The lucrative gambling industry has clearly been a major target for money launderers for quite some time, particularly in the United Kingdom. This is due to the fact that financial gain is a risk that can pay off for opportunistic criminals.
It is an industry that is fighting back with stricter laws, identification processes, and due diligence checks, but lucky criminals will find new ways to infiltrate the system and launder money right under the noses of those trying to stop them. There is much more that casinos (online or otherwise) and banks can do to stop the flow of illegal cash in the gambling industry, as well as much more that they can do to avoid significant fines for failing to report illegal activity.
According to Pinsent Masons research, the gambling industry does not place a high enough priority on preventing the laundering of ill-gotten gains. It should come as no surprise that the industry includes a wide range of gambling venues, including but not limited to casinos, betting shops, bingo halls, amusement halls, and arcades. Nonetheless, in 2019, the only gambling operators required to follow UK money-laundering laws were remote and non-remote casinos. This applied to both types of casinos. Other outlets were left out because their operations were on a smaller scale and thus did not necessitate a high-risk investigation. This was the basis for exclusion.
Furthermore, as a result of the Fourth Anti-Money Laundering Directive, the omission of gambling establishments that pose a lower risk from AML regulations was implemented. Despite the fact that the risk posed by these other outlets is undeniably significant, this omission was made. Camelot, the world’s largest lottery company, recently discovered that children as young as 16 are spending up to £350 per week on Camelot-operated gambling games. Camelot is benefiting from a younger market where other betting companies require a minimum gambling age of 18.
When there are more gambling opportunities, it becomes increasingly difficult to track down illegal behavior that is in line with this trend. Even though failing to report instances of suspected money laundering is illegal, there is no set minimum amount of money that must be reported before the crime is considered reportable. One method used by criminals to infiltrate this industry is the establishment of a “legitimate” gambling operator and the subsequent use of that operator as a front for concealing the history of money or goods obtained through illegal activity. The second way money launderers can profit from this is by using the proceeds of their illegal activities to fund recreational gambling. Those who are astute enough to spread their winnings across multiple betting accounts in order to bet a smaller amount each time are even more difficult to catch.
Who is in command of the situation?
It may be time for all operators to take a page from the regulatory playbook imposed on casinos, which share many similarities with other industries’ compliance efforts to improve AML and due diligence processes – though payment providers and banks should also tighten theirs. While these activities continue across the spectrum of gambling services, it may be time for all operators to take a page from the regulatory playbook that casinos are subject to.
The Gambling Commission’s Money Laundering Regulation requires casino operators to conduct a manual KYC check for all customers upon entry, requiring identification and verification for every time a customer deposits, wins, or spends €2000. Because the Money Laundering Regulation prohibits casinos from knowingly facilitating the laundering of illicit funds, this check is required. Enhanced due diligence must then be applied, with ongoing monitoring to check this initial identification as well as more complex business relationships, and to ensure that employees are trained to spot suspicious activity in relation to regulatory pointers. Furthermore, this initial identification must be double-checked to ensure its accuracy. Online gambling site operators are required to keep a complete audit trail in order to trace the origin of funds used to place bets.
Furthermore, as a result of the passage of the Proceeds of Crime Act (POCA) in 2002, gambling establishments are now required to have a designated officer in charge of reporting any instances of suspicious behavior to the National Crime Agency. One example would be an increase in the frequency with which a specific customer spends. For all of these measures, a high level of due diligence into gambler identities is required, but it is especially important when a customer is a politically exposed person (PEP), is on sanctions lists, or is from a high-risk jurisdiction.
Banks are another institution that should be held accountable for monitoring fraudulent transactions in the gambling industry. In a recent high-profile case, Visa requested that Wirecard cut ties with merchants associated with unregulated gambling, pornography, and healthcare products. These dubious activities had been going on for up to ten years. Although this case has been ongoing for some time, it has recently received a lot of attention. However, Mastercard fined the German payments company £11 million in 2008 for assigning incorrect codes for gambling transactions. This raised concerns that the company was processing declined transactions through incorrectly coded merchants in order to have them approved as gambling payments by banks. Because payment fintechs, financial services firms, banks, and casinos are all involved, fraudulent behavior can easily be concealed. This necessitates a high level of diligence on the part of all parties, which has been lacking for quite some time.
The stakes keep rising
Using the previous paragraph as an example, it is becoming increasingly difficult for these businesses to combat criminal activity as their services become more remote. While the Gambling Commission works to implement the aforementioned AML measures, the organization has been chastised for not doing enough to combat money laundering.
The Independent notes the claims that the Commission is “unfit for purpose” and that fines are simply “loose change” in relation to the profits made by gambling establishments from money flushed through the books by money launderers and addicts. Gambling companies were fined a total of £19.6 million in 2019 for failing to detect problem gamblers and money launderers. More than a third of the fines, or £7.1 million, were imposed solely on Daub Alderney, a bingo website operator.
The article also emphasizes the extent to which operators failed to stop irregular gambling activity: operators recorded 1.6 million sign-ups by customers who excluded themselves from further gambling; however, 135,700 instances of these people continuing to gamble were discovered. Money launderers may continue to conceal their identities and engage in illegal activities despite the questionable actions taken to obstruct individuals in this manner.
In order for gambling operators to detect and impede the spread of illicit money, it appears that enhanced due diligence efforts, such as background checks into UBOs, PEPs, and other similar individuals, must be strengthened in addition to simply adhering to AML regulations. This is especially true given that cryptocurrency is accepted by online betting companies. Money launderers will continue to see the gambling industry as a good bet for their crimes until more action and investment is taken by the industry as a whole, as well as by the financial services companies involved in this perilous territory. The laws are in place, but they do not extend far enough beyond casinos.
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