Organized crime a 'viable threat to public safety' in B.C. casinos: 2017 gov't report

SAM COOPER 
More from Sam Cooper

Published on: October 7, 2017

The presence of organized criminals in casinos is “a viable threat to public safety,” the B.C. government was warned in an April internal memo obtained by Postmedia.

The memo — sent to John Mazure, B.C.’s assistant deputy minister in charge of the gaming enforcement branch — sheds light on the level of awareness in the government of how money laundering in casinos could pose a danger for both B.C. residents and the provincial economy.

The high-level warning and other internal documents about the growing scandal in B.C.’s casino sector were obtained in a freedom of information request by Postmedia.

“The gaming policy enforcement branch intelligence unit reports that organized crime presence in and around B.C. casinos presents a viable threat to public safety,” the April 2017 memo says.

The memo was written by Len Meilleur, the gaming enforcement branch’s director of compliance. It refers to RCMP and B.C. Lottery Commission investigations that led to allegations that “illegitimate lenders” associated with organized crime are lending cash earned through crime to VIP gamblers, with drop-offs in B.C. casino parking lots.

After a series of redacted paragraphs, Meilleur’s memo said: “This information is proving well founded within the current investigation and these subjects have been identified as threats to public safety … because of their involvement in a wide array of criminal activity.”

Documents also say that evidence provided by police to the BCLC suggests organized crime’s laundering of money through casinos and thus into B.C.’s economy is “substantial.”

These documents refer to RCMP investigations, which Postmedia has reported on exclusively. RCMP investigators and B.C. government documents allege that an underground banking network with links to China is connected to organized crime. That network is accused of using an illegal money-transfer business in Richmond to lend suspected drug-dealer cash to high-roller Chinese gamblers recruited from Macau. These so-called “whale” gamblers then used huge wads of small bills to buy chips, mostly at River Rock Casino.

(T)hese subjects have been identified as threats to public safety … because of their involvement in a wide array of criminal activity

Internal documents written between 2015 and 2017, and obtained by Postmedia, show that B.C. is an outlier on casino money laundering in Canada. They show that a tiny portion of ultra-wealthy VIP gamblers from China account for a significant part of B.C. casino revenues.

The BCLC tried to limit opportunities for drug cash to enter casinos, but gamblers may have already found ways around the agency’s “patron gaming fund” system.

The new documents reveal that in 2016 then-finance minister Mike de Jong was warned River Rock Casino was allegedly under-reporting suspicious and large cash transactions “contrary to federal regulations and BCLC policy.” De Jong was warned money laundering concerns could open the B.C. Liberal government to criticism for deciding in 2009 to disband B.C.’s integrated illegal gaming enforcement team.

The bottom line in Meilleur’s April memo is that provincial officials must understand how severe is the threat posed by casino money laundering.

Meilleur’s report says money laundering is essential to the growth of organized crime groups in B.C. and is allowing organizations to “foster their criminal activity and expand criminal operations.”

“More should be done … regarding money laundering and the relationship between organized crime, illegitimate lending and casinos,” the memo says. “Further, the highest-level investigations should be conducted targeting the integration of proceeds of crime into the economy through our casinos.”

Documents that back up Meilleur’s memo indicate that reports of suspicious transactions filed by BCLC with Fintrac, Canada’s anti-money-laundering agency, exploded after 2010.

In 2010-11, BCLC reported 491 suspicious transactions to Fintrac; in 2011-12 there were 837; in 2012-13 there were 939; in 2013-14 there were 1,254; and in 2014-15, there were 1,737 suspicious transactions reported to Fintrac, the documents say.

In a stunning indication of how much dirty cash could be rolling into B.C. government coffers through its take from casinos, suspicious currency transactions accounted for $176 million in 2014-15. That was 10 per cent of total gambling revenues in B.C. casinos, the documents say.

B.C.’s gaming enforcement branch is now worried that after a dip in suspicious transactions in 2016, they are trending back up this year.

“Even the number of suspicious transactions filed in the lowest years is still a cause for concern and is not experienced … by any other jurisdiction in Canada,” documents say.

Casinos in B.C. have apparently focused mostly on accepting cash in exchange for chips, making “little effort to confirm the source of cash,” documents say.

Documents say B.C.’s gaming enforcement branch “remains concerned” that B.C. casino operators, “for the most part accept the cash and BCLC reports it to Fintrac. The business model does not include an assessment of whether the cash should be refused.”

Documents say that BCLC believes a reduction in 2015 in suspiciously large cash transactions was because of efforts to shift high-roller Chinese VIPs into “patron gaming funds” and actions by the Chinese government to reduce capital outflows from China.

But problem gamblers appear to have found a way around the patron gaming funds. These casino deposits rely almost exclusively on bank draft deposits and a small number of whale gamblers. For the first half of 2016, the top 10 patrons — of a total 387 patron gaming fund users active in that period — accounted for 47 per cent of the $301 million total gaming fund deposits, the documents say.

But nearly all the “new money” deposited to patron gaming fund accounts in 2016 was in the form of bank drafts, documents say, $185 million of the $186 million deposited.

This is a problem because “the majority of bank drafts are accepted” by casino operators “without knowing whether the funds are coming from the (VIP gambler’s) own bank account … some of the drafts are blank, no name has been entered,” documents say. “Customer due diligence (for some VIP gamblers) responsible for a significant amount of patron gaming fund account activity may not be sufficient.”

BCLC’s anti-money-laundering system should be asking: “Does the patron have a legitimate bank account in Canada or at the institution (from) which the draft has been obtained?” the documents say.

Gambling enforcement documents also break down the backgrounds for major B.C. casino gamblers. A July 2015 “Cash in Casinos” report says the top 45 patrons of B.C. casinos in 2013, by total deposits, were all Asian and 55 per cent represented “Chinese-based wealth.”

“It is appreciated that a relatively few high-value patrons account for a significant portion of BCLC revenue and a corresponding number of suspicious transaction reports,” the internal report says. “It is also understood that these clients have a preference for cash.”

These 45 top gamblers accounted for 27 per cent of all suspicious transactions, 13 per cent of the total value of chips bought at B.C. casinos, and 17 per cent of the total wins at those casinos, documents say. Of these top gamblers, 31 per cent spent from $100,000 to $200,000 for chips at every gambling session, and 16 per cent spent over $200,000 on chips per buy-in.

Despite all the red flags, in 2015 the gaming enforcement branch advised B.C.’s government to tread carefully because of the potential to cut government revenue.

“The impact on high-value patrons will need to be taken into consideration in the development of any additional measures to enhance the anti-money-laundering due diligence,” documents said.

The 2017 confidential memo from Meilleur outlines proposed money laundering reforms for B.C. casinos, but information on the proposals has been redacted in the documents released to Postmedia.

The “primary expected results” of these unknown proposals, documents say, include: “disruption of organized crime’s ability to integrate the proceeds of crime into the economy via casinos in B.C. … seizures and prosecutions related to proceeds of crime … referrals to B.C. Civil Forfeiture Office.”