California card room agrees to record $5.3 million penalty

The California Department of Justice (DOJ) today announced a settlement in which Artichoke Joe's Casino in San Bruno agreed to pay a penalty of $5.3 million for misleading gambling regulators and violating the Bank Secrecy Act, a federal law intended to combat money laundering. The casino is a 51-table cardroom with the eighth largest gross gambling revenue in the state. After the cardroom failed to timely or accurately report an investigation by the federal Financial Crimes Enforcement Network (FinCEN), DOJ’s Bureau of Gambling Control (Bureau) initiated a license disciplinary proceeding against the casino and its owners. Today’s settlement includes the largest agreed-upon penalty in the history of California gambling regulation.

Under California’s Gambling Control Act of 1998, casinos are required to make timely, full, and true disclosure to gambling regulators. The Bureau determined that Artichoke Joe’s Casino was in violation of the law when it failed to accurately report, reveal, or disclose in a timely manner that FinCEN or any other federal agency was examining the casino with respect to the Bank Secrecy Act and that the casino and FinCEN were in negotiations that could result in the casino’s admission of Bank Secrecy Act violations. Later, as part of the settlement reached with FinCEN, the casino admitted to violations of the Bank Secrecy Act, and the Bureau amended its allegations to include the admission.

Both the failures to disclose and the admitted violations of the Bank Secrecy Act breached the casino’s duties and responsibilities under the Gambling Control Act. As a result of the settlement secured by DOJ related to this case, the casino and its owners will pay a penalty of $5.3 million, reimburse the Bureau for costs associated with the case, and complete a required 36-month compliance period. Artichoke Joe’s ability to hold its state gambling license will be contingent upon meeting the terms of the settlement throughout the entire 36 months.

The penalties assessed in this settlement are in addition to the $5 million penalty imposed by FinCEN as part of its settlement. In that settlement, the casino’s admitted violation of the Bank Secrecy Act's program and reporting requirements included: failing to implement and maintain an effective anti-money laundering program; and failing to report certain suspicious activity. Artichoke Joe’s Casino also admitted that its violations covered more than eight years, from October 19, 2009, through November 15, 2017.

DOJ is committed to protecting the interests of the people of California and upholding the state’s laws and regulations. Last year, DOJ announced the arraignment and charges against Eric Nguyen and Khan “Tina” Tran in connection with an alleged gambling scheme that resulted in the theft of approximately $4 million from the 580 Casino in Livermore. In May of 2020, the Bureau of Gambling Control served an emergency order closing Towers Casino in Grass Valley. Later in 2020, emergency orders were served closing Kings Card Club in Stockton, Lake Elsinore Casino in Lake Elsinore, and Lake Bowl Cardroom in Folsom for failing to comply with state COVID-19 orders. In 2019, special agents with the California Department of Justice arrested two individuals for their alleged involvement in an embezzlement scheme that resulted in the theft of more than $200,000 from the Red Hawk Tribal Casino. DOJ also secured a more than $3 million settlement against Hawaiian Gardens Casino for misleading gambling regulators and violating federal laws intended to protect against money laundering.

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California could see $30 billion in bets if sports betting is approved

If California voters approve online and retail sports betting in November it will open the door to a market that has the potential to generate more than $30 billion in wagers annually, according to projections from PlayCA.com, which analyzes legalized gambling in California. Those wagers would generate some $2 billion in operator revenue and $300 million in state taxes each year.

"California is the holy grail of sports betting markets, and not just because of its sheer size," said Dustin Gouker, chief analyst for PlayCA.com. "It appears that legislators are working to put in place a structure that will make California uniquely attractive to every major operator. And because it has the potential to be the largest legal sports betting market in the U.S., ultimately it represents a seismic shift in the industry."

The California assembly took a significant step toward the legalization of online and retail sports betting in the Golden State on Thursday by adding implementation details to ACA 16 and SCA 6. The new language in the bills, which were originally introduced in June 2019 by Sen. Bill Dodd (D-Napa) and Assemblyman Adam Gray (D-Merced), would amend the state constitution to:
Authorize retail and online sports betting at the state's tribal casinos and racetracks if approved by voters, but not at the state's cardrooms.

Set a tax rate of 10% on gross revenue for in-person wagering and a 15% tax for mobile or online wagering.

Impose taxes on the platform operators rather than directly by the tribes, to avoid sovereignty issues.
The tax rates are reasonable within the context of legal U.S. sports betting jurisdictions. By comparison, New Jersey, the nation's largest online sports betting market, levies a 13% tax on online sports betting revenue and 9.75% tax on revenue from retail sportsbooks. Pennsylvania levies a 36% rate, by far the highest in the nation.

With the proposed tax rate, California could generate $240 million in operator revenue and $36 million in state taxes annually from online sports betting and another $60 million in operator revenue and $6 million in taxes a year from in-person betting, according to PlayCA.com estimates.

"The tax rates are fair for both operators and the state, and would be competitive with many of the states that have already legalized sports betting," Gouker said. "The rate certainly won't scare off sportsbook operators, who are all eager to enter California. This balanced approach should help the market ramp-up quickly once the industry launches, which is ideal considering California's budget crunch."

The state assembly and senate still must approve the bill, and then it must be signed by Gov. Gavin Newsom, before it can make its way to ballots this fall. But with a $50 million shortfall in California's budget, and deep cuts expected, there is pressure on lawmakers to find new sources of revenue.

"The structure of these bills seems sound, and it should help the state eventually realize its revenue goals to the benefit of all of California," Gouker said. "As for the gaming industry, if sports betting is approved by voters, it stands to change the face of sports betting across the country."

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This Week in Gambling: California online poker and the NFL to Las Vegas

This Week in Gambling, online poker in California has taken a big step forward, while a third state has legalized and regulated fantasy sports. Plus, will Las Vegas get its own NFL team?

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