The Financial Action Task Force (“FATF”) has published its Fourth Round Mutual Evaluation Report that summarises the anti-money laundering and counter-terrorist financing (“AML/CFT”) measures in place in the United Kingdom as at the date of its assessors’ on-site visit from 5 to 23 March 2018.
It analyses levels of compliance with the FATF Recommendations and the level of effectiveness of the UK’s AML/CFT system, and provides recommendations on how the system could be strengthened.
Included within its findings are that the UK:
- has a robust understanding of its ML/TF risks which is reflected in its public national risk assessments,
- has implemented an AML/CFT system that is effective in many respects,
- proactively investigates, prosecutes and convicts a range of TF activity, in line with its identified risks in this area, and
- routinely and aggressively identifies, pursues and prioritises ML investigations and prosecutions
- needs to strengthen its supervision (save in the gambling sector) and increase the resources of its financial intelligence unit.
The FATF assessors ranked each of the regulated sectors on the basis of their relative importance in the UK context, given their respective materiality and level of ML/TF risks. Both UK land-based casinos and the Gambling Commission (their supervisor for AML/CFT compliance under the UK regime) have scored well in the report, it being recorded that:
- in relation to casinos:
- “overall, the ML and TF risks in the gambling sector are judged to be low” and
- the “casinos sector appears to have a good understanding of their risks and are applying sufficient mitigation measures”
- in relation to the Gambling Commission:
- “the statutory supervisors (FCA, HMRC and the Gambling Commission) and the largest legal sector supervisor (which supervises around 90% of solicitors in the UK) have a stronger understanding of the ML/TF risks present in the sectors than the other 22 professional bodies that supervise most accountants and the remainder of the legal sector” and
- “each supervisor takes a slightly different approach to risk-based supervision. While positive steps have been taken, there are significant weaknesses in the risk-based approach to supervision among all supervisors, with the exception of the Gambling Commission”.
The FATF report goes on to emphasise that “all supervisors should continue to ensure, in accordance with the increased trend for levying penalties, that proportionate, dissuasive and effective sanctions are applied for violations of AML/CFT and sanctions obligations”.
We set out below relevant extracts from the FATF report that relate to its specific findings about casinos (both land-based and online, the latter of which do receive some criticism):
Understanding of ML/TF risks and AML/CFT obligations
Casinos met during the on-site visit were aware of the NRA and the Gambling Commission’s ML/TF risk assessment. The Gambling Commission has recently undertaken a review of remote gambling operators (for example, online services) which identified weakness in development of risk assessments by the sector. The Gambling Commission has taken steps to mitigate these weaknesses through enforcement action against the operators, visits to Malta and Gibraltar to inspect some of the operators, changes to their compliance approach and the publication of a letter to the online operators setting out the risks and weaknesses (with recommendations for action to mitigate the identified weaknesses).
Application of risk mitigating measures
Interviewed onshore and remote casinos appeared to have comprehensive risk mitigation controls in place designed to mitigate their risks. Large firms in particular are likely to have a stronger understanding and controls in place, in part due to robust supervision by their foreign regulators. There are issues in relation to controls by some remote casino operators that the Gambling Commission is actively targeting. The Gambling Commission’s findings in seven of nine firm onsite examinations revealed that the firms had non-compliant AML/CFT programs. This also evidences the need for improvement in understanding of risk and risk management controls in casinos. In 16 out of 27 cases, these weaknesses were resolved following Gambling Commission interventions, and, as mentioned above, the Commission is considering taking regulatory action against the remaining 11 firms.
Application of CDD and record-keeping requirements
Casinos met during the on-site visit had a good understanding of their CDD and record keeping obligations.
Application of EDD measures
Politically Exposed Persons: Casinos have a good understanding of AML/CFT obligations on PEPs and, for example, seek prior approval of overseas gamblers’ visits to UK casinos.
Targeted financial sanctions: The Gambling Commission provides guidance in relation to these obligations and the National Casino Forum provides guidelines on how casinos can meet their sanctions obligations, including making use of database suppliers for sanctioned persons checks.
Reporting obligations and tipping-off: Reporting from the gambling sector has increased in the last three years, due to the Gambling Commission’s new enforcement strategy which included a focus on suspicious activity reporting and the UKFIU’s increase engagement on the issue.
2 Gambling Commission
We set out below relevant extracts from the report that relate to specific FATF findings about the Gambling Commission:
Licensing, registration and controls preventing criminals and associates from entering the market
Licensing, registration and fitness and propriety checks to prevent criminals from entering the market are generally strong and effective in preventing criminals and their associates from entering the market. HMRC, the Gambling Commission and large Professional body supervisors routinely conduct criminal background checks. The FCA, HMRC and the Gambling Commission have dedicated resources to ensuring that unlicensed or unregistered activity is detected in various ‘policing the perimeter’ activities.
The Gambling Commission applies controls at market entry to prevent criminals from owning or controlling gambling operators. It issues operating licences under which its F&P test is applied (including consideration of previous criminal convictions) to owners and senior managers, and to personal licences for employees involved in gaming and handling cash. The Gambling Commission performs such checks using the Disclosure and Barring Service to establish if an individual has a criminal record. Where an applicant is from another jurisdiction, the Gambling Commission requires that an overseas police report is provided by the applicant.
