FinCEN sees apparent violations at casino

The façade of the Imperial Pacific Resort and Casino in Garapan. (KRIZEL TUAZON)

The Financial Crimes Enforcement Network of the U.S. Treasury Department has notified Imperial Pacific International Holdings Ltd. and its subsidiaries about apparent violations of the Bank Secrecy Act and its implementing regulations in connection with IPI’s casino operation on Saipan.

In its Annual Results for the Year ended Dec. 31, 2019, Imperial Pacific International Holdings Limited said that FinCEN checked its subsidiary if it was complying with the regulations of the Bank Secrecy in 2017.

The company discussed FinCEN’s letter dated March 4, 2020, in its Annual Results for the Year ending Dec. 31, 2019, which the company’s executive director, Cui Li Jie, filed on March 31, 2020. The company is listed in the Hong Kong Exchanges and Clearing Ltd. and the Stock Exchange of Hong Kong Ltd.

That FinCEN letter was among the topics discussed during yesterday’s Commonwealth Casino Commission board meeting held via video conference. The letter was also discussed briefly during the CCC’s board meeting last month.

Meanwhile, the CCC commissioners elected yesterday Edward Deleon Guerrero as board chairman, Rafael Demapan as vice chairman, Ramon Dela Cruz as secretary, Mariano Taitano as treasurer, and Diego Songao as public affairs officer.

In a Facebook post yesterday, Rep. Edwin Propst (Ind-Saipan) quoted Deleon Guerrero sa saying that, if IPI does not respond to the FinCEN report, then “this whole gaming industry is moot.”

Propst said Rep. Tina Sablan (Ind-Saipan) brought this FinCEN report up during the confirmation hearings for CCC commissioners and that it was great to see Deleon Guerrero address it yesterday (Thursday).

FinCEN earlier fined Tinian Dynasty Hotel & Casino $75 million, the largest fine in FinCEN history, for violation of anti-money laundering regulations under the Bank Secrecy Act.

Propst said it appears IPI may be facing civil penalties and additional enforcement actions from FinCEN, “which could be extremely damaging, considering the fact that IPI is currently struggling just to pay its electricity bills.”

In its Annual Results, the company disclosed that the group (subsidiaries) received FinCEN’s letter, which asked the group to provide certain information and documents relevant to compliance with the BSA requirements from October 2016 through the present.

The company said FinCEN has indicated in the letter that there were apparent violations and that it is considering whether to impose civil money penalty or take additional enforcement action against the group.

The company said the group is still in the process of preparing for the required information and documents.

The company’s directors believe it is not practicable for the company to accurately predict the resolution of this matter, including timing or any possible impact to the group.

The company said the group has been and is under normal operation, save for the temporary closure of its casino operation on Saipan due to the COVID-19 outbreak.

The company said based on the group’s external and internal legal counsel’s advice, the directors believe that the ongoing investigation would not result in a material breach of the provisions of the group’s Casino License Agreement or the Commonwealth Casino Commission’s regulations.

In 2017, IPI was subjected to a routine BSA compliance examination conducted by the Internal Revenue Service for the period from October 2016 to March 2017. During the year, the company said, the IRS issued a report with findings on IPI’s compliance with the BSA.

The company said IPI, through its external legal counsel, had responded to the IRS report and acknowledged certain of the findings of violations that were noted in the IRS report.

IPI then received a letter from FinCEN dated March 4, 2020, which asked IPI to provide certain documents related to compliance with these regulatory requirements from October 2016 through the present.

On the issue of searches, the company said that, on Nov. 7, 2019, federal government authorities searched IPI offices to request certain documents and information. A federal grand jury later issued two grand jury subpoenas on IPI to provide additional documents and information. The company said IPI is fully cooperating with these authorities.

The company said the group (subsidiaries) has engaged independent external legal counsels to conduct an independent investigation on the financial transactions undertaken by the group with the named parties in the two subpoenas for the period from 2013 to 2019.

Based on the findings from the investigation reports, the company said their directors have not identified any transactions which were assessed to be either of a high or moderate risk to a criminal liability exposure.

The company said both the external and internal legal counsels of IPI have also opined that the criminal liability exposures which were assessed to be of a low to moderate risk in the investigation reports do not amount to a material breach of any provisions of IPI’s Casino License Agreement or the CCC’s regulations.

The directors also believe that IPI had not undertaken any unlawful activities, and IPI has sound defenses that it had acted in good faith and conducts.

The company said the group continues to cooperate with federal government agencies. “…The investigation is still ongoing and it is premature to predict the eventual outcome,” the company said.

Accordingly, the company said, the potential for any fines, penalties, or other consequences cannot currently be assessed. “It is also not yet possible to identify the timescale in which these issues might be resolved,” the company said.

The company also expects the opening of villas and hotel rooms of the Imperial Palace in 2020 will enhance their capacity to better accommodate their high-end patrons.

The company said an additional $87 million has been invested in design and construction of this super luxurious casino resort during the year, bringing the total investment to about $879 million by the end of 2019.

The company said the lack of the labor has been eased and they have secured enough laborers from Mongolia, Turkey, Italy, and Taiwan to ensure the need of the construction project.

As for the COVID-19 pandemic’s impact on their business, the company said it is premature to forecast when the pandemic can be contained, but a prolonged coronavirus crisis “may have a material effect on our 2020 financial results and our integrated resorts’ developments on Saipan, at least for the first half of 2020.”

The company believes that Saipan tourism still has “great potential in the long run, benefiting from the island’s favorable weather, stunning attractions, proximity location, and flexible visa policies, with more hotels to be built and opened.”

The company said the group incurred a net loss of HK$3,094 million during the year ended Dec. 31, 2019, and, as of that date, had net current liabilities of HK$4,675 million and capital commitment of HK$545 million.

The company’s directors believe that the group will have adequate funds available to enable it to operate, based on the group’s business forecast and cash flow projection.

The company disclosed, among other things, that subsequent to the end of the reported period, the company has raised new unsecured loans for an total of HK$192,174,000 from independent third parties, which are repayable in 2021.

The company said Inventive Star Limited and other parties will provide additional funding to finance the group’s operations and capital investments.

Inventive Star, a company incorporated in the British Virgin Islands, is the ultimate holding company of the company and Cui Li Jie is the ultimate controlling party.