Canada: B.C. casinos rarely turned down suspicious transactions, officials say

Measures to prevent money laundering by gamblers were often ignored or indifferently enforced, commission hears

Where did the buck stop? Or, rather, where did the duffel bags stuffed with $20 bills – suspected to be from Vancouver’s deadly, illicit opioid trade – stop?

That’s the constant question circling over the public inquiry into money laundering in B.C. during recent testimony from four key executives from the B.C. Lottery Corp. (BCLC), the Crown corporation tasked to manage gambling in the province.

Over two weeks, Allison Latimer and Patrick McGowan, counsel for the Commission of Inquiry into Money Laundering in B.C., examined three former heads of security and compliance for BCLC and their boss, president and CEO Jim Lightbody, in an attempt to drill down on what BCLC knew, and did – or did not do – about frequent six-figure buy-ins with small denominations bundled in elastic bands.

“Was it your expectation that for players wanting to buy in at that level it would be much more convenient and easier for them to arrive with a bank draft or have funds wired rather than walking in with a duffel bag or grocery bag full of $20 bills?” McGowan asked Lightbody.

The longtime BCLC boss, now on medical leave, explained that it was his understanding Chinese people wanted to use cash for cultural reasons, and as to hide their gambling from the Chinese government and family, perhaps.

These cash buy-ins are central to the portion of the inquiry looking at money laundering in B.C. casinos.

What is purported, and largely accepted or uncontested, is that cash from Vancouver’s deadly drug trade, much of it stemming from China-derived fentanyl and Mexican cocaine, made its way through casinos. It was first collected by so-called underground bank operators in Richmond, on behalf of transnational organized crime networks, and loaned to gamblers, among others. And each time a gambler lost, they would repay the drug cash by other means, including asset transfers back in China to a partner of the local underground bank.

There are six major players involved: the gamblers; BCLC; the Gaming Policy and Enforcement Branch (GPEB); police; government ministries and casinos.

To date, the commission has heard from BCLC and GPEB investigators and some former police officers. Friction and lack of communication between the three entities, as well as government, has been a common theme.

Over the past two weeks, the BCLC officials were questioned about the bundles of $20 bills, while hearing back from them about anti-money laundering (AML) policies they were implementing.

Still, evidence provided to the commission from investigators shows large cash buy-ins occurred regularly, especially between 2010 and 2017 – and peaking in 2015 when government agencies became aware of a large RCMP investigation of one underground bank called Silver International handling upwards of $200 million per year in suspected proceeds of crime.

It seems filing transaction reports to a federal agency (BCLC was fined in 2010 for violations), introducing voluntary electronic fund accounts and implementing anti-money laundering policies, did nothing to stem the tide of $20 bills in this time.

The commission has also heard of how casinos didn’t want players interviewed by BCLC and GPEB investigators, out of fear they would lose revenue, and how there was confusion among the agencies as to whether they could even do so. Lightbody couldn’t say definitively if his investigators were interviewing clients before 2015. And so until around 2016, these so-called whale gamblers escaped an important AML measure.

Lightbody said he worked hard to rectify miscommunications between agencies.

“In 2013 the AML unit was struck and put together. We began working with GPEB and law enforcement urging them to help us, you know, confirm whether or not there is proceeds of crime potentially coming into our casino,” he told the commission.

Lightbody noted that many players had been banned from casinos by BCLC by 2015, including notorious loan shark and Silver International associate Paul King Jin (who continued to provide cash to gamblers and even met with Gateway Casino officials about a land deal while banned, according to GPEB records).

But Lightbody also testified how there were alternative theories to the source of cash, at least before becoming aware of Silver International.

For some time BCLC and casinos thought it was good enough if the source of wealth was known.

For example, BCLC investigator Mike Hiller previously told the commission of a $460,000 buy-in with all $20 bills. Hiller said a River Rock Casino and Resort surveillance manager told him it wasn’t suspicious as the gambler was wealthy and played regularly.

McGowan raised one instance where a purported coal mine owner bought in with $994,000 worth of $20 bills in 2010.

“Well, he had enough wealth or whatever to gamble at this level. That’s what that explains,” said Terry Towns, heads of compliance and security until late 2012.

In that instance, GPEB and police informed BCLC about their concerns of proceeds of crime being gambled in casinos.

Lightbody and others frequently put forth that BCLC officials couldn’t outright prove the funds were proceeds of crime and so they could not decline the money. Only police can make such a determination, they said.

Asked whether these buy-ins during early morning hours raised suspicion, Towns told McGowan of all kinds of cash intensive businesses that could explain the money, “from underground banking, underground economy, renovation businesses, adult entertainment, jewelry.”

Towns said he didn’t judge the gamblers.

“Just didn’t turn your mind to it?” asked McGowan.

Towns alluded to another theory BCLC entertained for some time – that if gamblers were losing money they couldn’t have been part of a money laundering scheme.

“We had no basis to think that it was proceeds of crime,” Towns said. “The players were not in my mind criminals. They were gambling that money and are losing it, and if they weren’t losing, they weren’t given any cheques; they were given back cash. Unless there was a win on that initial buy-in, and then the cheque would be for that amount only.”

