as we have in the past, we will continue to work closely with the Nevada Gaming Board to coordinate the respective State efforts, and to the extent possible, arrive at a uniform solution for the problem.

I hasten to point out, however, that the effectiveness of our regulatory approach to this problem depends, to a large extent, upon the commitment of the casino industry to not only support us in having our new regulations adopted, but also by giving 100-percent cooperation and compliance thereafter.

We expect that the industry will respond accordingly. I thank you for your attention.

[Complete statement of Mr. O'Brien follows:]

STATEMENT OF THOMAS R. O'BRIEN

Congressman Hughes, Members of the Subcommittee, I, too, appreciate the opportunity to appear at this hearing and, as you will see, I share the views of Attorney General Kimmelman that we must increase our vigilance to prevent the use of casinos by criminal elements to further their illegal ends.

I would like to begin by briefly commenting on the nature of the criminal element that we are dealing with in the laundering of money through casinos, The Attorney General has described some of the more noteworthy cases. However, as he has pointed out, they are only the tip of the iceberg. It is the less significant cases that present the law enforcement community with its stiffest challenge, Why? Because, as you might suspect, most money launderers are sophisticated criminals. They do not announce to the casino their criminal intent. Rather, they deliberately attempt to create an aura of legitimacy to their use of the legalized gambling establishments. Many money launderers actively seek the status of a "high roller" and they expect to be treated as such by employees at the casinos they patronize. In order to create this trail of legitimacy, the sophisticated money launderer is willing to risk a certain percentage of his illicit profits before the laundering process is completed. The point to be made is that in the area of money laundering, the law enforcement community is dealing with a very difficult problem of detection. In other words, it is not easy to trace the "process" of money laundering, although we have had some success in this area. For example, in one instance, deposits in excess of two million dollars were traced by the Division of Gaming Enforcement and State Police personnel to a well known bookmaker with interstate organized criminal connections. An alias had been used to hide this individual's true identity. In other cases, we have been able to link fictitious accounts with people who have similar backgrounds and, in fact, we are working on a number of such investigations at this time.

But this brings us to the central focus of today's public hearings. What steps can be taken to most effectively aid State and federal authorities in the difficult task of detecting money laundering activity? On the one hand, are federal regulations bringing casinos into the purview of the Bank Secrecy Act the best solution to the problem? Or, on the other hand, would expanded State regulation requiring additional record keeping and record reporting of large currency transactions between a casino and its patrons be more effective or is a combination of approaches desirable. There are presently five kinds of currency transactions which will be captured by the CTR's. The most common, of course, are the deposits of front money and the withdrawals of front money by patrons. Both of these transactions are presently covered by State regulations and will be more effectively controlled by our proposed changes. The third type is a normal exchange of currency for currency, which does not appear to be common, nor used to any great extent by criminal elements. Exchanging currency for chips is a transaction that can occur only over the gaming table and since, by itself, provides no benefit to the patron, should perhaps be excluded by the CTR's. The benefit is only reviewed when the chips are exchanged for

currency and that can occur in Atlantic City only at the cage and can therefore be monitored.

The Division of Gaming Enforcement has reviewed current casino cage procedures at the nine operating casinos in Atlantic City pertaining to exchanges of currency for currency or gaming chips for currency. With the exception of one establishment all casinos in Atlantic City maintain some form of a currency exchange log at their casino cage for internal management purposes. At the present time, the primary purpose for such a currency exchange log is to enable the casino to monitor its own credit players to ensure that cash is not going out the door while outstanding markers are remaining unpaid.

Requiring such a log to be maintained at the casino cage for purposes of documenting large cash transactions and then standardizing the type of information to be recorded in the log could be accomplished on the State level.

I would like to make it clear that the regulatory authorities in New Jersey are willing to expand the scope of State regulations concerning currency transactions in Atlantic City casinos. Furthermore, as we have in the past, we will continue to work closely with the Nevada Gaming Board to coordinate the respective State efforts and to the extent possible, arrive at a uniform solution to the problem.

I hasten to point out, however, that the effectiveness of our regulatory approach to this problem depends, to a large extent, upon the commitment of the casino industry to not only support us in having our new regulations adopted but also by giving 100 percent cooperation and compliance thereafter.

Thank you for your attention.

Mr. HUGHES. Thank you very much, Mr. O'Brien.

