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Crooks in charity bingo.

States and localities should be certain that bingo and other types of charitable gambling are fund-raising opportunities for deserving charities, not a money machine for racketeers and the Mob.

The favorite evening haunt of Aunt Tillie and Grandma Jones, the bingo game, could be a money machine for the Mob. A ludicrous notion?

A recent investigation by the Pennsylvania Crime Commission found that organized criminals had established large bingo halls across the state. Operating under the bingo licenses of local charities, racketeers were generating millions of dollars a year in cash. Indeed, even crime "families" of Philadelphia and Pittsburgh were part of the act, exacting "street tax" from bingo racketeers and skimming proceeds through supplier contracts.

Racketeers have always been on the alert for new "business" opportunities. The ideal racket is a low-profile activity that will generate significant cash with little likelihood of arrest. When local police and prosecutors are preoccupied with violent crime, drugs, burglaries and auto theft, the enforcement of state bingo statutes has a very low priority.

Fully aware of this, and armed with lots of cash to corrupt charities and local officials, racketeers have prospered in the bingo business for generations. Since the 1930s when Vincent "Jimmy Blue Eyes" Alo, a Mafia lieutenant in the Vito Genovese La Cosa Nostra family in New York, began in a bingo parlor in Broward County, Fla., the Mob and countless local racketeers have been deeply involved in charity-operated bingo games. As recently as the 1970s and '80s, the infamous Meyer Lansky and members of the Luccese La Cosa Nostra family of New York and the Bufalino family of Pennsylvania established bingo games at Indian reservations across the country.

The Pennsylvania bingo law provides that games may be held to raise funds for legitimate charities. The games must be operated by the charity itself and with bona fide members of the charitable group.

The crime commission's report identified bingo operations across the state that had operated under the licenses of charities, but were actually run by racketeers. Racketeers typically returned as little as 3 percent of the revenues to the charities. In most instances, the charities' participation was in name only--no legitimate members of charitable groups were involved in the operation of the games.

In May 1991, the Lebanon County district attorney served search warrants at two Pennsylvania bingo halls in Lebanon and Harrisburg. Documents and bingo equipment were seized, as well as considerable amounts of cash. First Assistant District Attorney Brad Charles testified before the crime commission about what police found at the bingo halls.

"When we went in there, we were quite frankly amazed at what we found," Charles said. "This was not a mom-and-pop bingo operation. This was a very well-organized, well-run and very well-funded operation. We found a shredding machine ... a huge safe, sophisticated money counters... We found cash in a large tub inside the safe--$10,000 in cash in a tub."

Ultimately, the district attorney obtained a conviction of the corporation operating the games, resulting in a forfeiture of more than $100,000. Sworn testimony before the crime commission revealed that the Lebanon bingo operation was run by Joseph Greenstone, who had been connected with illegal bingo games in Maryland, Pennsylvania and Florida.

A witness described Greenstone's method of operation. When a charity was approached, a deal was proposed.

"Generally what the gig there is ... we will make sure you |the charity~ get $100 a game |for use of the charity's license~ and we want to use your organization," the witness said. "So the guy says, gee, $100 a game, they are running all the games, 20 games a week, I get $2,000 a week for doing nothing? The problem is, though, unless (the racketeers) kick one of the nonprofit's ass a little bit, it will continue. And these people (Joe Greenstone and other racketeers) are the masters of the L & B system of business. They lead them and bleed them."

The commission found that legitimate charitable bingo operators were unable to compete with the illegal operators.

Under Pennsylvania law, the county treasurer issues bingo licenses. Robert D. Shaffer, Lawrence County treasurer, testified that illegal bingo operations " ... put a few of the little churches |bingo operations~ out of business ... they just quit because they couldn't get the crowds, because the big crowds would go to the big games." Larger, racketeer-operated bingo games offer busing service and illegal pull tabs to bring in patrons.

Carole Ann Wilson of Philadelphia's Deborah Hospital Foundation told the commission that, while the organization is highly dependent on bingo revenues to conduct its charitable work, revenues have declined as a result of racketeer competition.

Besides investigating organized crime, the crime commission regularly recommends crime-related public policy alternatives to the Pennsylvania General Assembly. In its recent report on bingo, the commission examined regulatory schemes in a number of states. It recommended that Pennsylvania carefully study the Massachusetts system.

A self-funding bingo regulatory system, the Massachusetts lottery commission's enforcement efforts are financed by a small tax on bingo proceeds and suppliers. Massachusetts licenses both the bingo games and suppliers. Lottery commission agents are responsible not only for enforcing the bingo law but also for training and supervising games and the operating personnel. The lottery commission has rulemaking authority over the amount of building rent paid by charitable bingo operators.

In addition to endorsing the highly successful Massachusetts system, the crime commission suggested that any new Pennsylvania regulatory scheme be based on the newly adopted bingo standards published by the North American Gaming Regulators Association.

