A rush among states to get sports gambling into casinos, race tracks, and other venues following a May 14 U.S. Supreme Court decision means banks are going to have to be extra vigilant about potential money laundering risks as new waves of cash roll in.
Banks, particularly those that already do business with casinos and race tracks, should already have appropriate controls in place to monitor for suspicious transactions coming out of gambling houses. Casinos and other gaming institutions already have their own anti-money laundering and Bank Secrecy Act requirements, as well.
But the added business they are expecting to see could overwhelm their existing systems, experts say.
Banks are going to have to be extra vigilant to make sure their new bets don’t go bust, said Gregory C. Lisa, a former interim director at the Financial Crimes Enforcement Network, a Treasury Department agency that monitors the financial system.
“What a lot of them will do in a situation like this, if someone opens up sports gaming, is that banks will probably become more demanding in their expectations — essentially becoming a quasi-regulatory presence to ensure that the casino is maintaining high standards of compliance,” Lisa, now a partner at Hogan Lovells LLP, said in a May 16 interview.
The Supreme Court’s decision in Murphy v. National Collegiate Athletic Association overturned a decades-old law that barred gambling on sports in all but a handful of states, including Nevada.
Several states are already moving ahead. New Jersey, which filed the lawsuit that led to legalized sports gambling, and Delaware are looking to get operations running as early as June.
Other states, including Mississippi and West Virginia, are also ready to roll on allowing betting on sports, and other states, such as New York, are looking to pass legislation in the coming months.
Big money is at stake. Research firm Eilers & Krejcik Gaming LLC estimates that legal gambling on sports could soon come to 32 states and become a $6 billion industry by 2023, according to a May 14 report.
With states moving so quickly, the regulatory environment is going to be unsettled for a while.
Most states already have a licensing and inspection regime for casinos, and those businesses are required to comply with FinCEN reporting rules as well. States are already passing legislation that would extend that monitoring to the sports betting operations as well, including a bill introduced in New Jersey’s legislature just hours after the Supreme Court’s decision.
Casinos and racetracks are going to have to move quickly to catch up, Kevin Braine, a London-based managing director at Kroll Experts who specializes in anti-money laundering and other monitoring efforts, told Bloomberg Law.
“What will happen is that there’s going to be a bit of a crunch and rush to staff up the type of AML and compliance specialists that are going to be needed to handle the level of revenues from this newly opened sports gambling market,” Braine said in a May 17 phone interview.
While casinos and racetracks will have to beef up their compliance staffs to ensure their new sports gambling windfall is free of attempted game-rigging or money laundering, banks should have resources on hand.
They will have to review their own policies and procedures to make sure they are up to snuff, Nicole Sprinzen, a partner at Cozen O’Connor LLP who advises clients on anti-money laundering and Bank Secrecy Act compliance, told Bloomberg Law.
“It’s basically going to be within their compliance departments. They’re going to want to review the programs that they have,” she said in a May 18 phone interview.
Although their own systems should be ready to handle an influx of sports gambling-related dollars, banks are going to have to make sure that the casinos and other companies they do business with are in a similar position in order to avoid getting tagged by regulators.
That means doing their own reviews of business partners’ compliance efforts in order to prevent dirty money from flowing into their bank accounts, Lisa, an adviser to the Institute for Certified Gaming Industry Professionals, an anti-money laundering consultancy for the casino industry, said.
“Ultimately, if I’m a bank, I say there’s a lot of money there, and we’ll expect that a good share of that money gets devoted to compliance,” he said. “We’re going to be checking resumes of compliance officers, and interviewing them. We’re going to do spot visits. We’re going to do transaction testing.”
Not all banks provide services to casinos, in part due to the risks to their reputations and the potential for money laundering, Lisa said.
Both Braine and Lisa said that those banks that already do so, as well as those operating in the United Kingdom and other countries where sports betting is already legal, will have a bit of an edge both in their ability to oversee compliance at gaming operations and comfort with the industry.
The U.S. is going to be a different beast because the rules for sports gaming and examinations of those operations will be set on a state by state basis, they both said.
Although there is some experience in Nevada, each state is likely to take their own approach to the industry, Braine added.
“What will happen is a sort of arms race of the regulators, who will build up their capacity to monitor an industry that could sprout up overnight,” he said.
But in the end, the potential windfall that banks could see from sports gambling may outweigh the risks that the young industry presents.
“They’ll say we’re not thrilled with this risk and we’re going to put significant demands on casinos to address the risk, but this is not a year-three opportunity horizon. This is happening now,” Lisa said.
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