The chairman of the board of directors of the BC Lottery Corporation did not warn the provincial gaming minister in late 2015 about the corporation’s knowledge of Chinese transnational money laundering scheme using government casinos, but instead worried about competition from illegal casinos, a public inquiry has heard.
And at a meeting in September 2015, then-BC Liberal Gaming Minister Mike de Jong was informed by then-BC Board Chair Bud Smith of the specific address of an illegal casino in Metro Vancouver that was raided by police shortly after. But, the Cullen Commission heard, the underground casino was eventually found to be deserted.
The stunning testimony of Smith could shed light on previous statements at the inquiry that indicated that certain staff of Lottery Corp. were afraid of being accused of leaking information about illegal casinos.
The investigation has previously heard that de Jong sent a letter to executives of Smith and Lottery Corp. on Oct. 1, 2015, ordering them to clamp down on hundreds of millions in suspicious transactions. B.C. officials had learned of a major RCMP investigation targeting international drug traffickers, loan sharks, and so-called “VIP” baccarat players at Richmond’s River Rock Casino. And de Jong ordered the Crown agency to determine the source of any cash before accepting it.
The commission, which is required to determine whether corruption allowed B.C. casinos to take root in money laundering has heard that the Gaming Policy and Enforcement Branch concluded that illegal cash transactions via Asian gangs and loan sharks and Chinese high rollers increased exponentially after 2010, and that drug money laundering in B.C. was suspected in 2014. It was estimated that casinos would hit around $200 million per year. And Lottery Corp. brass was warned in 2014 that most Chinese high rollers took loans from well-known drug-trafficking-related loan sharks and repaid low-fee funds in China.
The inquiry heard on Thursday that at a board meeting in October 2015, Smith and Lottery Corp. CEO Jim Lightbody addressed the effects of the de Jong directive, which was estimated by the board to result in losses of hundreds of millions. In response, a letter with input from Lightbody for Smith to share with de Jong was drafted by compliance executive Robert Kroeker.
B.C. government lawyer Chantelle Rajotte told the hearing that Smith’s draft letter said that “Requiring every slot and table player to fill out a source of funds evaluation … prior to acceptance of funds is likely to result in widespread business disruption and is likely to have a very widespread adverse impact on player visitation rates … (and will) in all likelihood put much of the 77 percent of slot and table play revenue that is cash-based in jeopardy.”
However, Smith testified that he never sent the draft letter to de Jong. Instead, he claimed to have met de Jong in person to discuss the source of the cash directive.
Rajotte said that Smith’s briefing notes for that meeting said that “a small number of high-value patrons account for a significant amount of B.C.’s gaming revenue,” and for cultural reasons, these VIP baccarat players preferred to use cash.
Under cross-examination, Smith — a former MLA and B.C. attorney general said that he’d been referring to about 250 high-limit players that accounted for a “disproportionate” number of the Lottery Corp.’s suspicious cash transactions.
Smith admitted that he knew before meeting de Jong that interviews at River Rock Casino with 13 of these high rollers revealed that they borrowed cash from unknown sources in B.C. and paid back the funds in China and Canada to unknown banking accounts. The criminal scheme would later become known as the money laundering’ Vancouver Model.’
Rajotte asked that “This information didn’t make it into the briefing of minister de Jong?”
Smith answered that “That’s correct.”
Rajotte indicated to Smith that until January 2018, de Jong’s anti-money laundering directive failed to followed by the Lottery Corp. because it would have had a significant impact on its revenue.
Smith disagreed, claiming that de Jong made it clear that his directive did not mean what it was saying.
Smith said that “What actually happened is that I met with the minister, and asked about the phrase — whether that meant every $20 bill that came into the casino, that the people would have to be questioned about the source of funds. The response was, ‘No, no, that is not what I expect to happen. I expect you to be more diligent … (but) not on a prescriptive basis.”
Smith said he didn’t ask de Jong to put that explanation in writing, and that he could not recall when the alleged meeting took place.
He added that he was worried, however, about “little or no enforcement” of illegal casinos in Metro Vancouver and that he briefed de Jong on the problem in September 2015.
Smith said that “I just felt not enough was being done to take down those facilities, and they were present and probably still are. I was aware of an address. And I shared that (address) at that meeting.”
The inquiry heard that the underground casino in Metro Vancouver was targeted by a police investigation, and the facility was shut down when officers arrived. Smith did not reveal how he knew about the address of the underground casino or why he shared the details with de Jong.
Smith also added that “I had heard about these things. have connections to various people and I made a few phone calls, and low and behold, up came the address.”
The investigation also heard earlier that Lottery Corp. compliance executive Kroeker had asked not to be informed of details of an investigation into another illegal casino in Metro Vancouver because he did not want to be accused of leaking information. The investigation is expected to examine whether high-value casino chips were being used in illegal casinos that went missing from the River Rock.
Smith said before stepping down in June 2018, he warned B.C. NDP gaming minister David Eby that authorities were not cracking down on illegal casinos.
And he told a commission lawyer that underground casinos are highly competitive with government casinos, partially because credit is provided by the underground ones.
Smith cursed and vehemently denied at one point in his testimony that someone at the Lottery Corp. or B.C. government has agreed to turn a blind eye to money laundering.
And he said both Eby and de Jong were advised that the province should consider stopping baccarat games where high rollers could bet up to $100,000 per hand.
Smith said that the only other jurisdictions that offer such games are Macau, Las Vegas, Australia, and Boston.
Meanwhile, the inquiry heard a day earlier that a VIP room manager at River Rock Casino downplayed a sexual assault committed against another staff member by a high roller.
Lottery Corp. investigator Ross Alderson investigated the February 2016 incident.
According to Alderson’s report, Great Canadian Gaming’s then-compliance director, Pat Ennis, felt Alderson had no power to do so.
His report said that “Writer spoke with Pat Ennis who indicated that police were not called by Great Canadian Gaming on the wishes of one of the staff members, however, the writer believes the staff member was in an extremely vulnerable position and looked to her superiors for assistance support and direction.”
Ennis acknowledged that the VIP director involved behaved improperly. But he said that the Great Canadian was right in handling the incident.
Lisa Gao, the VIP manager, was later de-registered in a branch investigation that discovered in late 2017 that she helped another man buy $200,000 worth of casino chips from a banned River Rock high roller, the investigation heard, in violation of Canada’s anti-money laundering rules.