Gambling with your AML and KYC regulations can cost you

It’s not worth gambling with KYC and AML regulations. As one gambling group recently found out, after they were hit with a 3.8m GBP fine after an investigation by the UK’s Gambling Commission “revealed significant social responsibility and money laundering failures”.

One of the failures to comply came as a result of failing to verify information provided by customers. An important part of KYC and Due Diligence processes. Companies regulated by the EU’s AML directive must conduct adequate KYC checks on their clients and report suspicious transactions.

AML – Game over

Before receiving the fine, the group’s operating license was suspended by the UK’s Gambling Commission “due to several compliance issues”. Rendering all their websites (active in Britain) without income – costing the business thousands in lost revenue. Not to mention the potential reputational damage and loss of genuine business.

The AML odds are against you

Helen Venn, Commission Executive Director, said: “All gambling businesses should pay very close attention to this case”. Suggesting that other gambling companies need to ensure their AML policies are watertight if they are to avoid similar tribulations.

For some gambling companies, this is not new news, as such fines are increasing in frequency and severity, with gamblingindustryfines.com citing that “Gambling companies had to pay ~£44 million in gambling regulator issued penalties in 2020 (a 175% increase on 2019 figures)”. By the end of January 2022, this value has already exceeded £1.3M.

With AML regulations being stringently enforced by European gambling regulators, the question is not “will” inadequate AML processes be penalised, rather “when”.

How money laundering wins at gambling

Gambling/betting companies are at high risk of being used for Money laundering by criminals who often deploy a variety of tactics to bypass procedures. This activity can take place in a variety of forms, for example:

Illegally sourced money is deposited into several bank accounts, the money is then transferred to a gambling website.
Several participants then gamble with each other in a game (poker for example) and make sure that the account that should win wins the most games.
This money then becomes “clean” and is transferred to their bank account as “winnings”.

Money laundering can also occur when a player uses illegally sourced money in a game with a high chance of winning (such as games involving odds or percentages), the “winnings” are then “cleanly” withdrawn to a bank account.

External players affected

It’s not only gambling companies that are affected by money laundering. The risk extends directly to the payment institutions which handle transactions on behalf of such clients. To reference a separate, yet relevant case: a large Swedish payment provider was recently issued with a warning and received an administrative fine of 130M SEK for having deficiencies in their anti-money laundering procedures.

The Swedish FI noted that the deficiencies within the payment institution were primarily due to the increased level of risk associated with the sector. Their position has been described by the authorities as essentially being the focal point between the banks and the gambling companies. subsequently, increasing their risk and their potential exposure to money laundering.

Time to level up compliance processes

To highlight these examples of fines and breaches within the gambling and payment provider industries merely scratches the surface of AML. Concealing a more sinister layer consisting of criminals who attempt to exploit companies and websites to launder money. Funds which may have been obtained by the trafficking of humans, wildlife, drugs and more.

So, with pressure from regulators and a segment of criminals seeking to commit financial crimes through gambling companies, what can be done by gambling companies and their payment providers?

Regulated businesses can manage their KYC, onboarding and ongoing due diligence processes and fulfil AML requirements in several ways.

By recruiting a compliance team, setting up comprehensively tedious internal processes, and manually monitoring customer answers, information, and transactions.
Alternatively, they can use an AML compliance platform to automate and streamline processes, configure custom triggers and instantly act on automatically generated alerts.
They can even outsource the day-to-day AML operations via using Financial Crime Surveillance as a managed service. This is particularly applicable to newly started companies who require additional support in monitoring transactions and writing reports. All whilst remaining in full control of which cases they wish to report to the authorities.

Risks outweigh the rewards

In short, it’s not worth taking risks and gambling with AML regulations. If you are or work with, a gambling/betting company, you are at risk of being used in money laundering and terrorist financing activities. To mitigate this risk, it is paramount that you have rigorous systems and procedures in place.

If you want to avoid fines, bad PR and maximise the profitability of your business – contact us today.