SECTION II RECORDKEEPING — 0919 Publ 3908 (PDF)

The Tribe’s Legal Responsibilities

Tribal governments that conduct gaming operations deal with large numbers of individuals and currency. Tribal gaming operations should actively oversee and control all the gaming activities to ensure that they don’t divert funds to private individuals or for private purposes. The IGRA provides the framework to handle necessary recordkeeping when a tribe is involved in Class II or Class III gaming and annual gross gaming revenue is greater than $1 million. Note: Class I gaming on Indian land is not subject to IGRA provisions.

A wholly-owned tribal gaming operation must follow NIGC’s regulations outlined in the Minimum Internal Control Standards (MICS) for Indian gaming. MICS apply to all tribal gaming operations regardless of whether the tribe has hired a management company to run gaming operations or is directly overseeing gaming operations. Most tribal gaming operations are formed through tribal-state gaming compacts. The compacts also contain MICS. These standards apply if they are more stringent than the MICS.

The NIGC regulations cover the internal controls needed for all Class II and Class III gaming operations. A tribe must also have an independent certified public accountant verify that the internal control systems in place are compliant with either NIGC’s or the tribal-state compact internal control standards, whichever standards are the most stringent. Failure to meet these standards may result in temporary closure and/or civil fines.

Bank Secrecy Act

Casino Definition

BSA requirements apply to casinos and card clubs and designate them as financial institutions if:

State, local or tribal governments have licensed or authorized them to do business as casinos or card clubs in the United States
They have gross annual gaming revenues over $1,000,000

See the Code of Federal Regulations, Title 31, Sections 1010.100(t)(5)(i) and (t)(6)(i).

Recordkeeping Requirements

Whether the tribe has hired a management company to run their gaming operation or is running the operation itself, the tribe must:

Maintain all books and records used to determine gross and net income
Determine information reporting responsibilities

Example 1: A tribal gaming operation sells pull-tabs during its bingo session. The box of pull-tabs contains 2,400 tickets that sell for $1 each. The gross receipts for that box of pull-tabs is $2,400, and the gaming operation records must reflect that amount.

Example 2: A player cashes in a $1 winning ticket for another ticket. $1 must be included in gaming operation gross receipts and $1 is included is prizes awarded. The amounts cannot be “netted.”

Example 3: If the player does not have a Social Security number (SSN), determine if the player is a foreign national subject to foreign withholding and Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, filing requirements.

Gaming Tax Law and Bank Secrecy Act Issues

The NIGC regulations require the tribe to keep its books and records of Class II or Class III operations for at least five years. Additionally, the tribe must preserve its records to the later of:

Four years after the employment tax return’s due date, or
Four years from the date it paid the tax.

Tribal-state compacts may contain additional recordkeeping and reporting requirements for tribal gaming operations. There are also special recordkeeping requirements for excise tax application. See Section V – Tax on Wagering.

The BSA requires a casino or card club to maintain and retain the following operation records:

Transmitted funds

ú More than $3,000

ú Must require identity verification

ú Must record and report to other financial institutions in the payment chain regardless of the method of

payment

Funds deposits, opened accounts or extended lines of credit

ú Must include the customer’s verified identification plus similar information for anyone else having a

financial interest in the account regardless of residency

Receipts showing transactions for or through each customer’s deposit or credit account

ú Must include the customer’s verified identification regardless of residency

Bookkeeping entries containing a debit or credit to a deposit account or credit account
Statements, ledger cards or other records of each deposit or credit account

ú Must show all transactions

Credit extensions over $2,500

ú Must include the customer’s verified identification regardless of residency

Requests, instructions or advice on any transactions involving people, accounts or places outside the United States

ú Must include the customer’s verified identification regardless of residency

Records prepared or received in the ordinary course of business that would be needed to reconstruct a customer’s deposit or credit account
Records required by other governmental agencies, for example, federal, state, local or tribal
Records prepared or used to monitor customers’ gaming activity, for example, player rating records, multiple transaction logs
A list of transactions involving various types of instruments, cashed or disbursed, in face amounts of $3,000 or more, regardless of whether currency is involved, including customer’s name and address
A copy of the casino’s written compliance program

Gaming Tax Law and Bank Secrecy Act Issues

Additionally, card clubs must maintain and retain records of all customers’ currency transactions, including all records in the form of currency transaction logs and multiple currency transaction logs. If a casino or card club records, stores or retains any part of its records on any form of electronic media, they must ensure that the data will be available and accessible for review in the same media. A casino or card club must retain the originals (or on microfilm) of all required records outlined by the Code of Federal Regulations, Title 31 Chapter X for five years. These records must be filed or stored to be accessible within a reasonable period of time. For more information regarding record retention, see the Code of Federal Regulations, Title 31, Section 1010.410.

