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Anti-Money Laundering Compliance in the World of Gambling

To the average layman, the gambling industry can have a myriad of complexities and legislative issues, especially from a regulatory perspective. Certainly, over the years, this has proved to be the case on a number of occasions, especially when considering the number of markets that there are and the sheer number of extra laws that are associated.

The vast majority of legislation in the gambling industry is in place to protect the customer, which happens relatively successfully most of the time. Over the last two decades, in mature markets such as the UK and numerous European ones, many different laws have been introduced as a way of protecting gamblers, especially from gambling addiction.

For example, KYC (Know Your Customer) policies are a well-known form of this at numerous major online casinos, which has helped gambling operators to keep track of their customers, source of funds and whether a player is at risk of forming an addiction.

One issue that has been bubbling away below the surface over the last few years is that of AML (Anti-Money Laundering) and whether enough is being done to prevent it. However, the fact is that there really is no consistent ruling about this in the gambling industry due to many jurisdictions having their own interpretation of exactly what this is and how far the parameters stretch.

Anti-Money Laundering Requirements in the Gambling Industry

Essentially, the requirements of AML in the gambling industry mirror the same as those for any other, such as the financial sector. As a result, due diligence, transactional monitoring and reporting of suspicious activity all fit the bill, something that gambling companies are ‘understood’ to all comply with.

Every gambling company that operates in a specific region or market (some are in multiple) have an obligation to comply not only with the gaming regulation in the said jurisdiction, but with particular geographic AML laws. For example, the POCA (Proceeds Of Crime Act) in the UK.

In many markets, online gambling companies are not approved by the relevant gambling commission, until that they are able to demonstrate that they have rigorous AML measures and procedures in place, with these often being earmarked as one of the most important pieces of legislation.

One key requirement relating to AML in the gambling industry in many markets is that gambling commissions insist that customers are able to demonstrate the source of their funds; however, this has a considerable grey area. Whether this is applied to AML, KYC (as a way of preventing theft or gambling addiction), or indeed, both could be identified as questionable.

High-Stakes Consequences and Record AML Fines

The inability to adhere to AML measures in the gambling industry can result in significant punishments, even pending a long investigation. In March 2003, Kindred Group, which owns 32Red, received a £7.1 million fine and a stern warning from the UK Gambling Commission for a serious legislative money laundering breach.

In terms of the case, 32Red was found guilty of license transgressions that included the failure to comply with laws that fall under the classification of money laundering and terrorist financing.

One specific instance allowed a customer to deposit £16,280 and proceed to lose £8,321 over the following two weeks without having their account investigated or blocked by the operator.

These failures highlight clearly that both operators failed to interact with customers in a way that minimizes the risk of them experiencing harms associated with gambling. Our investigations also showed that policies and procedures were overlooked, both around customer accounts and anti-money laundering practices. Ultimately, it is an example which all gambling operators should take notice of to ensure they protect their customers at all times.

Kay RobertsUK Gambling Commission Executive Director

Arguably the biggest case though, occurred in the same month, when UK gambling giant William Hill was fined a record £19.2 million for “widespread and alarming” AML failures over a sustained period.

It was found that many of these cases took place during the COVID-19 global pandemic, in which one customer was allowed to open an account and lose £20,000 in 20 minutes, another to lose £18,000 in 24 hours and a third customer to spend £32,500 in two days without any checks.

When we launched this investigation, the failings we uncovered were so widespread and alarming serious consideration was given to license suspension. However, because the operator immediately recognized their failings and worked with us to swiftly implement improvements, we instead opted for the largest enforcement payment in our history.

Andrew RhodesChief Executive Gambling Commission

Money Laundering Regulations in the Big Gambling Markets

While the UK gambling industry more or less appears to be on top of the monitoring of money laundering activity and, as such, has laws in place, there is no standardized regulation in the EU; however, there are vague directives in place that all markets are obliged to follow.

This, though, presents a problem that effectively reveals that there is no central governing body throughout the EU that is responsible for monitoring money laundering in the gambling industry.

As a result, for brands that operate in multiple markets, including the UK, especially those that have already received major gambling industry fines, anti-money loundering breaches could have occurred or may occur in the future unless strict measures are imposed.

There is also the fact that some markets across Europe do not necessarily have as strict regulations in place as others, perhaps making it easier for infringements to take place.

Meanwhile, Australia is a respectable gambling market, where each territory has its own gambling regulations, which are carefully monitored and taken seriously due to the popularity of the pastime. As such regulations against money laundering are in place for online sports betting (online casino is currently prohibited), and strict punishments are imposed for any flouts.

It is understood that the increasingly growing US online gambling market (predicted to become the largest in the world) is at serious risk of becoming a hotbed for money laundering in the gambling industry.

While each state has its own regulations, there is a concern that there is also a lack of knowledge and cohesion in the wider market due to the fact that many US states only passed online gambling laws in the last couple of years.

Add to the fact these markets have grown faster than many regulators perhaps anticipated, and policing activity in most cases has proven to be, understandably, somewhat difficult.

However, the online gambling market in the US is only going to get bigger, especially for those states that legalize both online casinos and online sports betting - as such, there are many problems that could potentially arise from this.

Calls for Stricter United States Regulation

Indeed, there was concern that the recent Super Bowl event could prove to be a hotbed for money laundering due to the lack of regulation that was in place, and this has prompted officials to take this seriously.

The industry itself has pushed for more rules. New forms of legal gaming, such as sports gambling, should be given specific guidance under the Bank Secrecy Act, an anti-money-laundering law.

Alex CostelloVice President of Government Relations at the AGA

“In the absence of such guidance, AGA members have built on decades of experience from robust casino compliance to create and deploy AML controls for online gaming,” Costello continued. “Our members stand ready to work with the Department of Treasury to ensure that legal, online operators have the guidance needed to build on our current programs and meet the high standards already employed by the casino industry.”

Over the last couple of years, US-based online gambling firms have been seen to hire expertise from Europe, or more specifically, UK-facing companies, due to their knowledge surrounding mainstream gambling regulation.

There is also the fact that the US has arguably the largest population of any legalized gambling market in the world, even when you consider that there are many states that prohibits online gambling. This makes it even more critical for AML measures to be implemented as soon as possible.

Combatting Financial Crime in the Gambling Industry

Effectively, this is a subject that, at its very worst, flouts serious financial crime, especially when taking into consideration the source of most funds that are used for money laundering.

Add to the fact that the gambling industry is one of the biggest in the world and, arguably maybe, still the most convenient way of being able to launder money, and it is crucial that there is consistency across the board.

This is even more important in markets where many of the same brands operate, though this should, in some ways, make it easier to be able to identify suspicious activity; all employees will have access to the same internal documents and training.

Establishing a consistent set of AML laws for the gaming industry that are applicable in every market could well be the best course of action; however, the problem then arises in being able to police money laundering.

As the industry becomes more and more popular around the world, there will be an increasing need to establish a firm benchmark.

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