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BC Lottery Corp. CEO ignored federal anti-money laundering direction on bags of cash: inquiry

In this file photo taken on Thursday, May 23, 2013, an attendant demonstrates the game of baccarat on a baccarat gaming table during the Global Gaming Expo Asia in Macau.
In this file photo taken on Thursday, May 23, 2013, an attendant demonstrates the game of baccarat on a baccarat gaming table during the Global Gaming Expo Asia in Macau. (AP Photo/Kin Cheung)

A former BC Lottery Corporation CEO drove his executives to increase revenue via high-limit gambling but didn’t follow a direction from Canada’s anti-money laundering watchdog that required B.C. casinos to establish the source of massive cash transactions, a public inquiry has heard. 

At the Cullen Commission on Thursday, Michael Graydon, who stepped down as Lottery Corp. CEO in 2014 to manage a Vancouver casino, was examined on his revenue-generation orders.

Commission lawyers have been building the case that Lottery Corp. and casino managers hungered after revenue from foreign high rollers, even after being warned by investigators that B.C.’s casinos were being used to launder money by Chinese transnational drug gangs.

Graydon testified that on his watch, bet limits rose from $45,000 per hand in 2008 to $100,000 per hand in 2014. He also said casino managers and the Lottery Corp. targeted high rollers from casinos in Macau and spent money on facilities to attract these so-called “VIP” baccarat players.

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The inquiry has previously heard that in 2010, B.C.’s Gaming Policy and Enforcement Branch started to urge the Crown agency to cap the acceptance of tens of millions in $20 bills flooding into casinos through loan sharks and the VIPs. Investigators at both the branch and the Lottery Corp. believed the cash — which came into casinos wrapped in elastic bands and carried in grocery bags and boxes — was drug money.

But after a branch report warned Graydon the Lottery Corp.’s top 22 high rollers were responsible for suspicious “buy-ins” of $45 million, he pushed back, the inquiry heard, arguing that cracking down on cash buy-ins would impact Lottery Corp. revenue.

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Commission lawyer Patrick McGowan read two emails that Graydon sent to his executives in December 2011, including Jim Lightbody, who took over for Graydon as CEO in 2014. McGowan said the emails showed Graydon was only focused on revenue generation, but ignored his mandate to generate income responsibly and with appropriate anti-money laundering measures.

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“I want to stress to the group that it is absolutely critical that we come in on budget from a net-income perspective this year,” one email said, according to McGowan. “If we do not, I also want to be very clear there will be no opportunity to pay out incentive this year … the tone in government is not good these days … So remember the consequences you will unleash if you do not participate with some energy through this process.”

A second email said: “It is imperative that your division comes in with these numbers or better. As I have said before, Victoria is not keen to pay incentive if budgets are not met.”

Graydon told McGowan that some of his executives earned bonuses of up to 25 per cent of their salaries, and that he used incentives to motivate his team. When McGowan asked if any B.C. government ministers responsible for gaming had pressured Graydon to produce revenue, he said he understood his mandate was to meet the Lottery Corp.’s budget projections.

Read more: Gangs made B.C. casinos too dangerous to investigate for money laundering, inquiry hears

In a stunning statement, Graydon said he recalled that Fintrac, Canada’s anti-money laundering agency, wanted the Lottery Corp. to accept massive suspicious cash transactions so that the agency could report the data back to Fintrac.

McGowan had probed Graydon, asking if he could give any good explanation for B.C. casinos accepting transactions of $200,000 in cash, with $20 bills bundled in bricks of $10,000 and delivered to casinos in grocery bags. He asked Graydon if he hadn’t considered an obligation to reject these types of transactions.

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“Fintrac actually wanted us to accept the cash,” Graydon said.

Later, a lawyer for the federal government challenged Graydon on the matter, and he acknowledged he had no evidence to back his claim.

“No, this was just a recollection from an observation,” Graydon said, later adding he was “likely” mistaken.

B.C. government lawyer Kaitlyn Chewka then read a December 2012 email addressed to Graydon and titled “Fintrac audit.”

A Lottery Corp. anti-money laundering manager had alerted Graydon that Fintrac “feels we need to have the service providers ask where the money is coming from if someone attends with an inordinate amount of cash.”

Chewka told Graydon that he didn’t follow Fintrac’s direction and that the Lottery Corp. didn’t require patrons to declare source of funds for large cash transactions until 2018.

Read more: B.C. casino bosses complained that drug-trafficking probes were hurting business: inquiry

“I’d suggest to you the reason why BC Lottery Corporation didn’t want service providers refusing the cash, is you were concerned with the potential loss of revenue,” Chewka said. “Is that accurate?”

“Not totally accurate,” Graydon said, reiterating that he believed his mandate was to deliver revenue to the B.C. treasury, report suspicious transactions, and cooperate with regulators and police.

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Outside of the hearing, Global News obtained a clarification on Graydon’s statements about Fintrac.

“FINTRAC does not under any circumstances tell businesses how to conduct their business,” a spokesman said. “FINTRAC only requires that businesses … fulfil their obligations, including submitting suspicious transaction reports when required to do so.”

The inquiry continues.

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