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High stakes for UK Gambling Industry – EU 4th Anti-Money Laundering Directive

February 24th, 2017 - Posted by Alex Street in Anti-Money Laundering

By June this year Member States, including the UK, must transpose the EU 4th Anti-Money Laundering Directive (4AMLD) into national law. The fast approaching directive includes requirements for all forms of gambling services to strengthen anti-money laundering requirements.  Add to this backdrop, the UK Gambling Commission's new License Conditions and Codes of Practice and spate of recent voluntary settlements, the stakes for non-compliance for the sector get higher every day.

The odds of dirty money

The Gambling Commission revealed in early 2016 that there were 633 reports from bookmakers that criminals were using their premises to launder money obtained through the illegal drug trade.  The operations – which centre on so-called Fixed Odds Betting Terminals (FOBTs) – are thought to have involved millions of pounds.

This report suggests that drug barons use the services of "cleaners" to launder money through the machines which can take single bets of up to £100 on virtual horse races and other games every 20 seconds. These cleaners are thought to have been leaving the betting shops with as much as 90% of their money in winnings after laundering it through the machines.

The research, which was conducted by the Commission in collaboration with the National Crime Agency, was released on the eve of the implementation of the European Union's Fourth Anti-Money Laundering Directive (4MLD).

EU Legislative Action

The 4MLD's predecessor – the Third Directive – only covered casinos, but from 2017 all member states will have to prove that their gambling sector is at low risk of laundering before being exempt from the legislation. In the UK, the Treasury are finalising the Money Laundering Regulations that will pass into law in June this year.

The most important part of the directive potentially affecting the gambling sector is enforcing a €2,000 limit on stakes or winnings before the rules are triggered.  The Treasury will need to decide whether to implement a regulation which will have a major impact on an industry where many stakes and payouts are considerably above this threshold, particularly in sports such as horse racing and other high-odds sporting events.

A key role for the Gambling Commission

In advance of the new directive, the Gambling Commission consulted its members on changes to its License Conditions and Codes of Practice.  After completion of the consultation, the commission updated the code in October 2016 with stronger anti-money laundering requirements. For example, remote casino operators with gambling equipment located outside Great Britain now need to comply with the money laundering regulations.

In an article that first appeared in 'inCOMPLIANCE', the official member publication of the International Compliance Association, Tim Tyler, Senior Manager, AML Lead at the Gambling Commission, said:

"Bookmakers in particular are vulnerable with a culture of anonymous betting in cash, but every corner of the thriving British gambling sector faces challenges in meeting the threat."

"As we look ahead to the adoption and implementation of the 4MLD, this challenge is brought into sharper focus.  Large operators will need to invest the required time, funds and energy to understand and apply the provisions.  For some this will entail significant cultural change, demanding a shift in attitudes and priorities in order to become compliant with the demands of the ML Regulations."

Tyler concluded, "The adoption of the 4MLD will throw a spotlight on the work of the industry to meet these requirements, raising the bar still higher as it at the same time sets out a framework to meet the challenge."

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Among the key changes are:
  • A new onus on gambling service operators to notify the commission that crimes are being committed on their premises or services
  • Gambling service providers must assess the risk of their business being used for money laundering, revise that assessment at least once a year and submit it to the commission on demand.  Following the assessment, an operator must put in place a plan to manage and mitigate money laundering risk and to report suspicious activity to the National Crime Agency
  • All operators – with the exception of those running non-remote lottery or gaming machines – must put in place due diligence procedures to monitor the activities of gamblers who have been identified as presenting a greater risk of money laundering and take steps to ensure that no crimes are being committed
  • In casinos, all staff will have to adhere to their employer's rules on procedures around customer due diligence particularly for those deemed to be high risk – with a special emphasis on politically exposed persons (PEPs).
  • Assessment of the risks posed to operators by their suppliers and business associates including the source of their gambling funds and the ultimate beneficial ownership structure.
  • Guidance on record keeping, particularly where new technology is employed for gambling.  The commission cites as an example cash-in with cash-out gaming machines which currently do not produce any records attributable to a particular customer.  These, it says, may have to transition to 'ticket-in, ticket-out' machines which do produce records tied to an individual customers.

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