BC Inquiry: Regulator Failed to Enforce Reporting Compliance

The gambling regulator in British Columbia (BC) failed to enforce compliance with reporting requirements related to suspicious cash transactions for casinos, the former director of BC Lottery Corp told the inquiry into money laundering in the province. In February, the government in the Canadian province launched an investigation of its own into money laundering related to the gambling industry which possibly led to a significant distortion of the regional economy.

Failure to Report Large Cash Buy-Ins

John Karlovcec, the former director of the regulatory body in the province, the BC Lottery, told the inquiry members Friday that one of the largest casinos in BC, River Rock Casino, did not always report suspicious cash buy-ins, citing two occasions of CAD$450,000, one of which should have triggered particular scrutiny due to it being made entirely in $20 bills.

In addition to failing to report suspicious transactions during times when cash buy-ins were common for the industry, River Rock and the other casinos used to resist measures aimed at improving anti-money laundering (AML) controls, if they impeded on the casinos’ high-rollers, the inquiry was told.

Karlovcec further noted that the regulator’s primary focus was to make sure suspicious transactions were reported to Canada’s financial transaction reporting center, FINTRAC, and he personally did not believe reporting non-compliance practice was systemic, pointing to his good relationship with personnel responsible for compliance and regulatory affairs at casinos.

The former director of BC Lottery stated it was not within the regulatory remit of the lottery corporation to demand from casinos to refuse cash buy-ins or investigate whether cash was the proceeds of criminal activities. Admitting that BC Lottery, in certain circumstances, made more mistakes than it would have wanted to, Karlovcec stressed that anything they identified and addressed was submitted to the federal regulator.

Other Cases of Suspicious Cash Transactions

Asked by the counsel for the BC government, Kaitlyn Chewka, about cases of failures to report suspicious transactions at River Rock relating to a 2011 e-mail from an investigator from the BC Lottery, where the casino had failed to report cash transactions under $50,000, especially buy-ins of $49,960 and $49,980 in $20 bills, Karlovcec agreed such a reporting threshold was in violation of FINTRAC’s requirement to report cash transactions of $10,000 and above.

Regarding another case of suspicious cash buy-ins at River Rock, where a patron had bought for $1.8 million over just seven days, paying largely in small bills, the former director of BC Lottery agreed it was suspicious and the regulator reported the transaction to FINTRAC, BC’s gaming policy and enforcement branch, as well as the police.

Another suspicious observation from the regulator related to 2014, when the lottery noticed players at River Rock were not cashing out their chips as more chips were outstanding, but it was virtually impossible for both the casino and the regulator to track chips leaving the premises, despite rules preventing chips from the casino being used at other gaming establishments.