Money laundering in B.C. casinos with huge amounts of $20 bills in duffel bags and paper bags was "obvious" and a problem the B.C. Lottery Corporation needed to deal with to be a good corporate citizen, public servants warned almost a decade ago in correspondence obtained by CTV news.

The agency’s response at the time: dismiss the concerns, according to records newly uncovered through a Freedom of Information request. The person who wrote BCLC’s reply is now the director of its anti-money laundering unit.

"Red flags were put up and red flags were ignored," said Dermod Travis, with watchdog organization Integrity BC.

Travis said the timeline of these warnings – just a year after 2009, when the previous Liberal government shut down an RCMP illegal gambling task force, claiming it wasn’t effective – shows that criminals were only too happy to take advantage.

"What BCLC’s response said, and what this disbandment of the RCMP force said was, ‘Open for business," Travis said. "The current government needs to get out in front of this and call a public inquiry."

In 2010, officials noticed a "dramatic increase" of big buy-ins using small denomination bills, including one man who was able to buy in $3.5 million over two months, according to a letter from the public safety ministry’s gambling watchdog.

"We believe BCLC needs to seek solutions to the obvious, and increasing, money laundering that is occurring, particularly involving the flood of small denomination money, within B.C. casinos," wrote Derek Dickson, the director of casino investigations for the Ministry of Public Safety.

The reply came a month later, from BCLC’s Assistant Manager of Security John Karlovcec, who said that BCLC’s review showed this patron’s buy in patterns "do not meet the criteria that would indicate he is actively laundering money in British Columbia casinos."

Karlovcec, according to public posts, is now BCLC’s director of anti-money laundering investigations. He is a former Surrey RCMP drug squad officer who left the force in 2006.

BCLC told CTV News that Karlovcec is unavailable for an interview. In the past, BCLC president Jim Lightbody has said, "We have zero tolerance for criminals who may attempt to target our business. If there is something more we can do to improve the anti-money laundering efforts in B.C., we’ll do it."

In the nine years since 2010, the problem only got worse, adding up to more than $100 million cleaned via B.C. casinos in what investigator Peter German deemed a "collective system failure" where casinos "unwittingly served as laundromats" for the proceeds of crime.

The current NDP government under Attorney-General David Eby has introduced a $9,999 maximum cash buy-in unless the patron can prove the source of the cash. Canadian rapper Drake was ensnared by that rule and denied a buy-in on a recent visit to Parq Vancouver's casino.

Karlovcec works with Robert Kroeker - BCLC’s Vice-President of Corporate Security and Compliance - who oversaw the River Rock Casino, at the epicentre of this trend. Kroeker resigned his position as the chair of the Justice Institute’s Board in October, after first agreeing to an interview with CTV News on the issue, then locking a door.

In the Nov. 24, 2010 letter, BCLC's then-director of Casino Investigations in the Lower Mainland Derek Dickson wrote to then-Manager of Casino Security and Surveillance, warning him that Gaming Policy and Enforcement investigators had seen a "dramatic increase" in suspicious transactions.

"This division, the Branch and the RCMP are very concerned about the potential money laundering by patron [censored] in BC casinos," Dickson wrote.

He detailed a series of buy-ins, as much as $200,000 in cash at a time, nearly all of it in $20 bills, and as much as $325,000 in casino chips.

At one point, he bought in with $280,000 in chips, lost it all, and then "came back minutes later for $60,000 in Canadian currency, all in $100 denominations."

The two-month total for buy-ins with $20 bills was $3,465,940, the letter says.

"This is not an isolated case and we have seen numerous similar large buy-ins with small denominations at numerous casino venues in the province," Dickson wrote. "It typically involves well known LCT [large cash transaction] patrons that play baccarat and arrive with cash as a buy-in."

Dickson says he met with the RCMP’s officer in charge of the Integrated Proceeds of Crime Unit, "and they are well aware of the issue and are seriously concerned that the casinos are being used as a method to launder large sums of money for organized crime groups."

He says it’s clear that BCLC is meeting its obligations to report transactions to FINTRAC and to the ministry’s watchdog.

"However, although identifying the suspicious nature of these transactions and complying with the legal requirements to report suspicious criminal activity (money laundering) to the police and regulatory agencies you continue to allow the service providers to take these large amounts of $20 denominations in duffel bags, paper bags, etc. to be used for gambling in the casinos.

"BCLC is responsible for the conduct and managing of casino gaming in British Columbia through standard operating procedures and we believe, at a minimum, as a good corporate citizen you should re-assess your corporate responsibility in allowing these large amounts of $20 denominations to enter the casino gaming environment. A restriction of allowing a maximum of $10,000 in $20 denominations could remedy the situation," he wrote.

After Karlovcec’s letter in response, Senior Director of Investigations Joe Schalk wrote again on Feb. 28, 2011, warning that the problem of money laundering in casinos was not going away.

"There were then, and continue to be, an alarming increase in similar large buy-ins with small denominations by a significantly large number of patrons at various casino venues," he wrote. "If the flow of large quantities of small denomination cash is not stopped at the casino cash cage with those monies being refused, the integrity of gaming will continue to be jeopardized. This threat will increase into the future if something is not done."

No one at BCLC wrote back, the documents say.

In Dec. 2014, after years of raising similar warnings, Schalk and his boss, Larry van der Graaf, were dismissed without cause.