AML failings prompt record penalties in the gambling sector

Julian Dixon

May 11th, 2020

2020 has proven to be an unthinkable year. As the unrelenting Covid-19 continues to tear communities apart and claim lives, the related coverage in the media has been almost blinding.

Yet 2020 so far has also been the year the Gambling Commission stepped up fines to a record level. In just four months, the gambling regulator has broken multiple penalty records, fining operators a total of £27m to date. AML failures are cited as being the resounding reason for theses penalties.

To get a grasp on just how significant this is, it’s worth comparing this four-month figure to previous years. Penalty packages in the previous two years were comparatively modest, just over £18m (2018) and £19m (2019).

A “clear message” to the gambling sector

Chief Executive of the Gambling Commission, Neil McArthur, says its “tough approach to compliance and enforcement will continue.”

The Commission’s increasingly tough financial penalties for major AML failings are intended “to send a clear message to the industry”. And a common aggravating factor in the recent investigations is the need to “encourage compliance by other operators”.

There is no doubt the Gambling Commission wants all operators across the UK to learn from poor practice.

This need has never been greater. Money laundering is a growing threat and the lockdown Covid-19 has enforced has led to an increasing interest in online gambling products.

“We are seeing an increase in the use of some online products, such as online slots and virtual sports, and our online search analysis shows an increase in UK consumer interest in gambling products since the lockdown began.”

This is what went wrong

The following operators felt the brunt of an impending PR crisis when these failings hit the headlines.

Caesars Entertainment

Penalty: £13m plus other license conditions to improve its AML training, policies and procedures. Commission costs also payable.

Date: April 2020

Details: This record-breaking penalty followed Caesars Entertainment’s catalogue of extremely serious money laundering, social responsibility and customer interaction failures between January 2016 and December 2018.

This included unsatisfactory source of funds checks and enhanced due diligence. Caesars Entertainment accepted that its AML controls did not adequately address the risks presented by higher-risk customers.

Betway

Penalty: £11.6m plus commitment to a package of measures, including an independent review, a full assessment of top customers and more. Commission costs also payable.

Date: March 2020

Details: At the time, this substantial penalty set a new record. It followed Betway's systematic historical failings stemming from inadequate AML and social responsibility policies and processes, as well as substandard senior management oversight between November 2014 and March 2019.

Betway’s AML inadequacies included failing to conduct sufficient ongoing monitoring of its business relationship with customers, failing to apply adequate customer due diligence measures, as well as failing to apply enhanced customer due diligence and enhanced ongoing monitoring. Appropriate AML customer risk assessments were not in place and Betway’s record keeping was incomplete.

Mr Green

Penalty: £3m plus agreement to review an additional 130 customers. Commission costs also payable.

Date: February 2020

Details: Following a compliance assessment in July 2018, Mr Green failed to have effective procedures in place aimed at preventing harm and money laundering, the regulator said.

The Commission deemed its AML policies and processes to be inadequate and following a voluntary review, the accounts belonging to 94% of Mr Green’s top 120 customers were subsequently closed. These accounts were unable to satisfy the improved AML requirements.

Triplebet Limited trading as Matchbook

Penalty: £739,099 plus additional conditions and the suspension of its licence. The suspension will remain in place until Triplebet can prove it has implemented the required remedial measures.

Date: February 2020

Details: Triplebet breached conditions of its licence relating to AML measures. An investigation uncovered serious failings in its approach to AML, the monitoring of business relationships and due diligence checks into members of gambling syndicates. The Commission found Triplebet’s AML policies to be deficient and its AML policy in particular had not been updated for almost three years. Triplebet also failed to comply with the Commission’s social responsibility codes of practice.

The gambling sector was hit with record penalty fines so far this year.

So what can operators do to prevent money laundering?

Transaction Monitoring and Ongoing Monitoring

A crucial part of complying with money laundering regulations is to perform ongoing monitoring. This includes monitoring transactions to see if they fall within a company’s risk parameters; and also understanding the patterns of transactions that each customer makes. What is important to check is whether a customer’s activity is in line with what is expected.

It is worth investing in technology that can make it easy to check a customer’s transactions efficiently, quickly and accurately; as well as perform ongoing monitoring in line with your policies and procedures.

Client Screening

It may be also necessary to check customer identities against watch lists for known criminals or individuals that fall into high-risk categories such as Politically Exposed Persons, or to check if individuals originate from a sanctioned jurisdiction.

While this task can be performed manually, it is time consuming and if there are several hundreds or thousands of customers to screens, it will become unmanageable.

Modern screening technology uses sophisticated algorithms to reduce false positives while still detecting real and relevant matches, so checks can be performed rapidly and accurately.

Are the fines fair?

Steve Donoughue, Gambling Insider contributor, had said that some of the fines have been slightly excessive – but many of them warranted.

On writing about whether the Gambling Commission has been fair in its approach to fines, Tim Poole from Gambling Insider says: “The string of sanctions being handed out to gambling companies is the result of incompetence and neglect on operator’s parts alone. They deserved their punishments.”

It’s clear the Gambling Commission is more determined than ever to supress money laundering and protect customers. While the fines may be regarded as high by some, the economic and social cost of allowing money to be laundered is far greater. On this ground alone, the fines have to be regarded as fair.

The million-dollar question is why are operators not complying with the money laundering regulations?

Should higher fines be expected?

Fines for Q1 of 2020 (£27m) are relatively high and look well on their way to being double that of the total annual fines in both 2018 (£18m) and 2019 (£19.6m).

While it is difficult to know how the rest of the year will pan out, earlier this month Gambling Insider reported that two barristers believe the Gambling Commission could start to base fines on a gambling company’s turnover.

They also expect that “following the current COVID-19 crisis, there will no doubt be an increase in licensing and regulatory activity across a number of industrial sectors.” There is a real risk that the gambling industry will be seen as and become a low risk source of revenue.

If the barristers are right, the financial cost of non-compliance with the money laundering regulations is set to get even greater.

But regardless of who thinks the fines are fair, and whether they may get even higher, the bottom line is that the cost of non-compliance by far exceeds the cost of complying in the first place.

Further reading: the Gambling Commission’s guidance

While the Gambling Commission has pledged to be tough on operators failing to meet expectations, it also wants to minimise regulatory action by guiding operators to get things right in the first place.

Here are some useful links to follow for more guidance on how to comply with money laundering regulations:

- AML compliance advice

- AML good practice healthcheck

- AML enforcement policies

- Past cases associated with repeated AML failings

The Gambling Commission has also published guidance for remote and non-remote casinos: The prevention of money laundering and combating the financing of terrorism: Guidance for remote and non-remote casinos

How can Napier help?

Napier are compliance technology specialists. We help firms of all sizes to meet compliance and AML regulatory requirements through the use of our technology. Our advanced products increase efficiency and minimise risk by successfully combining big data technologies with AI and machine learning.

If you would like to learn more about our products, and how they can help you, please get in touch.

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