Memorandum Regarding Reporting Requirements for Gaming Applicants and Licensees

Transcription

1 Memorandum Regarding Reporting Requirements for Gaming Applicants and Licensees I. Introduction This memorandum of law is submitted on behalf of the City of Revere, as a supplement to a December 11, 2014 letter from Revere Mayor Daniel Rizzo to the Gaming Commission concerning a December 5, 2014 letter from Commissioner James McHugh. In his December 5, 2014 letter, Commissioner McHugh expresses the legal position that the Expanded Gaming Act did not require Region A licensee Wynn MA, LLC, to disclose to the Gaming Commission a letter from the IRS Criminal Investigation Division to Wynn Resorts, Ltd. (parent company of Wynn MA, LLC) concerning a money laundering investigation. Commissioner McHugh s conclusion 1 is wrong as a matter of law, as explained below. II. Background The Gaming Commission confirmed at its December 4, 2014 meeting that it is in receipt of a letter from the IRS Criminal Investigation Division to counsel for Wynn Resorts, Ltd. (together with Wynn MA, LLC Wynn ) sent in August of 2014 (the IRS Letter ). Although the City of Revere is at a disadvantage because it has not seen the IRS Letter, it understands that the IRS is requesting information to determine whether Wynn violated the laws through its handling of sports-betting activities and through the casino s dealings with high-roller gamblers, as well as whether any of Wynn s VIP customers laundered the proceeds of drug-trafficking through the company s casinos. 2 Kate O Keeffe, Rachel Louise Ensign and Christopher M. Matthews, Wynn Resorts Probed on Money-Laundering Controls, WALL STREET JOURNAL, November 20, It has also been reported that the Drug Enforcement Administration and the U.S. Attorney s Offices in Nevada and New York are part of the investigation. Id. 1 For the purposes of this memorandum, we assume that the conclusion set forth in Commissioner McHugh s letter is his own opinion, rather than the official position of the Gaming Commission, since the Gaming Commission has not deliberated or voted on the conclusion at a public meeting. 2 The Wall Street Journal article describes the IRS Letter as being from the IRS Criminal Investigation Division. According to the IRS, the Criminal Investigation Division conducts criminal investigations regarding alleged violations of the Internal Revenue Code, the Bank Secrecy Act and various money laundering statutes, characterized as primary investigations or subject criminal investigations. IRS Criminal Investigation Division Website, Are-Initiated. It is significant that the IRS Letter was not simply a Title 31 compliance review or inquiry under the USA PATRIOT Act of 2001, but an inquiry from the Criminal Investigation Division, whose reason for being is to conduct criminal investigations.

2 III. Wynn Was Required to Disclose the IRS Letter to the Gaming Commission Under M.G.L. c. 23K, 13 and 205 CMR Commissioner McHugh s letter states that M.G.L. c. 23K, 21(a)(8) 3 moots Mayor Rizzo s concerns (expressed in a December 1, 2014 letter to the Gaming Commission) about Wynn s failure to disclose the IRS Letter, and concludes that M.G.L. c. 23K, 21(a)(8) does not apply to these circumstances. That mistaken interpretation will be addressed below. Regardless, there are other provisions of the Expanded Gaming Act and the Gaming Commission s own regulations that unequivocally required Wynn to disclose the existence of the investigation by the IRS Criminal Investigation Division to the Gaming Commission immediately and prior to the Region A license award in September See M.G.L. c. 23K, 13(b)-(c); 205 CMR (2). M.G.L. c. 23K, 13(b) provides: An applicant, licensee, registrant or any other person who shall be qualified under this chapter shall have the continuing duty to provide any assistance or information required by the commission and to cooperate in any inquiry or investigation conducted by the commission. Refusal to answer or produce information, evidence or testimony by an applicant, licensee, registrant or other person required to be qualified under this chapter may result in denial of the application or suspension or revocation of the license or registration by the commission. Likewise, 205 CMR (2) requires that: Without limitation, an applicant, licensee, registrant and qualifier shall have a continuing duty to provide updated information to the commission, the bureau and their agents and employees in connection with the Phase 1 investigation by the bureau pursuant to 205 CMR : Phase 1 Investigation and Recommendations by the Bureau, the Phase 2 application review conducted in accordance with 205 CMR : Phase 2 Administrative Proceedings, an investigation commenced after submission of an application for licensure and any hearing by the commission or the bureau pursuant to 205 CMR : M.G.L. c. 23K Adjudicatory Proceedings (Emphasis added). The Expanded Gaming Act and the Gaming Commission s regulations clearly require an applicant to provide updated information to the Gaming Commission relevant to the Phase 1 3 M.G.L. c. 23K, 21(a)(8) provides The commission shall prescribe the form of the gaming license, which shall include, but not be limited to, the following license conditions for each licensee. The licensee shall cooperate with the commission and the attorney general with respect to the investigation of any criminal matter; provided, however, that the gaming licensee shall, upon receipt of a criminal or civil process compelling testimony or production of documents in connection with a civil or criminal investigation, immediately disclose such information to the commission

