AML in the gambling industry - what you need to know

Money laundering in gambling can have severe consequences for gambling companies and payment institutions that handle their transactions. Following Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations is essential to avoid these risks.
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It’s not worth gambling with KYC and AML regulations. One gambling group recently found this out after being hit with a 3.8m GBP fine due to an investigation by the UK’s Gambling Commission revealing “significant social responsibility and money laundering failures”.

Failure to verify information provided by customers was one of the reasons for non-compliance. KYC and Due Diligence processes rely heavily on verifying information provided by customers. 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 UK’s Gambling Commission suspended the group’s operating license “due to several compliance issues”. They were 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 close attention to this case”. She suggested that other gambling companies ensure watertight AML policies to avoid similar tribulations.

For some gambling companies, this is not 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 European gambling regulators stringently enforcing AML regulations, the question is not whether inadequate AML processes “will” be penalised, but rather “when”.

How money laundering wins at gambling

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

  1. The criminals deposit illegally sourced money into several bank accounts, then transfer them to a gambling website.
  2. Several participants then gamble with each other in a game (poker, for example) and make sure that an account wins the most games.
  3. The winner transfers the money to their bank account as “winnings”, thus laundering it as “clean”.

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 “winners” are then “cleanly” withdrawing the money to a bank account.

How money laundering affects companies

Money laundering affects not only gambling companies. The risk extends directly to the payment institutions handling the transactions on behalf of such clients. To reference a separate yet relevant case: a large Swedish payment provider was recently issued a warning and received an administrative fine of 130M SEK for having deficiencies in their anti-money laundering procedures.

The Swedish Financial Supervisory Authority noted that the deficiencies within the payment institution were primarily due to the increased risk associated with the sector.

The authorities have described their position as essentially being the focal point between the banks and the gambling companies, subsequently increasing their risk and potential exposure to money laundering.

Time to level up compliance processes

These examples of fines and breaches within the gambling and payment provider industries merely scratch the surface of AML.

A more sinister layer consists 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.

With pressure from regulators and a segment of criminals seeking to commit financial crimes through gambling companies, what can gambling companies and their payment providers do?

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

  1. Recruit a compliance team, set up comprehensively tedious internal processes, and manually monitor customer answers, information, and transactions.
  2. Use an AML compliance platform to automate and streamline processes, configure custom triggers and instantly act on automatically generated alerts.
  3. Outsource the day-to-day AML operations via Financial Crime Surveillance as a managed service. This can be a great solution if you are a startup requiring additional support in monitoring transactions and writing reports – all whilst remaining in complete control of which cases you wish to report to the authorities.

In conclusion

In short, it’s not worth taking risks and gambling with AML regulations. If you are or work with a gambling/betting company, you risk 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, lousy PR, and maximise the profitability of your business – contact us today.