November 4, 2022
By their nature, certain industries are more susceptible to money laundering risks than others. It is for this reason that certain types of commercial activity warrant a substantial amount of legal and regulatory oversight to ensure participating businesses: (i) take steps to assess the risks that money laundering and terrorist financing pose to them; (ii) formulate and operate policies and procedures designed to mitigate such risks; and (iii) continuously evaluate the effectiveness of those policies with the relevant risks in mind.
The cornerstone of any anti-money laundering (‘AML’) or counter-terrorist financing (‘CTF’) initiative is a risk assessment. Only when an organisation fully understands the risks that are presented to it can it meaningfully address those risks within its policies, procedures and systems.
The Financial Action Task Force (‘FATF’), which styles itself as ‘the global money laundering and terrorist financing watchdog” is an inter-governmental body that “sets international standards that aim to prevent illegal activities and the harm they cause to society’. Over 200 jurisdictions have committed to implementing the standards it sets. It recommends that periodic risk assessments are undertaken by jurisdictions to ensure that they have properly identified and assessed the risks that money laundering and terrorist financing pose to the specific sectors that are considered at the higher risk end of the spectrum (which includes gambling).
The European Commission, one of the regional organisations making up the FATF membership, has undertaken three of their own ‘Super National Risk Assessments’ (‘SNRA’), the first being in 2017, the second in 2019 and they have just published their third at the end of October 2022. Notably, in the 2019 SNRA, the European Commission noted that Member States were given the right to exempt providers of certain types of gambling services from the full application of the fourth Anti-Money Laundering Directive (‘AMLD’), but could not do that for casinos. The British government, for example, chose to make use of these exemptions and, as it currently stands, only casinos (land-based and online) are subject to that additional layer of regulation as a result of being obliged entities under the current AML/CTF regulations. Although, in 2019, there was an assertion by the British Government that all online gambling was considered to present ‘a high risk exposure due to the very large number of transaction flows and the lack of face to face interaction’.
In its own National Risk Assessment (‘NRA’), published in December 2020, the British Government concluded that ‘the money laundering risks in the [gambling] sector remain low’, albeit noting that ‘casinos, off course betting and all online gambling posed a higher risk compared with the other sub-sectors’. At the time, the Government concluded ‘we assess that the low likelihood of the sector being abused due to its unattractiveness for money laundering purposes and the strong mitigations by the Gambling Commission are enough to keep the overall risk score, for both casinos and other gambling as low relative to wider regulated financial sectors’.
In its most recent risk assessment (also in December 2020), published pursuant to its role as the gambling industry’s ML/CT supervisory body, the Great Britain Gambling Commission (‘Gambling Commission’) considered all remote gambling to be of high risk, along with non-remote casinos and non-remote betting. The Gambling Commission is not mandated to necessarily follow HM Treasury’s NRA and there is a notable difference of opinion as between the UK Government and the Gambling Commission as regards to the level of money laundering and terrorist financing risk within gambling, particularly in the online sector.
In its latest SNRA, published at the end of October 2022, the European Commission noted that ‘the gambling sector is characterised by fast economic growth and technological development, with a strong growth of the online sector during and after the Covid 19 pandemic. In this regard, a number of competent authorities reported that risks arising from online gambling have increased further since the publication of the last SNRA in 2019’.
Clearly the UK is no longer part of the European Union and, as such, the latest European Commission SNRA does not strictly apply to the UK, but there has certainly been a sense that the Gambling Commission would prefer for its own assessment of the risks as they apply to the British gambling industry to be properly represented by all product verticals being considered in the same, high risk way, rather than the current Government position, which does not.
The industry will need to keep a close eye on how the impact of the SNRA 2022 trickles down through to the gambling industry via the corresponding updated risk assessments that are likely now to be undertaken by HM Treasury and then the Gambling Commission itself.
The Gambling Commission still publish two sets of guidance, one for casinos and one for non-casinos, representing the different regulatory frameworks that apply, with casino forming part of the regulated sector for AML/CTF supervision purposes. It is fair to say that, in the field, the Gambling Commission’s compliance teams do not necessarily differentiate between the two, applying the higher standard of compliance across all products that an operator may provide, which can often be justified for a customer who regularly participates in both betting and gaming with the same operator.
Cleary there has been specific, well-covered, attention paid by FATF to certain point-of-supply jurisdictions, with their approach to money-laundering supervision being questioned. Putting this together with a sense of an increased assessment of risk by the European Commission of the gambling industry, we can see a day in the not-too-distant future where the Gambling Commission have their way and all forms of product (certainly all forms of online product), will be viewed through the same risk prism and regulated accordingly. It will have procedural implications for the industry, certainly for those operators who offer only betting services who are currently outside the purview of AML/CTF regulations and some of the associated obligations contained therein.
The European Commission’s latest assessment (October 2022) of the risk of money laundering and terrorist financing affecting the internal market and relating to cross-border activities can be found here.
The British Government’s latest assessment National Risk Assessment of money laundering and terrorist financing risk (December 2020) can be found here.
The Gambling Commission’s latest assessment of money laundering and terrorist financing risks within the British gambling industry (December 2020) can be found here.