Anti-Money Laundering Compliance Programs (AML)

Section 352 of the USA PATRIOT Act of 2001 requires financial institutions to establish anti-money laundering programs. See the United States Code, Title 31, Section 5318(h) and the Code of Federal Regulations, Title 31, Section 1021.210(a). A casino or card club complies with this requirement if the casino or card club implements and maintains an adequate program for compliance with the Bank Secrecy Act. Section 1021.210(b) contains the specific compliance program requirements. Casinos and card clubs must develop and implement a written program designed to assure and monitor compliance with the BSA.

The Bank Secrecy Act compliance program must include:

A system of internal controls to assure ongoing compliance
BSA requirements training for personnel
Designated individuals to assure day-to-day compliance
If available, automated data processing systems to be used in assuring compliance
Internal or external independent testing for compliance with a scope and frequency commensurate with the risks of money laundering and terrorist financing, and the products and services provided
Procedures for using all available information to determine and verify - when required - the person’s name, address, Social Security or taxpayer identification number and other identifying information
Procedures for using all available information to determine whether any suspicious transactions or patterns of transactions should be reported

For more information on the Bank Secrecy Act’s anti-money laundering compliance program requirements, see the Code of Federal Regulations, Section 1021.210.

The Office of Foreign Assets Control (OFAC) is a separate office within the U.S. Treasury Department. OFAC also maintains requirements under their own compliance program for anti-money laundering. For more information related to OFAC compliance programs, see the FAQ section of Questions from Financial Institutions, specifically Question #30. To avoid penalties from this separate program, casinos and card clubs must additionally maintain a compliance program very similar to the Bank Secrecy Act’s anti-money laundering program.

Gaming Tax Law and Bank Secrecy Act Issues

Suspicious Transactions

The BSA requires a casino or card club to file a suspicious activity report when it knows, suspects or has reason to suspect that a transaction or pattern of transactions is suspicious and involves or aggregates to $5,000 or more in funds or other assets. A transaction (conducted or attempted) is “suspicious” if the transaction:

Involves funds derived from illegal activity or is intended or conducted to hide or disguise funds or assets derived from illegal activity, or to disguise the ownership, nature, source, location or control of the funds;
Is designed to evade Bank Secrecy Act requirements, whether through structuring or other means; or
Has no business or apparent lawful purpose, or is not the sort in which the customer would normally be expected to engage, and the casino or card club knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction, or involves the use of the casino or card club to facilitate criminal activity.

See the Code of Federal Regulations, Title 31, Section 1021.320.

Casinos and card clubs must use the Financial Crimes Enforcement Network BSA E-Filing System to report suspicious activity. A casino or card club must file this form within 30 calendar days after initial detection of the suspicious transaction. If the casino or card club does not identify the suspect on the date of detection, it may delay filing a suspicious activity report for an additional 30 calendar days to do so. However, a casino or card club must always report a suspicious transaction within 60 calendar days after the date of initial detection. The following examples demonstrate how an activity may appear suspicious:

Example 1: A customer seeks to cash out chips, tokens or a ticket in an amount more than $10,000, but when asked for identification for completing a Currency Transaction Report (CTR), they reduce the amount to be cashed out to less than $10,000.

Example 2: A customer purchases large amounts of chips with currency at table games, engages in minimal gaming and then redeems the chips for casino checks.

Example 3: A customer furnishes identification documents that are false or altered (for example, address changed, photograph substituted).

Example 4: A customer requests the issuance of multiple casino checks that are made out to third parties or checks without a specified payee.

Example 5: A casino suspects that customers are involved in credit card or check cashing fraud.

Note: When using the FinCEN BSA E-Filing System, a casino must use the legal name of the tribal casino. A tribal casino’s legal name is found in the articles of incorporation or corporation charter. If the casino is an unincorporated entity of the tribe then the legal name is the tribe itself. It’s important to make the distinction between the casino’s legal name and trade name.

The Financial Crimes Enforcement Network’s Suspicious Activity Reporting Guidance for Casinos explains how to prepare a complete and sufficient “narrative” and provides examples.

Gaming Tax Law and Bank Secrecy Act Issues

Structuring

Federal law prohibits a financial institution, including a casino or card club, to structure, attempt to structure or assist in structuring transactions. Structuring pertains to conduct engaged in to evade a Bank Secrecy Act reporting or recordkeeping requirement. It is unlawful under the Bank Secrecy Act and subjects a person to civil and criminal penalties. See the United States Code, Title 31, Sections 5321, 5322 and 5324, and the Code of Federal Regulations, Title 31, Section 1010.314.

Currency Transaction Reporting

A casino or card club must file a report for each cash-in or cash-out currency transaction it handles that is more than $10,000. It must aggregate multiple currency transactions if the cash-in or cash-out amounts during a single gaming day total more than $10,000. It would treat the cash-in or cash-out transactions as a single transaction and as though conducted by or for the same person. It isn’t necessary to personally observe the multiple transactions. The books, records, logs and computer files should contain the information showing that the reportable currency transactions occurred. See the Code of Federal Regulations, Title 31, Sections 1021.311 and 1021.313.

