Money laundering is an ever-evolving crime. Money launderers look for new avenues to launder money without attracting the attention of law enforcement agencies and regulators. Casinos are an attractive option for money launderers to show instant high value winnings which carry an air of legitimacy.
Casinos located on a luxury cruise ship can provide an ideal location to launder money and are attractive to criminals due to lack of strict regulatory oversight.
This article therefore focuses on why casinos within luxury cruise ships are more vulnerable to money laundering as well as the red flags associated with gambling at sea, as well as the regulatory oversight in various jurisdictions.
High Stakes on the High Seas
Many governments and regulators are unable to enforce legislation on gambling activities within leisure ferries and cruises due to International waters laws.
Cruise ships offering onboard casinos are particularly vulnerable to money laundering due to a lack of regulation in international waters. Cruise ships are often governed by the laws of the country in which a ship is registered when travelling in international waters.
If the ship is registered in an offshore tax haven or a country where the Anti-Money Laundering (AML) laws are weak, cruise ships are unlikely to conduct sufficient AML monitoring and KYC checks on the individuals participating in the gambling activities.
Moreover some casinos operating in cruise ships accept cash, enabling the ability to gamble with illegal funds. Chips are often then converted back legal tender, either in the form of clean cash or cheques.
Further examples of illegal gambling activity include the operation of ‘Junket’ operators. Junket operators are companies that operate in Macau and are involved in identifying high net worth individuals and organized criminal groups, invite them to the casino and issue them credit which may be used to launder money and help them to collect the debt.
Example: A case of how some of China’s richest men laundered money through casino cruise ships which were anchored in Hong Kong’s Victoria Harbour in 2009.
The individuals boarded the ship after transferring funds to the Hong Kong company account owned by a Junket operator who had a running account at the casino. The conspirators were then issued chips against the HK$175 million.
They spent HK$19.7 million on the tables and travelled to Macau several days later to pick up the difference HK$155 million which they obtained as cheque from a legitimate casino company. After the cheque was deposited or cashed at a bank, the money would be successfully laundered.
Refer the full article url:( https://www.scmp.com/article/670732/hk-macau-money-laundering-links-spotlight)
According to FATF report of Casino Typologies Report 2009, the phenomenon of gambling in international waters is an issue for all countries with cruise ship registered in one jurisdiction and operations happening in territorial waters of other jurisdictions. These casinos are largely unregulated or subject to very little regulation from Cruise Lines International Association– url:(. https://cruising.org/)
It is unknown if the casinos operating within cruise ships have any general record keeping or due diligence processes, as well as if suspicious activities are reported to appropriate authorities.
Example: The Malaysian Maritime Enforcement Agency (MMEA) in 2014 commented that action cannot be taken against leisure ferries and cruise ships offering gambling activities onboard in International waters.
The MMEA explained that if the vessels were found to encroach the Malaysian waters and illegally conduct the onboard gambling activities, the MMEA would not hesitate to take immediate action against the ship operators. Refer url:(https://www.thestar.com.my/news/community/2014/04/14/no-action-against-gambling-on-ships-in-international-waters).
The article also mentioned that the ships attract individuals without proper international passports who are transported in boats to the ship for gambling purposes.
Red Flags associated with Gambling in Luxury cruises:
Casinos in cruise ships, as well as being attractive to money launderers, they can also be a vehicle for human trafficking. Casinos provide ideal locations for money launderers to convert illegal funds to ‘apparently’ legitimate casino winnings.
In addition, other red flags associated with gambling in luxury cruises are:
Many casinos operating in cruise ships contain slot machines allow big steak gambling using cash;
No record keeping and lack of documentation on source of funds used in the casino;
Often the ships do not contain a Money Laundering Reporting Officer or Compliance staff onboard;
Some cruise ships contain VIP areas where High Net worth Individuals can gamble, and no due diligence is conducted on these individuals;
The money launderer can obtain casino chips using cash and convert them to a casino cheque before reaching a port without playing or playing for a short time;
There is still ambiguity of how the casino winnings from cruise ships are paid directly into a bank accounts, some of which maybe of onshore;
Regulators are more focussed on land-based casinos and online gambling. There is no clear oversight of casinos operating in cruise ships;
The cruise ships often sail towards ports such as Bahamas, Bermuda and Panama where it is legal to operate casinos even when the ship is docked in the port and the AML laws are weak. This helps money launderers to convert the proceeds into casino cheques easily giving them an air of legitimacy; and
Transferring funds to Junket operator accounts and receiving winnings as electronic transfers from Junket operator accounts.
Regulations affecting gambling in Luxury Cruises:
According to Maritime Law, the rules which govern gambling at sea is determined by the nation under which the ship is registered to. When a ship is docked, or within a certain distance from the coast of land, the vessel becomes subject to the law of the land whose coastline it is near.
Ports of countries such as the Bahamas, Bermuda and Panama allow casinos to operate when the ships are docked in the port. This allows the casinos to be open day and night.
In the US a luxury cruise ship with a casino becomes subject to US anti-money laundering laws if it is within 12 nautical miles from a US port (i.e. in US territorial waters). Many US ports do not allow gambling in the territorial waters and the casino winnings are subject to US tax and reporting requirements; hence, many cruise ships close their casinos as they approach territorial waters and allow the casino to reopen beyond the 12 nautical miles zone in international waters.
The regulations affecting casinos in luxury cruise ships are based on the ports or the territorial waters a ship is sailing in and the winnings of the casino is also taxed based on the territorial waters the ship is sailing in or based on the country in which a ship is registered.
With ambiguity prevailing, at sea it is difficult to work out who exactly sets the laws to monitor casinos and who enforces them from a money laundering perspective. With international waters becoming ‘No man’s sea’, casino operators are ever- more integrating with cruise ship owners to provide a variety of gambling activities. International and domestic law, (in its present form), with its myriad loopholes, makes it extremely difficult for sea bound casinos to be regulated. In resolve, what is needed is for all countries to work together, whether that is by creating a legislative forum, or by expanding the remit of gambling commissions, to enforce strict AML Regulations. In theory, this will ensure that legitimate winnings from casinos are channelled into the banking mainstream by lawful means and that illicit activity is identified, reported and shut down.
By Vanitha Vinayak, Consultant at Lysis Group