Ethics and Compliance Plan for a Casino
Abstract
This ethics and compliance plan for a casino in Texas provides background information on the industry, regulations to be considered, and the nature of the proposed organization. Because of state regulations, the proposed organization is for a waterway casino that will operate gambling activities outside state jurisdiction in international waters off the Texas coast. This plan further discusses how regulations will influence business activities, and what the roles and responsibilities of the compliance professional will be for the casino. It provides a detailed description of the governance structure of the business as well as the importance of maintaining an audit committee to oversee compliance. Furthermore, the process of interfacing with compliance is described by defining economic capital and measures for assessing and managing risk, including quantitative and qualitative approaches. Risk mitigation strategies are explained using stress tests, extreme value theory, and measuring operational risk. Finally, the establishment of a culture of ethics through the application of authentic leadership is discussed before a summation of information is provided in the conclusion.
Background
The casino industry produces revenues of $70 billion a year globally (FATF, 2009). It is a cash-intensive industry, and as such there a number of risks involved that have to be managed. Casinos are widely known, for instance, as hubs for money laundering, and the financial activities of casinos are similar to financial institutions, which is why vulnerabilities receive a great deal of attention when it comes to compliance. Casinos differ from financial institutions in the respect that they operate within an entertainment context, providing shows, dining and other experiences for guests. Thus, while they are considered non-financial institutions, financial activities make up a bulk of the enterprise. Casinos must accept funds on account, engage in money exchange, proceed with money transfers, provide cashing facilities, and service other financial transcations, similar to what would be found in a financial institution. Maintaining transparency of the movement of funds, operating the casino with respect to regulations, and managing internal controls within the casino are all essential aspects of operations. One inherent risk in the business is that of criminality. The FATF (2009) warns that casinos represent the greatest risk for money laundering activities and this was reflected in the revision of the FATF 40 Recommendations 2003, with obligations on casinos being significantly enhanced in relation to Customer Due Diligence (CDD), record keeping, reporting of suspicion, and comprehensive regulation and supervision (p. 9). For this reason, ownership structure, integrity within the organization, the implementation and management of internal controls, and corporate governance of casino/gaming institutions are central to the success of the business. Compliance plays a vital role in ensuring that the casino operates within its legal scope. Gaming must be conducted honestly, using surveillance techniques as well as security systems to ensure the protection of the business operations and its clientele and investors.
Regulations
The casino industry is regulated at the state level. Under US federal law, gambling is legal. States have the right, however, to regulate the industry and typically do so through a gaming control board (GCB). In Texas, state law prohibits all forms of gambling. However, the Kickapoo Lucky Eagle Casino operates in Texas under federal law because it is located on an Indian reservation in Eagle Pass, Texas (500 Nations, 2021a). Currently, the Texas House is considering a joint resolution bill HJR 133 that would let voters decide in November whether or not to allow commercial casinos in the state. The bill proposes a limit of four destination casinos to be built in Austin, Dallas-Fort Worth, Houston and San Antonio (500 Nations, 2021b). The bill...
…financial institutions.Establishing a Culture of Ethics
Leadership is instrumental in establishing a culture of ethics, and the dominant leadership style to be used in the casino is authentic leadership. Authentic leaders embody the ethical code of conduct and morals required for conducting business operations according to standards of honesty and integrity supportive of good governance.Authentic leaders promote virtue through their own example, and followers understand that deviation from the virtues promoted by leadership is unacceptable (Gigol, 2020). Authentic leaders are responsible for articulating the values and code of ethics that will be expected and required of all employees. Their leadership must reflect these values in their entire capacity. When hiring for management positions, the quality of authentic leadership style will be a primary feature to determine an appropriate fit for candidates.
Summary
The casino industry drives revenues of $70 billion annually. States are responsible for regulation in the US. Texas law currently prohibits gambling casinos. A workaround solution is to provide gambling on a casino boat, as has been done at Texas ports for years. The proposed organization is for a casino boat sailing out of Galveston, Texas, into international waters 9 miles away where gambling activities can be conducted outside Texas jurisdiction. It is the duty of compliance officers to coordinate, nonetheless, with federal and state regulatory offices to ensure the legal and safe operations of the business. Self-regulatory systems are crucial to the success of the business, and governance structure should include an audit committee to oversee compliance. Risk mitigation strategies will be adopted, such as stress tests, EVT, measuring operational risk, and managing risk through modeling as well as other quantitative and qualitative approaches. A culture of ethics will be inscribed into the organization by way of authentic leaders hired for their capacity to bring integrity and honesty along with…
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