Gambling and AML compliance: UK identifies considerable scope for improvement

AML compliance in the spotlight

The UK Gambling Commission has carried out investigations over the past two years against several major operators in relation to short-comings in their AML procedures. Those investigations were recently highlighted in a UK government assessment of the level of AML risk presented by the UK gambling industry. It is perhaps telling that, in a recent interview with GamblingCompliance, Jenny Williams (the former chief executive of the UK Gambling Commission) indicated that she expected to see further cases of poor AML compliance being exposed over the next 12 months.

Following last year’s move to a point of consumption (POC) licensing regime, all offshore operators with UK customers are now required to comply with UK AML regulations. Against that backdrop, the UK government has recently noted that the effectiveness of the AML compliance measures being taken by the online industry has yet to be fully assessed since the POC regime came into force.

This blog looks at the papers published by the UK Gambling Commission and the UK government over the last month. The Gambling Commission published a consultation paper on its licence conditions and codes of practice (LCCP) in relation to the prevention of crime associated with gambling. HM Treasury meanwhile has published its first “UK national risk assessment of money laundering and terrorist financing“, the objective of which is to better understand the UK’s money laundering and terrorist financing risks.

LCCP consultation published at a time when 4MLD implementation is on the horizon

The Gambling Commission’s consultation paper focuses on the first of the three licensing objectives set out in the Gambling Act 2005: keeping gambling free from crime and from being associated with crime. The Commission now intends to distil what it and the industry have learned after 10 years of experience in the operation of the 2005 Act.

While noting that its LCCP review comes at a time when work on implementing the Fourth Money Laundering Directive (4MLD) is under way, the Commission makes the point that the review should not be seen as directly linked to or driven by the process of implementing 4MLD. It is inevitable, however, that a discussion of improvements to the LCCP relating to the prevention of gambling crime would need to consider money laundering, and indeed there is a chapter of the consultation document devoted to AML issues.

Proposals for new licence conditions and ordinary code provisions

Among the Commission’s proposals is a new licence condition requiring each operator to conduct an assessment of the risk of their business being used for money laundering, to review that assessment at least annually and to devise an action plan to manage the risks identified.

As we noted in a previous blog, the customer due diligence requirements under 4MLD could be a major issue for all gambling operators (not just casinos) to get to grips with. In the meantime, the Commission proposes a new licence condition whereby licensees must take reasonable steps, consistent with the assessment of the risk of their business being used for money laundering, to identify and monitor the gambling activities of customers who the licensee has assessed as presenting a heightened money laundering risk.

Licensees are already required to collect and analyse customer information to meet social responsibility obligations. The Commission sees it as a logical step to collect and use this information (much of which may be identical to that needed for social responsibility purposes) to support AML policies, and so it proposes a new ordinary code provision requiring reasonable steps to be taken to monitor the gambling activity of customers and the accounts they hold across each licensee’s entire gambling portfolio. Ordinary code provisions are not mandatory but set out good practice that the Commission expects responsible operators to follow.

AML code provisions to be elevated to licence condition status

The LCCP currently contains code provisions requiring casino operators to act in accordance with the Commission’s guidance on anti-money laundering and requiring non-casino operators to take account of the Commission’s guidance on the Proceeds of Crime Act 2002. The Commission proposes to change the status of these code provisions to make them licence conditions, which are mandatory. This proposal, together with the proposed new AML licence conditions described above, demonstrate the increased weight attached to these requirements in the Commission’s view.

Government’s risk assessment in relation to gambling

The government’s national risk assessment (NRA) sets out the government’s understanding of the money laundering and terrorist financing risks present in the current regulated sectors, including the gambling sector. The NRA referred to the number of cases published by the Gambling Commission that indicate weaknesses in the industry’s ability to recognise “lifestyle” spend of criminally derived funds. The Government notes that this stems from what the Commission describes as insufficient curiosity by operators about source of funds, and a tendency for any attempts at due diligence to be satisfied too easily.

While the NRA determines that overall the money laundering risk in the gambling sector is low compared to the sectors that are currently regulated, it also stresses that the sector is higher risk than most sectors in the UK, that there is a new focus on AML risks in the sector due to the work of the Commission, and that there remains considerable scope for further improvement in the sector.

HM Treasury will separately consider the nature and extent of money laundering risk in the gambling industry in the context of its work to transpose 4MLD. It is possible for the UK government to exclude certain industry sectors from 4MLD where they are “proven low risk”. While the NRA published this month will contribute to the government’s work for the purposes of 4MLD, that NRA is not in itself sufficient to meet the “proven low risk” test as set out in 4MLD.

AML should continue to be a priority for operators

In our previous blog, we encouraged operators to start considering how best to prepare for 4MLD. This is of particular relevance for online operators, who may become subject to the European AML regime for the first time. The Gambling Commission will need to publish revised AML guidance again after the new UK money laundering regulations based on 4MLD are published (expected to be mid-2017).  In the meantime, the AML proposals in the Commission’s latest consultation document and the government’s risk assessment are a reminder of how AML policies and procedures should continue be at the top of operators’ lists of priorities.