First, let me just ask you, attorney general, or perhaps Colonel Pagano, if I understand Mr. O'Brien correctly, even if you were to tighten the existing regulations, that would not stop the conversion of cash, which was involved in every one of the transactions you referred to, cash involved, into chips, which takes place at a gaming table.

Your present procedure would not catch that.

Mr. O'BRIEN. That's correct, Congressman Hughes. The transaction that occurs at the table is totally unreported.

Mr. HUGHES. It's only those transactions that are conducted at the cage where cash is deposited, where there is any record made, and that was a record for internal control, basically.

Mr. O'BRIEN. Yes, that's correct. Now, once the money is put into the drop box at a table, it is mixed with all other cash, and could not be successfully traced.

Mr. HUGHES. So, in essence, I could walk up to the cage and say I'm George Washington, and deposit a sum of money, and go over to one of the tables, convert that to chips, walk back to the cage, identify myself as George Washington, and walk out.

Mr. PAGANO. You'd never get away with a George Washington. Mr. HUGHES. Believe it or not, we have a George Washington in the area.

General KIMMELMAN. But, the answer to that is yes. Yes, it's very easy.

Mr. PAGANO. But, the regulation that is proposed would certainly tighten the situation when George Washington came to the cage. We'd be certain that George Washington was there.

Mr. HUGHES. But, you identify the individual.

Mr. PAGANO. Sure.

Mr. HUGHES. What type of identification are you talking about? I mean, today, you can buy your own Social Security card, illegally, of course or▬▬

Mr. PAGANO. I think, as I pointed out in my testimony, no matter what the regulation may be, Federal, State, or otherwise,

there is always the possibility for exploitation. Phony identification, things of that sort.

But, I do believe that the way that we've developed our control system here, that in a good number of the cases, we would recognize the fictitious identification, and beyond that, the very inhibition of identification per se would be valuable.

Mr. HUGHES. So, you could technically walk over to one of the crap tables, convert $20,000 into chips, walk back to cash those chips in after playing for a little while, and that particular transaction is not recorded under existing procedures?

Mr. O'BRIEN. Yes. The transaction at the table certainly is not recorded.

Congressman, this problem exists today also in the area of credit, and we have discussed at length that identical problem with different overtones, of course, and have attempted to come up with ways where that could be monitored.

In fact, there is a burden placed on the casino industry to monitor those kinds of transactions, so that an individual who, for instance, in the credit context, takes that kind of credit at the table, cannot cash in the chips at the cage, and then leave the casino, and leave that debt unpaid.

The problem would be very similar in the situation that you are referring to.

Mr. HUGHES. Are you looking at the possibility of monitoring at the time of cash in of chips, a record of large transactions?

Mr. O'BRIEN. Yes, sir. We are very much.

Mr. HUGHES. That's one of the procedures that you're looking at as a possible way to close some of the loopholes?

Mr. O'BRIEN. Exactly, and that will take care of the table transaction, because that's only the first end of the entire transaction. The chips are no good to anybody until they are transferred or exchanged for cash at the cage. So, we monitor the cage end, we think we would be able to handle that transaction.

Mr. HUGHES. Are you able to determine from the records being kept at the casinos those instances where cash is converted to checks, other bank drafts, electronic transfers, to banks domestically or other financial institutions, or overseas?

Mr. O'BRIEN. Yes, sir. They are exactly the kind of transactions that we have been monitoring as the attorney general referred to in the June report, now in the September report.

We are doing an analysis of all those transactions. The problem area, as we see it, lies in the identification of the individuals involved in those transactions, and we feel that if we tighten up the identification and the verification of that identification procedure, we will then have a much better handle on the situation.

Mr. HUGHES. You've described a number of instances where laundering took place, by name, in fact. Do these individuals actually come in and give their right name, or pursuant to an investigation, you identify them finally as those individuals?

Mr. DINTINO. Both, both. Generally, though-

Mr. HUGHES. That reminds me of the-you know, we have a little form that people that buy firearms have to fill out at the Federal level. You walk in and the first two questions are, do you have

a criminal record? The second question is, if you have a mental history? They've got to be crazy if they answer either one of them yes. General KIMMELMAN. Right.

Mr. HUGHES. And, that's basically what you're dealing with.

Mr. PAGANO. Except even using that as an example, Mr. Hughes, New Jersey has been successful in the gun area, in dissuading a good deal of that activity, and I think that if you were to take that logic and extend it to what the attorney general and Tom O'Brien have presented, that it could be effective, and it would be a definite inhibitor.