Of course, in such a scenario, one could gamble, say, $100,000 and win $100,000 and leave with a $100,000 cheque and the original $100,000 cash. The next day the same gambler could return and lose the same $100,000. In the end, the money is processed by the casino, which records no profit.

Lightbody denied he advanced this idea to his superiors in government.

BCLC and casinos rarely turned down suspicious transactions, the commission has heard from officials.

While Towns said these buy-ins were logged with GPEB, it is also known to the commission that for years casinos, such as River Rock, were not filing suspicious transaction reports for buy-ins under $50,000.

Towns said suspicion was not a sufficient basis to direct the casinos to decline the money.

Towns’ replacement in 2013 was Brad Desmarais.

Desmarais promoted a theory that the money was coming in from China, via the airport – despite the vast majority of cash seizures being U.S. denominations and the casino buy-ins being in Canadian currency.

Hiller noted in his affidavit he raised concern about the erroneous theory, but his words fell on deaf ears in 2013, he said.

At that time Desmarais had just been hired as head of compliance and security for BCLC. Hiller has accused Desmarais of downplaying the threat of money laundering.

The now chief operating officer of the lottery corporation had been briefed by GPEB about how losing gamblers needed to pay back their losses elsewhere, but Desmarais said he didn’t adopt such a view immediately.

Desmarais told the commission that upon taking the job at BCLC he wanted to first analyze the situation and all aspects, including money coming from overseas.

Latimer, however, noted that in May 2013, Desmarais disseminated a newsletter to BCLC staff titled ‘Money laundering in casinos? Not really.’

Desmarais put forth that Chinese cultural reasons can largely explain the cash play. He told Latimer in retrospect he could have communicated better and that he meant it wasn’t actual criminals coming into the casino to play.

In September 2013 Desmarais also wrote “Changing the Way We Look At Cash” wherein he stated “the large amounts of cash at casinos is often erroneously associated with organized crime.”

Suggestions by GPEB investigators to cap $20 bill buy-ins at $10,000 were never adopted, he said. Part of that reason is because GPEB never forced BCLC to do so, he said.

By late 2014 Desmarais had adopted the underground bank theory and told the government, he said.

Robert Kroeker replaced Desmarais in December 2015. Kroeker had come over from River Rock as the casino’s head of compliance and security.

Kroeker said while at River Rock he began tracking $20 bills at the suggestion of GPEB. He told the commission River Rock and its owner, Great Canadian Gaming Corp., were supportive of AML policies.

Kroeker told his lawyer, Marie Henein, under cross-examination that GPEB had the ability to limit cash buy-ins but didn’t. Henein noted to this date such a policy does not exist.

Desmarais, Kroeker and Lightbody touted a cash alternative program called a player gaming fund (PGF) account. But these accounts were voluntary and rarely used up to at least 2015, Lightbody conceded.

“Did the lack of voluntary participation in these apparently more convenient cash alternative programs tell you anything or cause you to have any concern about what the source of the $20 bills people were buying in with might be?” McGowan asked.

Lightbody replied that the PGF was not a “panacea” and that know-your-client measures to identify the source of wealth were key measures at that time. Kroeker told the commission that when he came to BCLC, it was doing source-of-funds inquiries on an “ad hoc basis.”

Lightbody spoke at length about risk-based and prescriptive approaches to AML policies, by which the former is used by BCLC.

Such tactics, whereby gambling officials use their discretion, brought about some confusion in 2016.

Then, the failure of cash alternatives such as PGF and prevalence of suspicious transactions prompted a letter from then Minister of Finance Mike De Jong, who called for “AML compliance best practices, including processes for evaluating the source of wealth and source of funds prior to cash acceptance.”

Subsequently, Lightbody interpreted this as not meaning all cash transactions.

“I was advised by Cheryl Wenezenki-Yolland (De Jong’s deputy minister) that the minister didn’t mean all funds; he meant just keep doing it, you know, on your risk basis, so it’s not every single large cash transaction.”

The commission has skirted around the involvement of politicians in casino regulations. Next week, the commission will examine GPEB executives, and it is expected some former ministers in charge of casino regulations will be called to testify, such as past solicitor generals Rich Coleman, Shirley Bond and Kash Heed, plus De Jong. It’s not known if former premiers Christy Clark and Gordon Campbell could appear before the commission.

Current Attorney General David Eby could also testify, as his name has been raised several times, particularly by Kroeker, who was fired by Eby in 2018.

During testimony, Kroeker alleged Eby prevented BCLC from implementing a $25,000 cash cap in 2018 and muzzled BCLC staff in advance of consultant Peter German’s report, Dirty Money, which was critical of BCLC.

The commission is also set to hear about four weeks of testimony on money laundering via the real estate market.

The commission is scheduled to end in May, however because of the COVID-19 pandemic it could be extended. The hearings have often been interrupted and delayed due to technical difficulties.


By Graeme Wood, February 6, 2021, published on BIV 

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