The commission's report also endorsed two important recommendations of the Lebanon County (Pa.) district attorney concerning the penalty provisions for new bingo legislation. First, any new penalty scheme should be graded according to the amount of funds stolen or skimmed, and should parallel the commonwealth's existing theft statutes. Second, the law should provide specific authority for forfeiture of funds, and should create civil remedies for charities that have been defrauded by racketeers.

The crime commission concluded that while laws such as Pennsylvania's were designed to permit charitable organizations to raise funds by the operation of bingo games, the legislation has failed in its purpose. Pennsylvania's well-intended law has done little to keep racketeers and the Mob out of the local bingo halls.

A carefully considered plan of regulation patterned after the Massachusetts law can prevent criminal infiltration. Its system of regulation has resulted in increasingly profitable charitable bingo operations with no detected instances of criminal infiltration. States and localities should be certain that their legalized bingo isn't a money machine for racketeers, but rather a fund-raising opportunity for deserving charities.

David Lausten is deputy chief counsel for the Pennsylvania Crime Commission. A former South Dakota legislator, he served in both the House and the Senate.

Charities First to Suffer from Gambling Abuses

In most states, organized crime has been kept out of the charitable gambling business. But as a cash business with the potential for huge profits, charitable gambling remains susceptible to fraud and abuses by profiteers of all types. Charities--already suffering from increased competition from casinos, Indian gambling and even state-run lotteries offering pull-tab games--end up the big losers when gambling abuses occur.

Charitable gambling is now legal in 46 states. Bingo is the most commonly played game, but charities have expanded offerings to include pull-tabs, raffles, punchboards, casino nights and even sports pools.

The charitable gambling industry grew steadily and sometimes spectacularly in the 1980s, according to Gaming and Wagering Business magazine. But growth in the billion-dollar industry is slowing. In some states, charities are receiving a dwindling share of gambling proceeds. Of the $220 million wagered in charitable gambling in Colorado in 1991, only 15 percent was returned to nonprofit organizations, compared to 32 percent in 1979. Higher expenses, greater amounts going for prizes, fees to professional operators and increases in taxes contribute to the drop in the charities' share.

Texas Representative Doyle Willis says the idea behind legalizing charitable gambling in his state was to help veterans' groups and other nonprofit organizations. "But disabled vets and needy people aren't getting the amounts they need," he says.

Representative Willis is sponsoring a bill to lower tax rates on charitable gambling, and he advocates strict accountability and reporting requirements to be sure charities get most of the proceeds.

Abuses by some unscrupulous operators also threaten the industry and charitable organizations that rely on it for funding. Among the most common abuses in charitable gambling are:

* Skimming of gambling proceeds to profit operators.

* Improper expenditures of gambling proceeds.

* Collusion between bingo or pull-tab workers and players.

* Misrepresentation of prizes and false advertising.

* Sale of games under the table for illegal play.

* Kickbacks to retain sales sites.

* Creation of fake charities solely for gambling purposes.

Some nonprofit officials say, however, that allegations of corruption have been blown out of proportion by law enforcement and the press. Many gaming infractions are unintentional and result from a lack of experienced or trained staff. Frequently, charities operate with volunteers and a low administrative budget. In such circumstances, abuses like improper bingo-calling procedures and poor recordkeeping are more common than outright fraud.

In addition, outside operators or management companies may take advantage of charities by offering a new source of funding while keeping most of the profit for their own benefit--an unethical but not always illegal practice in some states.

States vary widely in the degree to which they regulate charitable gambling. A few states require not much more than proof of nonprofit status and a gambling license. They leave regulation and control to local governments. Most states limit the amounts of prizes and hours of operation and require charities to report proceeds. Some require bingo hall owners and ticket manufacturers to make financial reports. Some states require that only volunteers or members of the sponsoring charity operate games or require that sponsoring organizations be in existence for a minimum period of time.

Other states may limit the amount that can go for administrative costs or to outside operators. Some states regulate gambling within one governmental agency; others divide the responsibility for regulation and enforcement between two or more agencies. A few states allow municipalities to conduct charitable gambling.

Highly regulated states like Washington and Massachusetts may require extensive background checks and licensing procedures for charities offering gambling. Minnesota and North Dakota impose relatively high taxes to gain general fund revenue, as well as to cover enforcement costs. Other states, including Virginia and California, leave responsibility for regulation to local governments.

John Jacobson, executive director of the National Association of Fundraising Ticket Manufacturers, says that strong enforcement of existing laws is the key to preventing abuses. He notes that a small fee or tax can generate enough for the industry to pay for its own enforcement. Once legislators make key policy decisions about how charitable gambling should be conducted in their state, he says, there are other states that can serve as a model for effective regulation and enforcement.
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Title Annotation:includes related article on charitable gambling
Author:Lausten, David
Publication:State Legislatures
Date:Apr 1, 1993
Previous Article:Regulating the credit reporters.
Next Article:Supreme Court asks states to reform punitive damages laws.

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