Vancouver Sun July 20, 2010 7:01 PM

VANCOUVER - Solicitor General Mike de Jong says he is concerned about the potential for organized crime to misuse B.C. casinos and online gaming after revelations that the B.C. Lotteries Corp. has been fined $670,000 by the federal agency that tracks money laundering and terrorist financing.

De Jong said Tuesday he is reviewing reports he has just received about more than 1,000 violations by the lottery corporation of the federal Proceeds of Crime and Terrorist Financing Act.

"Obviously the facilities are there to administer to members of the public engaged in lawful gaming activities and if some of these early reports are true, yes, it is troubling," de Jong said. "Gaming is legitimate activity. It is regulated heavily. We expect both those providing the gaming actrivitesand those consumer and customers who use it to abide by the law."

And de Jong said that if police need to be more involved in assisting B.C. Lotteries in dealing with potential for abuse by crime groups, he is prepared to look at it.

"The law enforcement agencies do monitor and are involved on an on-going basis ," de Jong said. "Whether or not that has to change or be adjusted is something we are prepared to look at."

B.C. Lottery Corp. CEO Michael Graydon confirmed Tuesday that the Financial Transactions and Reports Analysis Centre of Canada - FINTRAC - issued the fine after BCLC misfiled 1,020 reports for transactions of over $10,000 in B.C. casinos. Graydon said the penalty also comes because BCLC missed a deadline to implement a program to target potential risks.

Graydon said the issues arose from an audit FINTRAC did between Oct. 28, 2009, and Nov. 19 2009.

He added that similar issues had been uncovered by FINTRAC before, but said this is the first penalty BCLC has faced on the matter.

"This has been a reoccurring problem through two audits," he said.

"That work we thought had been done, another audit was done and we found that in fact it wasn't."

Graydon claimed that improvements have been made since last fall and that the corporation has "been error free since June 1."

Of the 1,020 infractions, 419 were related reports being submitted late to FINTRAC.

"We then revised the mechanism to send them and unfortunately by the time we did that, and were aware they had been rejected, they were out of compliance from a timeline perspective," he explained.

Another 366 reports were rejected because of clerical errors, such as information that was improperly recorded on the documents.

Another 227 reports were rejected because casino workers did not record information in enough detail to satisfy legal requirements. For example, he said, a worker may have allowed someone to identify themselves simply as a "businessman" when regulations demand a greater level of detail.

"This is a training issue," he said."We have to continue to work with the people at our casinos to make sure that they understand this is the level of detail you need to get to."

He said the final eight improper reports came because people cashed out more than $10,000 without proper identification, and the casino did not do the follow-up required under the law.

"We instructed them they needed to get id and come back," he said. "Those reports were not submitted properly, but we've put new procedures in place for that."

The B.C. Lottery Corp. files up to 50,000 reports to FINTRAC every year.

Part of the fine came because B.C. Lotteries missed a deadline for creating "a geographic profiling and high-risk profiling and analysis system" that had been requested by FINTRAC and is now in place, he said.

"This system that FINTRAC works under was designed really for the banking community and is being applied to our industry. So we're having to make some very significant adjustments to training within the facilities to comply with more of a banking regime than an entertainment regime," he added.

On Tuesday, NDP critic Shane Simpson wrote to RIch Coleman, minister in charge of B.C. Lotteries, demanding a full review of FINTRAC's allegations.

And he said that the federal agency raised concerns about BCLC before.

"In 2008, the BCLC was criticized for inadequate reporting relatd to money laundering," Simpson said.

And he said BCLC board chairman John McLernon claimed at the time in a letter then minister John van Dongen that a number of steps were being taken to fix the problem.

McLernon said there were more incidents of suspicious transactions at B.C. casinos than in other Canadian jurisdictions.

He said the BCLC was going to "begin monthly reviews of all cheques issued by service providers to analyze trends and mulitple wins" and was to introduce special training for casino workers.

"BCLC will enhance its internal audit process to include a more frequent and systematic review of anti-money laundering procedures at casinos," the letter said.

He concluded saying that he had "no doubt in light of these comments that the BCLC will do all that is necessary to address these concerns."

Last year, the B.C. government increased the weekly limit that can be spent on online gaming to $9,999 from $120. Critics said the move was set subvert FINTRAC rules where transactions of $10,000 or more must be reported to Ottawa.

De Jong said Tuesday he didn't know how the limit was arrived at.

"It is the kind of thing that the gaming branch looks at. It is market-driven. But I can't give you a definitive answer," he said.

FINTRAC director Jeanne Flemming laid out some of the potential abuses of casinos in a speech last summer. But Flemming said that doesn't always happen.

"I will be frank. The casino sector needs to improve their compliance programs, and specifically the quality and quantity of their reporting in some areas. It is clear to us at FINTRAC that more can and should be done," Flemming said.

She said one review indicated half the casinos examiend "did not have an effective anti-money laundering training program in place."

"We also found that many casinos are struggling with reporting large cash transactions in accordance with the 24-hour rule. Casinos are required to report large cash transactions of $10,000 or more but if a series of smaller transactions are conducted within a twenty-four hour period that total $10,000 or more, this also triggers the obligation to report. Specifically, in some provinces this reporting rule was not complied with 95% of the time," she said.