Financial Crime Spotlight: Money Laundering Controls In The Gambling Sector

Money laundering is a significant risk for many firms that conduct business in the UK, but the way this risk materialises and crystalises differs depending upon, amongst other things, the nature of a firm's business. Due to the differing risk profiles across sectors, firms must tailor their systems and controls to be able to identify, manage and mitigate their relevant risks. In this briefing, we look at the key money laundering risks impacting the gambling sector and some practical steps that firms can take to manage these risks.

Key Risks

The growth of the UK gambling market, in particular online, has brought with it new opportunities for exploitation by criminals. Awareness of the way in which criminals may seek to use operators to launder the proceeds of crime and robust controls to prevent this is therefore key.

The UK gambling sector has been deemed to present a low risk of money laundering and terrorist financing by the UK government¹. However, risks across the industry vary, with remote gambling, non-remote casinos and off-course betting characterised as high risk by the UK Gambling Commission (UKGC) as compared to other gambling sub-sectors². Remote gambling is particularly attractive to criminals because of the high volume of transactions and potential for anonymity.

Key money laundering risks for operators to consider include the following, although these may not apply equally across all sub-sectors:

• Infiltration by organised crime gangs: this may include criminals seeking to acquire or gain control of gambling businesses to launder criminal proceeds, UBOs of gambling operations involved in criminal activity, casino employees colluding with criminals, and/or a lack of competency of key personnel and licence holders which may then be exploited. The UKGC has also reported an increase in fraud and online scams targeting vulnerable people and the use of third party ‘mule' accounts to move criminal proceeds without triggering financial threshold alerts.
• Problem and vulnerable gamblers: in particular, repeated failures by operators to understand the links between problem gambling and money laundering risks observed by the UKGC in enforcement action. In particular, the UKGC has said that it “holds significant evidence of cases where problem gamblers have stolen monies to fund gambling activities…along with cases where those in positions of trust and high-risk professions have fraudulently obtained money from employers or vulnerable victims for gambling purposes…”. Problem gambling risk indicators include chasing losses; reluctance by customers to provide their occupation; and spending patterns inconsistent with legitimate income.
• Cryptoassets and cashless payments: cryptoasset transactions are considered high risk by the UKGC and may only be accepted where operators can comply with both their AML and safer gambling measures, including identifying source of funds and source of wealth. Other digital methods of payment may also pose a high risk of money laundering, particularly when players use them anonymously. For example, the UKGC has observed a high risk of ‘smurfing' via customer use of pre-paid cards.
• Use of Money Service Businesses (MSBs): specific risks identified for MSBs by the UKGC³ include use of MSBs by customers from high-risk jurisdictions, funds transferred from unlicenced MSBs, and the structuring of foreign currency exchange transactions to circumvent reporting thresholds and facilitate layering.
• Customers and funds originating from high-risk jurisdictions: the UKGC is particularly concerned about risks to the licensing objectives in respect of casinos that rely on the custom of high-net-worth individuals, including PEPs, ordinarily resident in jurisdictions that present higher risks of money laundering, terrorist financing and corruption⁴.
• Weak anti-money laundering controls:  arbitrary affordability and customer due diligence (CDD) thresholds not commensurate with a customer's risk profile may lead to insufficient visibility of player behaviour and deposits and therefore prevent monitoring of unusual transaction patterns indicating criminal activity (for example, smurfing). Other issues include operators failing to sufficiently train staff on how to review and verify source of funds information, and policies which are not updated to take account of new guidance or technologies.

Key Guidance

Remote and non-remote casinos are subject to the UK's Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs). These set out what relevant businesses must do to prevent their services being used for money laundering and terrorist financing. Operators subject to the MLRs must adopt and implement into their businesses certain AML/CTF controls, including risk assessments, appropriate CDD and record keeping practices and proper oversight by senior management.

Whether or not they are subject to the MLRs, all UK operators are required to uphold the licensing objectives set out in the Gambling Act 2005, the first of which is to prevent gambling from being a source of, associated with or used to support crime. In addition, the UKGC requires all licence holders to comply with certain AML responsibilities (for instance, under the Proceeds of Crime Act 2002), and adopt a risk-based approach consistent with its guidance on the Licence Conditions and Codes of Practice (LCCP). In particular, operators must follow Licence Condition 12.1.1, which applies to all operating licences except gaming machine technical and gambling software licences and which concerns anti-money laundering risk assessments and controls.

Guidance published by the UKGC to assist operators in navigating the risks posed by criminals seeking to exploit the sector, includes:

• Guidance for remote and non-remote casinos on the prevention of money laundering and combating the financing of terrorism
• Anti-money laundering responsibilities for gambling businesses
• UKGC 2023 risk assessment on money laundering and terrorist financing risks within the British gambling industry
• Duties and responsibilities under the Proceeds of Crime Act 2002
• Emerging money laundering and terrorist financing risks
• UKGC Anti-money laundering hub

Key Takeaways

The UKGC has made it clear that in addition to guidance, operators must take into account learnings from enforcement action to inform AML/CTF risk assessments and controls.

In public statements against Hillside (UK Gaming) ENC and Hillside (UK Sports) ENC for anti-money laundering and social responsibility failures from April 2024⁵, the UKGC published the below list of questions which operators may use as a guide in meeting expectations for an effective AML compliance programme. Operators should ask themselves the following:

1. Do you have formal processes in place to measure the effectiveness of your AML and safer gambling policies and are findings recorded accurately?
2. Do you efficiently record all compliance-related decisions and are you able to demonstrate to the UKGC, on request, evidence of ongoing assessment, evaluation and improvement?
3. Do lessons learned from public statements flow into your policies and procedures?
4. Do you undertake financial sanctions checks on customers prior to their first deposits?
5. Are your customer risk profiles informed by or linked to your money laundering and terrorist financing risk assessment?
6. Do you have a formalised process for analysing the effectiveness of customer interactions to ensure that reviews were adequately documented and consistent in their approach?
7. Do you log the types of behaviour which have triggered a customer interaction and keep sufficient records of interactions, along with decisions not to interact especially in terms of the level of detail provided?
8. Have your staff received sufficient anti-money laundering and social responsibility training?⁶

Immediate action by operators should be taken to remediate any gaps identified by the above, and controls should be reviewed on a periodic basis to ensure ongoing compliance.

If you have any questions in relation to the AML/CTF risks impacting the gambling sector, including implementing policies and procedures to assist legal and regulatory compliance requirements, and reporting obligations please contact the authors.

With thanks to Joshua Creutzberg for his work on this briefing.

Footnotes

1. https://www.gov.uk/government/publications/national-risk-assessment-of-money-laundering-and-terrorist-financing-2020

2. https://www.gamblingcommission.gov.uk/guidance/the-2023-money-laundering-and-terrorist-financing-risks-within-the-british

3. https://www.gamblingcommission.gov.uk/guidance/the-2023-money-laundering-and-terrorist-financing-risks-within-the-british

4. https://assets.ctfassets.net/j16ev64qyf6l/6ZYFtWrK3D7XhxbtcK9KFB/2c967fe64289d8313646fc48d6271b8e/Gambling_Commission_full_advice_to_Government_Review_of_the_Gambling_Act_2005.pdf

5. Hillside (UK Gaming) ENC holds a licence for Bet365's bingo and casino products and Hillside (UK Sports) ENC holds a licence to offer betting:  Bet365 to pay £582,120 for regulatory failures (gamblingcommission.gov.uk)

6. Hillside (UK Gaming) ENC Public Statement (gamblingcommission.gov.uk) and Hillside (UK Sports) ENC Public Statement (gamblingcommission.gov.uk)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.