Mr. HUGHES. So, if I understand the sum and substance of your testimony, it is, No. 1, that money laundering is a problem. It's a serious problem. That you can't get a handle on the exact dimension, but we know it's a growing problem in the casinos.

That there should be a response, Federal and State response, to deal with it.

General KIMMELMAN. Yes, that's correct. Now, just to go back one second, Congressman, sometimes we don't even know the names because I gave you an instance where stacks of $100 bills were wrapped in a wrapper from one of the casinos.

Now, you know that the ransom money was filtered through a casino or the extortion money, but you don't know by whom and you don't know the names that were used. But you saw the money coming from a casino.

So, you can only come up with one conclusion, in those instances that we know, yes, the individuals did use their name.

Mr. HUGHES. Colonel Dintino, maybe you can tell me, can you give us some idea of any differences that might exist between the casinos and their operations in New Jersey and Nevada? Any significant differences that would be of assistance to us?

Mr. DINTINO. Let me try to answer that in this respect, Congressman. We, in New Jersey, have nine casinos. And, the study that we have done here involved 1 month.

Nevada has over 200 casinos, and they have been in business over 50 years. I agree with your summary that what you have seen is the problem, and after listening to the prepared statements, I think one's imagination will only have to assume that Nevada must have a similar problem as New Jersey. I don't think-—

Mr. HUGHES. You have no direct information, however? OK.

Let me ask you about the study on cash deposits. Can you tell us and share with us any insights into what limitations that you might have had in those particular findings that we should consider, apart from the time constraints and what have you?

Mr. DINTINO. I believe that the attorney general has specified it in his prepared statement, and the limitations would be, first, identification of the individuals.

You make a good point. Why should some of these individuals use their right names? I think as a result of these hearings, I think you're going to see less individuals using their right names.

I think, in the past, they didn't feel any danger that they were going to be exposed anytime, because nobody was checking anything. But I think that now it's been highlighted, I think the identification of individuals is a key area.

I think that's the limitation to study. I think that incomplete casino records is another limitation to study, and inconsistent casino records is a limitation to study.

Mr. HUGHES. Thank you.

The Chair recognizes the gentleman from Wisconsin.

Mr. SENSENBRENNER. Thank you very much, Mr. Chairman.

Let me commend the witnesses for setting forth a very clear and convincing case that additional transaction reporting at both the State and Federal levels are necessary if we are to get a better handle on this problem.

Mr. Hughes has pointed out the problem of phony ID's which is a major problem in our society, and which is very difficult to correct, particularly since not every State requires a picture ID on the driver's license and the like.

I'd like to talk about the Federal aspect of this business. One specific proposal is to bring casinos under the currency transaction reporting laws, which only requires the filing of currency transaction reports when over $10,000 of currency is transferred from one party to another.

Now, most of the cases that you all have cited in your testimony indicate that the amount of currency that has been placed on deposit in the casino is less than $100,000, and usually substantially less than $100,000.

If Congress should change the law as is being proposed by the Treasury Department, what's to stop an organized criminal element from simply establishing a less than $10,000 account at each of your nine casinos, and presumably the same type of account at each of the 200 casinos in Nevada?

General KIMMELMAN. Right, Congressman. The question is, where do you draw the line?

The $100,000 can be divided into 12 separate transactions over 9 casinos, very simply, and it would escape detection, if the reporting requirement were limited to $10,000 or more.

Mr. SENSENBRENNER. That's what we do for banks because I have the form that the IRS requires banks to file when there is a transaction of $10,000 or more, and it does require some minimal checking of identification and reporting either a driver's license, a passport or an alien identification number, but the forgeries of all of those kinds of items are legion, and it seems to me that one only needs to wait a day or so to get a passport or a driver's license with a safe name and a different Social Security number.

One further question that I'd like to ask, is there any type of computer matching up of transactions that are reported presently under State law by law enforcement officials at the State level to try and glean some information out of that?

Mr. O'BRIEN. In response to that question, Mr. Sensenbrenner, we do have the requirement, as I mentioned, that the casino maintained a log, a cash transaction log. In certain instances, that information is placed on a computer run.

All that information is available to the Division of Gaming Enforcement for analysis. We are presently in the process of taking this information and running it through our computers to make effective analysis of it.

Mr. SENSENBRENNER. OK. Thank you very much, Mr. Chairman.