3 suitability investigation, even after the initial determination of suitability by the Gaming Commission. Id. This continuing duty required Wynn to disclose the investigation by the IRS Criminal Investigation Division pursuant to several prior requests in connection with the Gaming Commission s Phase 1 suitability investigation: On or around August 1, 2014, applicants for the Region A gaming license received a suitability update letter from Investigations and Enforcement Bureau (IEB) Director Karen Wells that instructed the applicants to submit [d]etails of regulatory infractions or investigations in any jurisdiction pertaining to any of the qualifying entities or individuals associated with [the applicant] on or before August 22, The Wall Street Journal article indicates that Wynn received the IRS Letter in August, at or about the same time that the suitability update response was presumably being assembled. The August 1, 2014 suitability update letter from the IEB also requested any updated policies or procedures that you would like to bring to the attention of the Gaming Commission, including but not limited to, policies that relate to compliance or audit functions. This update requirement put Wynn on notice that its audit and compliance policies, including Title 31 and anti-money laundering procedures, were of primary importance to the IEB and the Gaming Commission. 5 Also in connection with the Phase 1 Suitability Investigation, Item 25 of the Business Entity Disclosure Form asks Has the entity, any of its subsidiaries, directors, trustees or officers ever been called to testify before, been the subject of an investigation conducted by, or requested to take a polygraph exam by any governmental agency, court, committee, grand jury or investigatory body (municipal, state, county, provincial, federal, national, etc.) other than in response to minor traffic related offenses? 6 The Phase 1 Suitability Investigation assessed Wynn s Anti-Money Laundering Compliance Program and found it to be very thorough. Investigations and Enforcement Bureau, Report of Suitability of Applicant Entities and Individual Qualifiers, December 6, 2013, p Mohegan Sun Massachusetts, LLC received this suitability update letter and, presumably, an identical letter was sent to Wynn. The letter mandated updates that would be material to the suitability of each Region A applicant. 5 The Gaming Commission should consider Wynn s failure to disclose this material information and Wynn s failure to cooperate with the IEB grounds for reconsideration of the Region A license. The information would have had a significant impact on the Gaming Commission s licensing decision. 6 The extensive scope of the information requested is clear; the only investigations excluded are minor traffic related offenses. Without question, a request for documents by the IRS Criminal Investigation Division would be reportable in response to this question. Furthermore, while Wynn Resorts, Ltd. has been identified by the IEB and Commission as the parent of Wynn MA, LLC and therefore not a subsidiary as referenced in Item 25 of the Business Entity Disclosure Form, it appears from the IEB s reports that Wynn Resorts, Ltd. submitted its own Business Entity Disclosure Form, with the same ongoing reporting obligations as the gaming applicant.

4 Wynn had an ongoing duty to provide to the Gaming Commission any [d]ocuments and information provided by the Applicant to regulators in any U.S. jurisdiction relative to Macau operations to the Gaming Commission in a timely manner as a condition of its suitability order entered on December 27, See In the matter of: Wynn MA, LLC - Phase 1 Suitability Decision, Massachusetts Gaming Commission, IV, p. 9. Under 205 CMR (2), Wynn had an unmistakable legal obligation to disclose the existence of the investigation by the IRS Criminal Investigation Division given that: 1. The Gaming Commission requested of Wynn details of regulatory... investigations in August of 2014; 2. The regulation requires continued updates to answers to all prior questions in the Phase 1 Application; and 3. The regulation generally requires Wynn to provide an update to any information in the Gaming Commission s Phase 1 Suitability Determination, which, in this case, included an assessment of Wynn s money-laundering operations and its Macau operations. The standard under these suitability-related inquiries was not whether Wynn has received a summons or subpoena or some form of formal process. Wynn had a clear duty under 205 CMR (2) to update this information promptly and prior to the Gaming Commission s license award decision in September of Ms. Wells has already acknowledged that Wynn did not inform her office of the IRS Letter until November 20, 2014 the date of publication of the Wall Street Journal article. IV. Commissioner McHugh s Narrow Interpretation of the Term Process is not Consistent M.G.L. c. 23K, 21(a)(8) Wynn violated M.G.L. c. 23K, 21(a)(8) by failing to upon receipt of a criminal or civil process compelling testimony or production of documents in connection with a civil or criminal investigation, immediately disclose such information to the Gaming Commission. In his letter, Commissioner McHugh asserts that: the Commission s Investigation and Enforcement Bureau has determined that the federal inquiry did not involve a summons or subpoena, i.e., process as that term is used in G.L. c. 23K and as term is used in common legal parlance. 7 Additionally, M.G.L. c. 23K., 13(c) prohibits any applicant from misleading the Gaming Commission. There could not be anything more misleading than Wynn s withholding information regarding the investigation by the IRS Criminal Investigation Division at the most critical time period of the entire application process weeks before the Region A licensing decision.

