UK Gambling Commission bets crackdown will improve AML compliance
Four gambling businesses have been fined £4.5 million for failing to put in place effective safeguards to prevent money laundering as the UK Gambling Commission works to improve anti-money laundering (AML) compliance for online gambling.
The announcement – a result of an ongoing investigation into online casinos – comes on the heels of the recent release of a guidance from the gambling commission aimed at helping casinos comply with rules for money laundering and terrorism financing.
InTouch Games Limited will pay £2.2m, Betit Operations Limited will pay £1.4m, MT Secure Trade will pay £700,000 in lieu of financial penalties, and BestBet will pay a financial penalty of £230,972.
Those fines were the result of an 18-month crackdown on the industry as the commission told 123 online operators to raise standards to comply with AML rules and protect consumers. Since the investigation began, five operators have surrendered their licenses and no longer operate in the UK. Last November, three companies paid nearly £14m in penalty packages as result of failing to put in place effective safeguards to prevent the flow of dirty money and keep consumers safe from gambling-related harm.
Expected to Know Your Customers
“We have been working hard to raise standards in the online industry to ensure that gambling is crime-free and that the one in five people in Britain who gamble online every month can do so safely,” said Gambling Commission Executive Director Richard Watson.
“We expect operators to know their customers (KYC) and to ask the right questions to make sure they meet their anti-money laundering and social responsibility obligations,” Watson said.
To help gambling operators meet their KYC and other obligations, the UK Gambling Commission recently issued a 98-page guidance that includes the recommendations of the Financial Action Task Force (FATF), the inter-governmental body responsible for setting international standards on anti-money laundering (AML) and countering the financing of terrorism (CFT).
Until the guidance was issued, most of the legal frameworks on money laundering have focused on wide-ranging prevention and detection of the activity as a way to finance criminal activities.
The commission says the guidance is to assist those who set casino operators’ risk management policies and procedures and controls for preventing money laundering and terrorist financing. “Casino operators will need to establish more detailed and more specific internal arrangements directed by senior management and nominated officers to reflect the risk profile of their business.”
This guidance puts the onus on senior staff to manage the casino operator’s money laundering and terrorist financing risks, and shows how it should be carried out on a risk-based approach. It won’t come as a surprise that the guidance also sets out a standard approach to the identification of customers and verification of their identities and including the obligation to monitor customer activities.
Senior management could face sanctions
The guidance warns of stiff financial or criminal penalties for those casinos that fail to comply.
“Senior management must be fully engaged in the processes around your assessment of risks for money laundering and terrorist financing. They must be involved at every level of the decision making to develop your policies and processes to comply with the Regulations,” the commission wrote. “Disregard for the legal requirements, for example, turning a blind eye to customers spending criminal proceeds, may result in criminal or regulatory action.”
According to the guidance, management must establish and maintain appropriate written risk-sensitive policies and procedures relating to:
- customer due diligence (CDD) measures and ongoing monitoring
- record keeping
- internal control
- risk assessment and management
- monitoring, management and internal communication of policies and procedures.
The guidance said casino employees also have a responsibility to fight AML and report to their manager any knowledge or suspicion of money laundering whether by customers, guests or other employees.
“You must conduct your customer due diligence on the basis of risk assessment, including simplified due diligence and enhanced due diligence (which includes politically exposed persons). You are also required to identify the beneficial owner and need to have evidence of identity in place for all customers.”
“The Commission will expect casino operators to be able to explain the reasons for any departures from that standard.”
Customer Risk Ratings for KYC
To help meet KYC obligations, casinos can use tools like risk rating to create an aggregate view of a customer or patron’s profile. Factors that can be used in the rating include their PEP (politically exposed person) status, whether they are on any sanctions lists, adverse media on or subpoenas issued for the patron and whether any prior SARs (suspicious activity reports) have been filed on the customer. Weights for each factor can be determined by each institution, depending on their risk tolerance.
The right solution can also dynamically update the risk factor depending on the customer’s or patron’s activity. In many cases, the customer’s risk rating is not updated after the onboarding phase and may not reflect changes since account opening. The ability to dynamically update a risk rating allows institutions to identify entities who are engaging in higher risk (and lower risk) activities, as the relationship grows and evolves.
Transaction Monitoring for Casinos
Technology can also be used to monitor transactions, especially across locations and at various points in time. Beyond threshold reporting, transaction monitoring can be used to detect various scenarios, that in themselves may not be risky but when combined with others, may be deemed as risky. Examples include:
- Multiple transactions below recordkeeping threshold
- Frequent deposits of cash, cheques, bank cheques, wire transfers into casino account
- Exchange small bills for large bills or vice versa
- Account activity with little or no gambling activity
- Associations with multiple accounts under multiple names
- Suspicion concerning the source of funds
- Funds transferred from casino account to a charity fund
- Suspicious exchange of currencies
- Suspicious receipt of government payments/benefits
- Transaction out of pattern for patron
About Anu Sood
Anu Sood (LinkedIn | Twitter) is the Director Marketing at CaseWare RCM and is responsible for the company’s global marketing strategy. She has over 20 years of experience in product development, product management, product marketing, corporate communications, demand generation, content marketing and strategic marketing in high-tech industries.