Welcome to BetConsultan.Cy’s series of articles dedicated to providing an in-depth analysis of Anti-Money Laundering (AML) regulations within the gaming and gambling industry.
A Comprehensive Guide
In this comprehensive guide, we aim to shed light on the intricate workings of AML protocols, emphasizing the critical regulations and measures necessary for an effective AML framework across various jurisdictions.
The gambling and betting industry has undergone significant changes and has seen growth in the global market. According to Custom Market Insights, the online gambling and betting market was worth about USD 58.2 billion in 2021. By 2030, it could reach a staggering USD 145.6 billion, growing 12% annually from 2022 to 2030.
Money laundering poses a significant threat to the integrity of financial systems worldwide, with the gaming and gambling sector being particularly vulnerable due to its high transaction volumes and potential for anonymity. Recognizing this risk, regulatory bodies across the globe have implemented stringent AML measures to safeguard against illicit financial activities within the industry.
Our series will delve deep into the core principles of AML, exploring its application within the unique landscape of gaming and gambling. From understanding the regulatory landscape to dissecting compliance requirements, each article will offer valuable insights tailored to industry professionals, stakeholders, and compliance officers.
Regulatory Landscape
Delving into the specific regulatory frameworks governing the gaming and gambling sector in various jurisdictions, we'll highlight differences and commonalities, enabling readers to navigate compliance challenges effectively.
AML Regulations in the United Kingdom for Gaming and Gambling Companies
The United Kingdom (UK) boasts one of the world's largest and most tightly regulated gambling industries, offering a wide array of gaming and gambling activities. Oversight of this industry falls under the purview of the UK Gambling Commission (UKGC), https://www.gamblingcommission.gov.uk/ which is tasked with regulating all facets, including efforts to prevent money laundering and terrorist financing.
As the largest gambling market, various laws exist in the United Kingdom. Gambling operators are covered by the Proceeds of Crime Act 2002 (POCA), the Terrorism Act 2000, and the Gambling Act 2005. These laws make businesses responsible for preventing and reporting money laundering and terrorist financing.
Operators must also comply with the Licence Conditions and Codes of Practice (LCCP). The LCCP provides specific guidelines for gambling operators, such as conducting risk assessments, verifying customer identity, using enhanced identity verification procedures, continuously monitoring customers, keeping records, training staff, and setting up internal controls.
Compliance with the Money Laundering Regulations 2017, which implements the EU Fifth Money Laundering Directive (5AMLD), is also mandatory. Furthermore, the Gambling Commission requires businesses in the UK’s gambling sector to register with them. They must also choose a nominated officer, implement specific processes, and report any odd behaviour to the National Crime Agency (NCA).
Moreover, the UKGC has issued specific guidance tailored to the gaming and gambling industry concerning AML requirements. This guidance underscores the critical importance of customer due diligence, which encompasses measures such as verifying the identity of customers, monitoring their transactions, and continuously assessing associated risks.
In adherence to AML regulations, gaming and gambling firms must appoint a nominated officer (NO) who bears the responsibility of ensuring compliance.
The NO is required to possess the requisite skills, knowledge, and experience to effectively carry out their duties. Regular inspections conducted by the UKGC serve as a mechanism to assess compliance with AML regulations among gaming and gambling companies. Non-compliant entities found to breach these regulations may face a range of sanctions, including monetary fines, revocation of licenses, and even criminal prosecution.
Over the past two years, the UK Gambling Commission (UKGC) has significantly ramped up its enforcement of social responsibility and anti-money laundering (AML) regulations, resulting in hefty penalties for major operators.
· The Gambling Commission in the UK fined Entain Group £17 million in August 2022 for breaking the rules, which included having poor anti-money laundering controls and customer protection measures.
· Bet365 is to pay £582,120 for anti-money laundering and social responsibility failures at its online business.
· A gambling business will pay a £6 million penalty after a Commission investigation revealed social responsibility and Anti-Money Laundering (AML) failings.