5 Accordingly, the inquiry did not trigger the reporting obligations G.L. c. 23K contains. 8 The Expanded Gaming Act provides that gaming licensees be held to the highest standards of licensing, and shall have a continuing duty to maintain their integrity and financial stability, M.G.L. c. 23K, 1. The term process which is not defined in the Expanded Gaming Act should be read with this directive in mind. Contrary to Commissioner McHugh s interpretation, the term process is not restricted only to a formal summons or subpoena. Black s Law Dictionary directly refutes Commissioner McHugh s narrow definition: The term process is not limited to summons. In its broadest sense, it is equivalent to, or synonymous with, procedure or proceeding. Black s Law Dictionary, 10th ed. at p (Emphasis added). Black s Law Dictionary defines process in relevant part as a summons or writ and notes that there are numerous types of process. Id. Among those different types of process, the Dictionary defines two that clearly encompass the IRS Letter. See id. Legal Process, is defined as [p]rocess validly issued, and Regular Process, is defined as [a] process that issues lawfully according to prescribed practice. Id. The IRS Letter clearly constitutes legal or regular process. See id. V. Only Requiring Gaming Licensees to Disclose the Issuance of Summons or Subpoenas Is Grossly Out Of Step With Gaming Industry Regulatory Standards Commissioner McHugh s interpretation of the Expanded Gaming Act would permit licensees to withhold information about investigations from the Gaming Commission, unless and until a formal subpoena or summons is issued. Such an interpretation would mean that Massachusetts has more relaxed reporting requirements than many other gaming jurisdictions. Massachusetts regulatory framework was built by taking the best practices from established gaming jurisdictions that promulgated standards on this critical issue. To ignore those standards now would undermine the goals of the Gaming Commission and the Commonwealth of setting and adhering to the highest standards for ensuring the integrity of the gaming industry. Every gaming jurisdiction requires transparency from a licensee or applicant about suitability and compliance. Gaming compliance frequently involves ongoing communication between gaming companies and regulatory staff to ensure that the staff is informed of all suitability and licensing developments. Ms. Wells has indicated her intention to follow this approach, as have members of the Gaming Commission, by noting on numerous occasions that suitability is ongoing. 8 Commissioner McHugh s letter implies that the IEB shares the view that only a summons or subpoena can be process as that term is used in M.G.L. c. 23K, 21(a)(8). However, in her comments at the December 4, 2014 Gaming Commission meeting, Ms. Wells merely noted that Wynn has not received a subpoena or a summons. Unlike Commissioner McHugh s letter, Ms. Wells remarks contained no legal conclusions.

6 If, instead, the Gaming Commission intends that disclosure is appropriate only when a formal subpoena or summons issues, then the Commonwealth will contravene the generally accepted standards established by gaming regulators in other jurisdictions. Although many jurisdictions require ongoing reporting as conditions to licenses or as separate specific directives from gaming regulators, some states have actually codified these standards in rules or statutory provisions. For example, Ohio requires such ongoing disclosures and specifically provides by regulation for the following: All casino operator, management company and holding company licensees and applicants shall submit to the commission, in writing, the following information: (7) Any inquiry into, investigation of or action filed against the licensee or applicant or any of the individuals required to be found suitable under rule of the Administrative Code by any gaming regulatory agency or authority, or other governmental agency or authority, except for routine renewal reviews. Ohio Administrative Code (A)(7) (Emphasis added). Indiana imposes an obligation to report the following matters to the gaming commission under its regulations: Any criminal, civil, or administrative action, threatened action, or investigation initiated by any governmental entity against the riverboat or supplier licensee. Any claims made by any governmental entity concerning any tax liability or a licensee or any key person or substantial owner of the licensee. Any Title 31 compliance review conducted by the Internal Revenue Service. The riverboat or supplier licensee must provide a copy of any compliance review report or the equivalent within ten (10) days of the receipt of the report by the licensee. Any action, event, or nonevent, with respect to which the executive director has instructed the licensee to provide notice so that the executive director can ensure that the licensee continues to maintain suitability for licensure. 68 Indiana Administrative Code 1-5-1(1)(4)(5)(9)&(10). Michigan has adopted general reporting requirements as part of its rules, requiring that: a person who applies for or holds a casino license or supplier license shall provide written notice to the board at the time the person becomes aware of any of the following: The initiation of any investigation that could, or any action that does, result in the imposition of any civil, criminal, or administrative sanction or penalty...

