Gambling operators would face practical difficulties in implementing proposed crime controls, says expert

The Gambling Commission has published draft new licensing conditions for gambling operators which it said are "aimed at preventing crime linked to gambling" (101-page / 684KB PDF). The proposals are open to consultation until 30 December. The Commission's consultation follows other changes made to gambling operators' licensing conditions made last year in relation to their duties on social responsibility.

Specialist in gambling licensing and regulation Audrey Ferrie of Pinsent Masons, the law firm behind Out-Law.com, said some of the measures proposed would be difficult for operators to implement.

Under the Gambling Commission's plans, gambling operators would need to carry out "an appropriate assessment of the risk of their business being used for money laundering" at least annually, and "devise an action plan to manage the risks, and mitigate them where possible". The Commission would have "on demand" access to both the risk assessment and action plan, according to the proposals.

Another new licensing condition gambling operators could have to meet, if the Commission's plans are finalised, would involve them taking "reasonable steps", in line with their risk assessment outcome, to identify customers who "present a heightened money laundering risk". They would need to "take appropriate steps to satisfy themselves that the funds used to finance the customer’s transactions with the licensee are not the proceeds of crime", according to the proposals.

Ferrie said that Commission's proposals were aimed at strengthening the measures that sit behind the first objective of the licence conditions and codes of practice (LCCP), which requires gambling operators to "prevent gambling from being a source of crime or disorder, being associated with crime or disorder or being used to support crime".

However, she said: "Gambling operators would face a challenge in satisfying themselves that transactions are not made using proceeds of crime. It is not clear whether monitoring customers' betting patterns would be sufficient on its own to meet this licensing condition. If further steps are required then operators need to know what type of action they can or would be expected to take. Although the Commission's revised guidance contains some examples, it does not offer this clarity."

"Additionally, there must also be a question over how gambling operators practically meet a new code requirement that the Commission has proposed, namely preventing employees from using information related to suspicious betting to place their own wagers, particularly where those wagers are placed with other operators. How are operators supposed to monitor and prevent that kind of activity?" Ferrie said.

Ferrie also said that another proposed new licensing condition could duplicate existing reporting obligations. Gambling operators would need to notify the Commission where it discontinues "a business relationship with a customer as a result of a decision by the licensee that there was a risk that money laundering offences might otherwise be committed".

"Operators are already required to report known or suspected money-laundering activity to the National Crime Agency and to provide the NCA reference number to the Commission, so this measure appears to be an unnecessary layer of reporting obligations," Ferrie said. "Perhaps an improved information-sharing agreement with other regulators would be preferable."

She said it was interesting to note the Commission's acknowledgment that new technologies are presenting a challenge to gambling operators in meeting this objective. Together with proposing new licensing conditions, the Commission has opened a debate on the risks posed by the use of digital currencies in gambling.

According to the Commission, no gambling operator has yet reported to it that digital currencies are being used in gambling. However, it said that their use would present challenges for operators over how they would meet their duties on anti-money laundering (AML).

"A licensee’s policies to mitigate against the risk of money laundering would require them to put in place KYC (know your customer) requirements and be satisfied that a customer is not using the proceeds of crime," the Commission said. "Given that this is likely to be more challenging with digital currencies, it begs the question why a licensee would wish to allow their use, and how they may overcome the AML challenges associated with them."

"We recognise that there may be potential benefits in using digital currencies, not least the potential for reduced payment costs. However, our evidence about licensee compliance with the current AML framework presents concerns about how well licensees will be able to implement effective AML controls to manage risks associated with digital currencies. We therefore ask for your views on any benefits of using digital currency within the British gambling industry, on the challenges that we have described, and on potential means of mitigating those," it said.

Changes were made to EU AML rules earlier this year that will affect at least some gambling operators. EU countries are able to exempt sections of the gambling sector from the new regime, which must be implemented into national laws by 26 June 2017.

Ferrie said that the tenor of some of the Gambling Commission's proposed new licensing conditions suggest that it will be advising the UK government not to exclude any gambling operators from the new AML rules.

The EU AML rules set new customer due diligence checking requirements, together with new obligations to report suspicious transactions and maintain records of payments. Businesses subject to the rules will also have to install internal controls to combat money laundering and terrorist financing activities under the framework.

Gambling operators could be subject to the new rules where customers wish to place a stake worth, or collect winnings of, at least €2,000, unless EU governments decides to, and can legitimately, opt those companies out of those requirements under the Directive, and provide justification for doing so to the European Commission.