· An online gambling business has had its licences to operate in Great Britain suspended.
These actions not only have financial implications but also tarnish the image of the gambling industry domestically and internationally. This heightened scrutiny comes amidst ongoing consultations on implementing recommendations from the Gambling Act review.
The UKGC has raised concerns that failure to comply could lead to government inquiries or negative media coverage, potentially damaging both operators and the broader market. Additionally, there's a growing recognition of the risk of terrorist financing, although the overall risk level in the gambling sector remains medium according to assessments by the Treasury and Home Office.
Based on insights from the Treasury and Home Office National Risk Assessment, the UK Gambling Commission (UKGC) has updated British betting stakeholders regarding the increased threat of terrorist financing, which has transitioned from a low to a high impact. However, the UKGC underscores that the overall risk level across sectors remains medium.
The UKGC clarified that its assessment of terrorist financing risk draws partially from the National Risk Assessment, which had previously considered this area to be low risk in the context of gambling. Moreover, the Commission emphasized its collaboration with external entities, including the UK's counter-terrorism teams, to enhance its understanding of terrorist financing patterns and vulnerabilities specific to the gambling industry.
The UK Gambling Commission (UKGC) assesses the overall risk of terrorist financing as medium, evaluating factors such as payment methods, products, customers, and operator controls.
While all three payment methods examined—cash, prepaid cards, and crypto assets—are considered to have a low risk of terrorist financing occurring, the potential impact of such incidents would be high, resulting in an overall low-risk assessment.
As a result, operators are advised to maintain vigilance. The UKGC has identified eight red-flag indicators that operators should be attentive to.
· Inconsistent customer spending in line with occupation
· Unusual or suspicious religious quotes, single phrases or numerical associations connected with terrorist ideology in transactions
· Use of multiple foreign bank accounts
· Unexpected large withdrawals and sudden account closures
· Structured accounts to avoid internal threshold or Suspicious Activity Report (SAR) MSB usage – including multiple overseas geographical destinations for transfers, use of third parties in transactions and open loops for foreign exchange transactions.
· Accounts linked to pre-paid cards
· Customer IP address being used by other customers.
· Meanwhile, of the 11 different gambling segments identified by the UGKC, five are low risk – Family Entertainment Centres (FECs), Society lotteries and external lottery managers (remote and non-remote), the National Lottery (remote and non-remote), gambling software (remote and non-remote), and gaming machine technical (remote and non-remote).
In contrast, online betting and casinos, brick-and-mortar casinos, high-street bookmakers, and online bingo are considered high-risk, while on-course bookmaking and Adult Gaming Centres (AGCs) are seen as medium risk.
Among the five means of payment for online betting, four are classified as high risk, with only e-wallets deemed medium risk. The high-risk methods include using multiple payment methods, the absence of a closed-loop system, prepaid cards, and crypto assets. E-wallets are also considered medium risk for online casinos.
For retail bookmakers, dyed notes pose a low risk, while Scottish notes used in non-Scottish facilities are rated medium risk. Multiple payment methods, lack of a closed-loop system, and both cash and cashless transactions are seen as high risk.
Similar assessments apply to brick-and-mortar casinos, with additional high-risk factors such as transferring funds between operators and using crypto assets.
In online casinos, e-wallets carry a medium risk, while prepaid cards, crypto assets, and multiple payment methods are considered high risk. Furthermore, casinos acting as Money Service Businesses (MSBs) are categorized as high-risk activities.
The gambling and betting industry operates in a dynamic and challenging environment. Prioritising Anti-Money Laundering compliance is crucial as it maintains integrity, protects businesses, and reduces the risks associated with money laundering and other financial crimes.
Operators establish a robust compliance framework by understanding and adhering to the AML regulations of various jurisdictions worldwide. Implementing effective AML compliance programs, including risk assessments, customer due diligence, transaction monitoring, and staff training, is essential to safeguarding the industry against illicit activities.
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Joseph Vrachimis CEO at BetConsultant.Cy