The Gambling Commission monitors ongoing compliance with its F&P test through a number of triggers such as changes in ownership, variation to a licence and its supervision work. Personal licences are reviewed every 5 years. The Gambling Commission takes action where it identifies persons operating who do not hold a licence. In 2016, it investigated 24 unlicensed remote casinos which were identified by a combination of ongoing compliance activity and intelligence reports from the public and law enforcement. This resulted in action being taken including issuing cease and desist letters to these operators and notifying other regulators to frustrate the unlicensed activity.
Supervisors’ understanding and identification of ML/TF risks
The Gambling Commission has a good understanding of ML/TF risks in the gambling sector and contributed to the 2015 and 2017 NRAs. It assesses risk in a number of ways and looks at risk in terms of the likelihood or probability and impact of gambling services being used for ML/TF. The Gambling Commission considers relevant risk factors such as customer risk, jurisdiction or geographic risk, product risk and means of payment risk. It assesses risk at a sectoral level and then at the individual operator level and also considers the quality or effectiveness of the controls that operators have in place to mitigate risk.
The 2015 and 2017 NRAs concluded that gambling as a whole posed a low ML/TF risk. The Gambling Commission has identified that, relatively speaking, the land based casino sector has a higher risk relative to other gambling sectors due to the volumes of cash, the higher inherent risk in the products and services being offered, the money services provided to customers and, in some instances, poor quality of controls. It also views certain products as being higher risk than others (e.g. peer-to-peer gaming such as on-line poker) and considers the remote sector as a whole as having a higher risk in light of the products provided and the fact that customers are not physically present for identification.
Risk-based supervision of compliance with AML/CFT requirements
The Gambling Commission takes a risk-based approach to supervision of the gambling sector, applying a combination of onsite and desk based reviews. Pursuant to its risk model, the Gambling Commission has rated the 40 largest operators which offer the broadest range of gambling services and have a gross gambling yield of over GBP 25 million as being the highest risk and categorizes these as High Impact Operators. These 40 High Impact Operators represent 80% of the gambling activity in the sector and are subject to a regular inspection cycle (every two to three years although given this is based on risk, higher risk casino operators will have almost continuous engagement). For the smaller operators, the Gambling Commission’s approach focuses on reviewing the adequacy of controls at the licensing stage and monitoring such firms post-licensing through desk based reviews. The Gambling Commission also conducts thematic reviews involving on-site visits which also cover the smaller operators. In addition, as part of its risk-based approach, the Gambling Commission monitors adverse media intelligence and law enforcement sources, and customer complaints information, all of which may trigger a supervisory action for any gambling operator.
Remedial actions and effective, proportionate, and dissuasive sanctions
The Gambling Commission has a range of remedial actions and sanctions which are applied in practice. These include:
- issuing a warning to a licence holder
- attaching an additional condition to a licence
- removing or amending a condition to a licence
- suspending or revoking a licence
- imposing a financial penalty, and
- publishing the outcome of an enforcement action.
As well, the Gambling Commission can: issue informal warnings; engage in voluntary settlements with operators; and divest operators of any monies from illicit activity (see case study below).
- Systemic senior management failure to protect consumers and prevent money laundering resulted in a gambling business being required to pay a penalty of at least GBP 6.2m (GBP 5m for breaching regulations and the divestiture of GBP 1.2m in profit).The Gambling Commission investigation revealed that between November 2014 and August 2016 the business breached anti-money laundering and social responsibility regulations.
- Senior management of the business failed to mitigate risks and have sufficient numbers of staff to ensure their anti-money laundering and social responsibility processes were effective. This resulted in ten customers being allowed to deposit large sums of money linked to criminal offences which resulted in gains of around GBP 1.2 million for the business. The business did not adequately seek information about the source of funds.
Promoting a clear understanding of AML/CFT obligations and ML/TF risks
The Gambling Commission undertakes a range of outreach measures to promote an understanding of ML/TF risk and AML/CFT obligations. These measures include: publishing guidance; issuing public statements on the sanctions it applies; publishing and distributing a fortnightly e-bulletin; dedicated AML/CFT pages on its website, hosting a Raising Standards conference in 2016 and 2017 with a focus on AML/CFT; twice yearly AML forum meetings for all nominated officers in the casino sector; and regular meeting with the National Casino Forum (a trade association comprising every land-based casino in the UK), the Remote Gambling Association (remote casinos).
Both the FATF report and its accompanying Executive Summary can be downloaded below, as too can a a consolidated table of assessment ratings (that provides an overview of ratings that assessed countries have obtained for AML/CFT effectiveness and technical compliance)
UPDATE: Commenting on the FATF Report, Claire Wilson, Gambling Commission Senior Manager for Anti-Money Laundering, said:
We welcome the Financial Action Task Force’s report and assessment of the Commission’s supervisory approach. The Commission and casino operators fully co-operated with HM Treasury and the Financial Action Task Force and we would like to thank those gambling operators who assisted with the assessment.
The Commission will work with operators across the gambling industry and other statutory authorities in the future to ensure that any improvements recommended by the Financial Action Task Force are implemented and standards raised across the gambling industry.