7 To the extent known, the initiation of any investigation that could, or any action that does, result in the imposition of any civil, criminal, or administrative sanction or penalty A compliance review conducted by the IRS in accordance with title 31 [antimoney laundering laws]... relating to the person applying for or holding the casino license or supplier license, an officer, a director, a holding company, or an affiliate that is in control of the person applying for or holding the casino license Mich. Admin. Code R In Pennsylvania, gaming licensees are required to notify the [Gaming Control Board] of any changes relating to the status of its license or to any other information contained in the application materials on file with the board PA. Stat. Ann. 1209(b), In addition to the above, many other jurisdictions require that gaming regulators must be notified of any changes related to information reviewed in connection with suitability determinations. See, e.g., Kan. Admin. Regs (d) ( Each facility management and each applicant for a gaming certificate shall disclose in writing within 11 days any material change in information provided in the application forms and requested materials to the commission a change shall be deemed material if the change includes (3) (E) relationships or associations with persons having criminal records or criminal reputations. ); Mo. Code Regs. tit. 11, ( All licensees and applicants for Class A, Class B, supplier, key person/key business entity, or Level I occupational licenses issued by the commission shall have a continuing duty to disclose in writing, within ten (10) calendar days for an applicant and thirty (30) calendar days for a licensee, any material change in the information provided in the application forms and requested materials submitted to the commission.including, but not limited to relationships or associations with persons having criminal records or notorious reputations. ); Miss. Code R (e) ( All information included in an application must be true and complete as of the dates submitted and an applicant shall promptly supply by amendment, any information based on facts occurring after the original application so as to make such information not misleading as of the dates of any action taken by the Executive Director or the Commission. ); N.J. Admin. Code 13:69A-8.5 ( It shall be the continuing duty of each applicant, licensee and registrant to promptly file with the Director, or such members of the Division staff as the Director shall designate, a written amendment to his or her application, license or registration explaining any new or changed facts or circumstances whenever any material or significant new or changed facts or circumstances occur with respect to any matter set forth in the application, registration, resubmission papers or other documents relating thereto ); Md. Code Regs (C)(1) ( If information submitted by an applicant as part of a license application changes or becomes inaccurate before the Commission acts on the application, the applicant shall immediately notify the Commission in writing of the change or inaccuracy. ); Wash. Admin. Code (1) ( Licensees must notify us in writing if any information filed with the application changes in any way within thirty days of the change. )

8 The Gaming Commission has indicated its intent to follow these or similar standards through: (i) the language in the Verification and Authentication page for the RFA-2 Application (p. 228), which states that [t]he applicant acknowledges its continuing duty to provide updated information and/or promptly notify the Commission of any changes to the information or materials, of which it becomes aware or should be aware, that were provided in response to any question in this application ; (ii) the statutory language in M.G.L. c. 23K, 13(b); and (iii) the regulatory provisions of 205 CMR (2) cited above. Given the strict directive in the Expanded Gaming Act to enact the highest standards of licensing, the Gaming Commission should hold its licensees to reporting obligations consistent with industry standards. Anything less than full transparency would violate the letter and spirit of the Expanded Gaming Act. VI. Conclusion Wynn had a legal obligation under M.G.L. c. 23K, 13 and 205 CMR to immediately disclose the IRS Letter to the Gaming Commission because the IRS Letter is relevant to its Phase 1 suitability determination and Phase 2 application. Wynn also had a legal obligation under M.G.L. c. 23K, 21(a)(8) to immediately disclose the IRS Letter upon receipt as a condition of its gaming license. Despite these mandates, after receiving the IRS Letter in August of 2014, Wynn failed to disclose information concerning the IRS investigation to the Gaming Commission until the media reported on the investigation two months after the Region A licensing decision. The City of Revere looks forward to the Gaming Commission s response to this matter.

9 Respectfully submitted, CITY OF REVERE By its attorneys, Patricia L. Davidson, Esq., BBO # Brian R. Falk, BBO # Mirick, O Connell, DeMallie & Lougee, LLP 100 Front Street Worcester, MA (508) pdavidson@mirickoconnell.com bfalk@mirickoconnell.com James J. Cipoletta, Esq., BBO # Law Offices of James J. Cipoletta Citizens Bank Building 385 Broadway Suite 307 Revere, MA (781) jcipoletta@comcast.net Paul Capizzi, BBO # Office of the City Solicitor 281 Broadway Revere, MA (781) pcapizzi@revere.org Date: December 16, 2014