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Gambling AML: an industry still flush with fincrime
AML RightSource : September 03, 2020
Financial gain is a gamble that can pay off for opportunistic criminals, and it is evident that the lucrative gambling industry has been a major target for money launderers for a long while, particularly in the UK.
It is an industry fighting back with stricter laws, identification processes, and due diligence checks, but criminals feeling a lucky streak will find new ways to infiltrate the system to launder cash under the noses of those looking to stop them. There’s plenty more that casinos (online or otherwise) and banks can do to halt the flow of illegal cash in the gambling sector, as well as avoiding significant fines for failing to report nefarious activity.
Pinsent Masons identified that there was a lack of widespread focus in regards to money laundering in the gambling industry. Of course, the sector comprises a vast number of outlets punters can use to place bets, whether it be casinos, betting shops, bingo halls, amusement halls or arcades. Yet out of these multiple methods, in 2019 remote and non-remote casinos were the only gambling operators subject to the UK’s money laundering laws. The exclusion for other outlets was due to the scale of the operations being smaller and not necessitating high-risk investigation.
Furthermore, the omission of lower risk gambling institutions from AML regulations was implemented as a power resulting from the Fourth Anti-Money Laundering Directive, albeit the risk posed by these other outlets is undoubtedly notable. Recently, it has been found that children as young as 16 have been spending up to £350 weekly on gambling games, run by lottery giant Camelot, profiting from this younger market where other betting firms require the minimum gambling age of 18.
With more gambling markets becoming available, in turn the difficulty to discover illicit activity grows in tandem. While it is illegal for an operator to not report instances of suspected money laundering, there is no minimum financial threshold for reporting it. One way in which criminals infiltrate this sector then is to establish a ‘legitimate’ gambling operator and use it as a front to cover up the history of money or goods acquired by criminal acts. Secondly, money launderers can take advantage by using these proceeds to fund gambling simply as a leisure activity. Those crafty enough to spread these proceeds through tiny amounts using an array of different betting accounts are even more difficult to detect.
Who holds the cards?
While these activities continue across the range of gambling services, it may be time for all operators to take a leaf out of the regulatory playbook that is imposed on casinos, which share much in common with other industries’ compliance efforts to improve AML and due diligence processes – albeit payment providers and banks should tighten theirs too.
The Money Laundering Regulation (put into practice by the Gambling Commission) dictates that, on casino premises, operators must adopt a manual KYC check of sorts for all customers on entry, requiring identification and verification for every time a customer could deposit, win or spend €2000. Enhanced due diligence must then be applied, as ongoing monitoring is conducted to check this initial identification as well as more complex business relationships, and to ensure staff are equipped to spot suspicious activity in relation to the regulatory pointers. Online operators are obliged to maintain a full audit trail to identify the source of money placed in bets.
There is also a distinct requirement – resulting from the Proceeds of Crime Act (POCA) in 2002 – for gambling operators to have a nominated officer to report any instances of suspicious activity to the National Crime Agency, such as an increased frequency in spend by a customer. All of these measures require a high level of due diligence into the identities of gamblers, particularly in instances where a customer is a politically exposed person (PEP), placed on sanctions lists, or from a high-risk jurisdiction.
Also to be held accountable for the monitoring of fraudulent transactions relating to the gambling industries are banks. In what has been a high-profile case recently (albeit an enduring one), Wirecard were asked by Visa to sever ties with merchants that were associated with gambling, pornography and healthcare products that were unregulated, with questionable actions occurring for up to a decade. Even as far back as 2008 however, Mastercard fined the German payments company £11 million for assigning the wrong codes for gambling transactions, leading to a concern that it was processing declined transactions through these miscoded merchants so that they would be wrongly approved by banks as gambling payments. Given the involvement of payment fintechs, financial services companies, banks and casinos all in the mix, fraudulent behaviour can become masked easily, requiring a high level of due diligence from all parties which has been vacant for quite some time.
The stakes grow higher
Considering the case in point above, it is an even tougher act for these businesses to clamp down on crime as their services become more remote. While the Gambling Commission looks to implement the above in line with AML legislation, the institution has come under fire for not doing enough.
The Independent notes the claims from Adam Bradford of Safer Online Gambling Group that the Commission is “not fit for purpose”, as fines simply represent “loose change” is connection to the profits made by gambling institutions from money flushed through the books by launderers and addicts. £19.6 million in fines was dished out in 2019 for gambling firms for failing to detect problem gamblers and money launderers; more than a third (£7.1 million) was handed to Daub Alderney alone, an operator running a number of bingo websites.
The article also highlights the extent of failure to stop irregular gambling activity – 1.6 million sign-ups were recorded by operators whereby customers excluded themselves from further gambling, but 135,700 instances of these people continuing to gamble were discovered anyway. With dubious action taken to hinder individuals in this manner, it could only seem more viable that launderers continue to maintain anonymity and continue their acts.
When you double this with the fact that online betting companies accept cryptocurrencies, it seems that enhanced due diligence efforts – background checks into UBOs, PEPs and the like – need to be strengthened besides simply adhering to AML regulations for gambling operators to detect and hinder the spread of illicit money. The compliance laws are in place, albeit not far-reaching enough beyond casinos, and money launderers will therefore still see the gambling sector as a good bet for their crimes until more action and investment is undertaken industry-wide, as well as across the financial services companies involved within this precarious territory.