Example: While reviewing a customer’s account status on a computer in the gaming pit, a floor person notices that a customer has already purchased $9,000 in chips with cash at another pit. Later, the customer asks to purchase from the dealer an additional $5,000 in chips with cash that is approved by the floor person. The casino is required to file a CTR because a casino employee had knowledge that the customer had cashin transactions over $10,000 in one gaming day.

When a winner’s aggregate amount exceeds $10,000, the casino or card club must report and file with FinCEN’s BSA E-Filing System. To properly file the form, it must secure certain information from the customer (including foreign nationals) before concluding the transaction unless the transaction is identified through an “after the fact aggregation” process. During the “after the fact aggregation” process, the casino or card club is still required to file a completed form. It should obtain all the required information if available through internal records or systems examinations.

See the FinCEN CTR for instructions on how to complete the form and the Code of Federal Regulations, Title 31, Section 1010.312 for the requirement to identify persons involved in currency transactions.

Multiple currency transactions may reach the threshold reporting requirements for FinCEN CTR without requiring Form W-2G, Certain Gambling Winnings, reporting. Casinos and card clubs must have procedures in place to ensure accurate filing. An example would be multiple slot jackpots below $1,200 aggregating to more than $10,000.

If a currency transaction exceeds $10,000 and is suspicious, a casino or card club must file a CTR (reporting the currency transaction) and a Suspicious Activity Report (reporting the suspicious aspects of the transaction). The casino or card club must transmit all completed FinCEN forms electronically within 15 calendar days from the date of the transaction through FinCEN’s BSA E-Filing System.

Currency transactions in other operational aspects of a casino complex may be subject to other reporting requirements such as:

Independent check cashers, money remitters, wire transfer companies, and so on, operating inside or outside of a casino use a Currency Transaction Report.

• Casino nongaming activities such as hotels, retail outlets and other establishments use Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. Cash for Form 8300 reporting purposes includes coin, currency and cashier’s checks, bank drafts, traveler’s checks or money orders received during a 12-month period.

Gaming Tax Law and Bank Secrecy Act Issues

Domestic and Foreign Vendors

A tribal gaming operation deals with vendors daily, and there are filing and withholding issues related to this interaction. Domestic vendors generally provide Form W-9, Request for Taxpayer Identification Number and Certification, to tribal gaming operations to avoid backup withholding when they are providing services. A best practice for tribal gaming operations is to require the W-9 prior to payment of invoices for services rendered. Tribal gaming operations that use foreign vendors must be aware of additional filing and withholding requirements. The backup withholding for failure to provide a taxpayer identification number (TIN), discussed more completely in Section VI, applies to domestic vendors.

It’s important to note that vendors from foreign countries are not subject to backup withholding rules but instead, are subject to Internal Revenue Code (IRC) Section 1441 foreign withholding rules. These rules are similar to the gaming withholding rules for nonresident aliens covered in Section VI of this publication. Foreign vendors with domestic operations should have an EIN and domestic address, which would allow Form W-9 submission. Generally, Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), is similarly used for foreign vendors.

There is no dollar threshold for withholding or reporting purposes related to Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. A tribal gaming operation must withhold taxes and report any payments paid to a nonresident vendor. The withholding rate on nonresident vendors is generally 30% unless the foreign country has a treaty with the United States for a lower rate.

You can use Form W-8BEN for status determination of nonresident vendors. Use Section 1 for identification. Nonresident vendors may claim a lower withholding rate under a treaty, if applicable, by preparing Section 2 of Form W-8BEN. However, a vendor still needs to provide a U.S. TIN to receive this treatment. If a vendor is from a treaty country, but does not have a U.S. TIN, withhold 30% on Form 1042-S. Refer to Publication 901, U.S. Tax Treaties, and Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

Use Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, for reporting payments made to nonresident aliens and required withholding.

File Form 1042-T, Annual Summary and Transmittal of Forms 1042-S, with paper Forms 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. Submit these forms to the IRS by March 15 of the following year. You may voluntarily file electronically using the FIRE system.

If a tribal gaming operation files 250 or more Forms 1042-S during a year, the operation must submit the forms electronically. Penalties may be assessed against a tribal gaming operator if the information shown on the Form 1042-S is incomplete or incorrect.

Failure to Pay Withholding Tax

A tribal gaming operation is responsible for paying to the IRS the amount of foreign withholding due, whether or not it collects the withholding from the recipient. The best time to collect foreign withholding is before it is paid. Penalties are assessed for failure to deposit taxes withheld, failure to file a return on time and failure to pay taxes on a return.

Gaming Tax Law and Bank Secrecy Act Issues