The United Kingdom is one of the most globally recognized gambling jurisdictions and known for its high AML compliance standards, huge penalties and well-developed responsible gambling policies.7
Nevada, Las Vegas, casinos … these might be the first associations when asking about gambling industry.
Might or might not?
Gambling sector has changed together with two significant inventions of our times – Internet and the smartphone.
The shift into online means that gambling is more and more accessible – at home, in a car or train.
Land-based casinos are still part of gambling industry but online platforms and mobile applications have definitely accelerated the business in the past few years … the business and the money laundering risks as well as regulatory response.
According to a report of Grand View Research Inc, the global online gambling market recorded a valuation of USD billion in 2022 and is predicted to expand at a compound annual growth rate of 11.7% from 2023 to 2030. Its size is predicted to touch USD billion by 2030.1
Undoubtedly globalization of the gambling industry is real.
From the financial crime risks perspective the online gambling industry is more vulnerable to money laundering and terrorist financing than the land-based gambling.
MONEYVAL, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, identified the main vulnerabilities for online gambling:
- The cross-border nature of online gambling;
- The rapidity and cross-border nature of transactions (transactions are conducted over the internet, tracing such transactions and linking them to specific individuals may prove problematic in certain instances);
- Non face-to-face nature of online gambling;
- Low number of investigations and prosecutions of ML/FT cases;
- Use of multiple accounts;
- The use of money service businesses;
- The use of Master Accounts;
- The use of V.I.P. Accounts;
- Mixed gambling chains.2
What are AML requirements affecting online gambling?
AML requirements affecting the online gambling industry are very much alike those applicable to Financial Institutions – including customer due diligence, transaction monitoring and suspicious activity reporting. All gambling entities are not only obliged to comply with gambling regulations but also with local AML regulations as obliged entities, i.e. the Proceeds of Crime Act (POCA) in the UK.
The online gambling industry is also subject to and has to comply with national or international regulations such as Moneyval, FATF, and European Union Directives in order to prevent and detect money laundering and/or terrorist financing.
As per European Commission (EU) the level of the threat posed by money laundering to online gambling is considered as very significant (level 4 - the highest level). In October 2022, the EU suggested lower thresholds for due diligence checks to foil criminal activity.3
Gambling regulations differ based on the fact that particular countries have their own interpretation of the subject.
Some countries are promoting online gambling while some of them are trying to block it at all. Let’s look at some of the examples worldwide.
Gibraltar
United States
Australia
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EU
Poland
Germany
Cyprus
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Regulators are beginning to scrutinize gambling sector and conducting more investigations, imposing increasingly severe penalties on companies that fail to comply with AML regulations.
In the United Kingdom, in 2022, one of the gambling companies was fined with over a dozen million GBP for regulatory failures. This gambling entity was specifically fined for AML and social responsibility failures at both its online and land-based businesses. Their online business, which runs gambling websites, is to pay a significant part of that fine. Among others, AML failures included:
- failing to conduct an adequate risk assessment of the risks of their online business being used for money laundering and terrorist financing;
- allowing online customers to deposit large amounts without carrying out sufficient source of funds (SOF) checks – one consumer was allowed to deposit £742,000 in 14 months without appropriate SOF checks and another, who was known to live in social housing, was allowed to deposit £186,000 in six months without sufficient SOF checks;
- failing to conduct enhanced customer due diligence checks soon enough – one online customer was allowed to deposit £524,501 between December 2019 and October 2020 before the operator closed the account due to the customer failing to supply SOF evidence;
- placing excessive reliance on open-source information – one online consumer was allowed to deposit £140,700 between December 2019 and October 2020 but prior to a SOF check in August 2020, the operator based its knowledge of the customer’s source of wealth on open-source searches.13
What to expect in the future of AML Compliance in Gambling, Gaming, and Betting?
The expected growth of the sector and the higher scrutiny of the regulators will soon force the online gambling vendors to apply more rigorous AML regulations on their clients and users.
Will that change (and reduced freedom/lack of regulations), reverse the trend of gambling online rather than in physical locations?
Or maybe another black swan event like the recent COVID19 pandemic will change the gambling landscape drastically, and obliged institutions will need to amend their approach to the yet new circumstances?
Although change is the only constant, we can be sure that robust and efficient customer monitoring is a must.
Sources:
1 https://www.grandviewresearch.com/industry-analysis/online-gambling-market
2 https://rm.coe.int/research-report-the-use-of-online-gambling-for-money-laundering-and-th/168071509c
3 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52022SC0344&from=EN
4 https://www.americangaming.org/wp-content/uploads/2022/05/AGA-State-of-the-States-2022.pdf
5 https://austgamingcouncil.org.au/seeking-help/illegal-offshore-gambling#:~:text=Online%20gambling%20in%20Australia%20is,wagering%2C%20sports%20betting%20and%20lotteries
6 https://www.gibraltar.gov.gi/finance-gaming-and-regulations/remote-gambling
7 https://www.gamblingcommission.gov.uk/about-us/guide/how-we-regulate
8 https://single-market-economy.ec.europa.eu/sectors/online-gambling_en
9 https://isap.sejm.gov.pl/isap.nsf/download.xsp/WDU19990830930/U/D19990930Lj.pdf
10 https://www.gluecksspiel-behoerde.de/de/news/234-ggl-geht-an-den-start
11 https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Aufsichtsrecht/Gesetz/GwG_en.html
https://www.fatf-gafi.org/en/publications/Mutualevaluations/Mutualevaluationofgermany.html
12 https://www.cgc.org.cy/en/law
13 https://www.gamblingcommission.gov.uk/news/article/entain-to-pay-gbp17-million-for-regulatory-failures
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