As we have previously reported, in December 2018, the Financial Action Task Force (“FATF”), the global standard-setter for AML/CTF, published its Mutual Evaluation Report of the United Kingdom (“the MER”).
The MER found that:
- the UK’s AML/CTF regime is the strongest of over sixty countries assessed by FATF and its regional bodies to date,
- nevertheless significant weaknesses in the risk-based approach to supervision exist among all the UK’s supervisors except the Gambling Commission, that had a good understanding of the ML/TF risks in the gambling sector and applied risk-based approach to supervision.
In order to improve the transparency and accountability of supervision and to encourage good practice, HM Treasury publishes annual AML/CTF supervision reports.
It has now published its “Anti-money laundering and counter-terrorist financing Supervision Report 2017-18” in which, amongst other things, it accepts the above FATF MER findings, noting their consistency with the Government’s National Risk Assessments of Money Laundering and Terrorist Financing. It also compares the performance of:
- the 22 professional body supervisors (responsible for supervising compliance with the UK AML/CTF regime by their members in the legal, accountancy and other sectors) which, since 1 February 2018, have been overseen by the Office for Professional Body Anti-Money Laundering Supervision (“OPBAS”) to ensure a consistent standard of AML/CTF supervision) and
- the 3 statutory supervisors (the Financial Conduct Authority, HMRC and the Gambling Commission).
We will focus on what it has said in the newly published HM Treasury report about the Gambling Commission’s performance as statutory supervisor.
In his foreword to this report, John Glen MP, Economic Secretary to the Treasury says: “I will look to the Gambling Commission for continued high standards of AML/CTF supervision”.
In chapter 3 , under the heading “Supervisory activity by the Gambling Commission”, the report states:
The Gambling Commission is the supervisory authority for approximately 270 land-based, remote casinos, and money service businesses offered in casinos that are not supervised by HMRC. The Commission conducted an increased amount of desk-based reviews (“DBRs”) and onsite visits in 2017-18 by conducting visits to 38 out of 270 licensed businesses.
2017-18 Total no. of DBRs: 17
No. of DBRs assessed as “compliant”: 3
No. of DBRs assessed as “generally compliant”: 13
No. of DBRs assessed as “non-compliant”: 11
Source: HM Treasury
2017-18 Total no. of onsite visits: 15
No. of onsite visits assessed as assessed as “compliant”: 4
No. of onsite visits assessed as assessed as “generally compliant: 4
No. of onsite visits assessed as assessed as “non- compliant”: 6
In chapter 4 entitled “Promoting and ensuring compliance”, the report states under the heading “Analysis: Refusing licences to provide services”:
The Gambling Commission and the FCA often issue ‘minded to refuse’ letters prior to formally declining an application for a license to practice – this reduces the expense of undergoing a time consuming and complex rejection process.
In Chapter 4, under the heading “Enforcement action by the Gambling Commission”, it states:
The Gambling Commission made 231 referrals to law enforcement for ML/TF related matters, an increase from 197 in the previous reporting year. Operators failing to comply with AML/CTF obligations would be in breach of their licence, allowing the Commission to impose sanctions against their licence including fines, or revocation of the operator’s licence.
The Gambling Commission supervises its sector via a licensing regime rather than a membership scheme and undertakes numerous enforcement actions, for breaches of licence conditions and codes of practice relating to AML and CTF measures, relating to other gambling operators who fall into sectors outside the remit of the Regulations. The Gambling Commission published enforcement action relating to AML/CTF failings within the remote and non- remote casino industry on its website, for the period 6 April 2017 – 5 April 2018; which included an overall penalty package of £6,276,600.
Expulsion / Withdrawal Suspension of membership: 0
Fine: 1 – £6.4 million
Source: HM Treasury
It goes on to provide the following case study:
The MLRs, pursuant to Regulation 21(1)(a), require casino operators to appoint an individual who is either a member of the board of directors or of its senior management, as the officer responsible for the operator’s compliance with the Regulations. Additionally, Regulation 21(3) requires casino operators to appoint an individual within the firm as a nominated officer.
To ensure compliance with these new requirements, the Gambling Commission (the Commission) planned a systematic, risk-based approach in its work with both remote and non-remote casino businesses. All casinos are required to notify the Commission, via online ‘key event’ submissions, of any event that could have a significant impact on the nature or structure of their business, this includes any appointments and/or changes to AML positions.
To facilitate engagement and compliance with all casino operators, including those based overseas, various methods of communication were utilised, such as: Skype, direct letter, and notices published via the website, which had 1,051 hits in the first 18 days.
The follow-up activity was split into two main strands. Actions within these strands were further prioritised based on risk.
- 16 businesses were identified whose nominated officers/MLROs had been outsourced and successfully brought them into compliance as employees of the casino operator.
- The Commission sought assurances from 12 operators who held ‘umbrella’ licence arrangements where a single nominated officer/MLRO was covering more than one business.
- The Commission contacted a further 12 casino businesses operating within group structures, where a single nominated officer/MLRO was covering more than one business, to again seek assurances around time management and effectiveness.
Following this, work was focussed on ensuring all casino operators had informed the Commission of the details of the senior manager/board appointment responsible for adherence to the Regulations. Non-compliance was escalated via the internal management processes, whereby it was agreed that determining the required information would be incorporated into targeted Compliance activity using an educational approach, which prioritised higher impact operators.
As a sign of the effectiveness of the planned approach, the communication and follow-up strategies, and the casino sector’s adherence to the Regulations to inform the Commission regarding AML positions, ‘key event’ submissions in this specific area have more than doubled from 69 to 164 when comparing year on year.
Going forward, the Commission continues to engage with operators on this topic through direct communication, publication of guidance, and targeted compliance assessments.
HM Treasury’s “Anti-money laundering and counter-terrorist financing Supervision Report 2017-18” can be downloaded below.
Its previous annual reports can be found here.