ICT Views


Gambling and AML

by: (AML/Financial Crime Course Director) on

The British gambling industry is facing big, new challenges as the Gambling Commission tightens the regulatory screw in relation to money laundering (ML). These are changes I saw first-hand as, until recently I led on anti money laundering (AML) at the commission. Wider developments in the UK over the last week prompt me to explore the nature and impact of changes that affect every operator, from the smallest to largest multinationals.

EU 4th AML Directive

The EU 4th Anti-Money Laundering Directive has caused a stir in the gambling industry across the EU. Proposals to move all but the lowest risk sectors to join casinos in being subject to the Money Laundering Regulations have generated concerns about the disproportionate costs this would entail, the excessive administrative burden, the complexity of the requirements and even the possibility of shop closures.

These fears may have been somewhat alleviated by the UK referendum decision last week to withdraw from the EU but there is no place for complacency, for reasons I shall explain.

New AML requirements

Whilst attention has been focused on the EU Directive, the Gambling Commission quietly introduced new obligations that require all operators to take steps to understand and mitigate the risk of ML within their businesses. The new rules flow from the first licensing objective defined by the Gambling Act 2005 – to keep crime out of gambling. This is a central part of commission policy and something it takes very seriously.

This follows a series of high-profile cases in which Gala Coral, Paddy Power, Caesars and Rank each admitted to AML weaknesses, and between them forfeited nearly £3 million. It isn’t just these operators that fell short, however; routine compliance work by the commission has disclosed widespread AML weaknesses in every sector of the industry.

All this has driven the commission to become more prescriptive and uncompromising in its approach to AML. This is reflected in the changes to the pithily titled Licence conditions and codes of practice (LCCP) announced on 5 May 2016.

These introduce new requirements for all operators to:

  • undertake an assessment of the ML risks faced by their business
  • on the basis of this assessment, develop and implement appropriate policies, procedures and controls
  • update the assessment in light of material changes including new products, technology, methods of payment.

Risk-based approach

diceThe commission has been at pains to emphasise that these requirements should be implemented on the basis of a risk-based approach. Some sectors, perhaps including lotteries and bingo, may present a low risk of ML and it is reasonable to anticipate that their approach to implementing the requirements will be relatively light in touch.

It is, however, a requirement for every operator, from small to large, to implement these provisions and the commission has demonstrated a willingness to sanction operators when they get this wrong – as illustrated by the cases mentioned above.

Where next?

What does this mean in practice then?

Some of the larger gambling businesses have already invested in developing policies and controls to mitigate their ML risk. For them, these requirements demand a sharper focus on their ML risk assessment processes.

The bigger headache will perhaps be felt by the smaller operators, and in particular the lower risk sectors, for whom AML may not be part of their current toolkit, or even on their radar. There are steps they can take however, including, I suggest, the following.

  • Identifying an individual or team in the business with specific responsibility for AML, perhaps alongside other regulatory requirements
  • Ensuring that these individuals receive appropriate training and resources
  • Considering the ML risk assessment that the Gambling Commission has undertaken to publish in the near future, for details of generic risks for each of the sectors
  • Looking to relevant trade associations for guidance and further information
  • Beginning the risk assessment process, recognising that for some sectors the risk is likely to be small

Time is short. The commission advises that these requirements apply from October this year. For those operators that don’t already have AML on the agenda, they need to start planning how they will meet the requirements now – or risk the unwelcome prospect of the commission asking some very uncomfortable questions.

 

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