UK licensed casino operators should take note of newly published HM Treasury annual AML/CTF Supervision Report 2019-20

HM Treasury has published its annual Anti-Money Laundering and Counter-Terrorist Financing Supervision Report 2019-20 (that you can download below).

Commenting on this, the Gambling Commission has said on its website:

The Gambling Commission is required to contribute to the Report as part of its supervisory duties and includes the Licensing, Compliance and Enforcement work the Commission has carried out for the relevant period (2019 to 2020) along with references to some of the high risk money laundering areas in Britain’s gambling industry.

Gambling businesses are reminded to refer to this Report as a guide in helping them to comply with their anti-money laundering and counter-terrorist financing duties.

We set out below those parts of the HM Treasury Report that refer to:

(a) the supervisory activity undertaken by the Commission (and attach separately a copy of ‘Table 3C: Gambling Commission’s supervisory activity’ that appears between paragraphs 3.48 and 3.49 in the report),

(b) its licensing activity

and

(c) its enforcement activity.

Gambling Commission’s supervisory activity

3.41 The Gambling Commission is the supervisory authority for all online (remote) and land-based (non-remote) casinos either operating in Great Britain or providing casino facilities to British customers. The Gambling Commission is the sole authority able to issue operating and personal licences that allow companies and persons to provide gambling services in Great Britain or to British customers where the company or person is based outside of Great Britain.

3.42 During the reporting period, the total size of the Gambling Commission’s supervised population was 250, 100% of which count as firms. There were 197 remote casino operators, 45 non-remote casino operators, and 8 operators with licences that allow both remote and non-remote casino activity.

3.43 139 of the 250 casinos licensed by the Gambling Commission during the relevant period were based outside Great Britain. Many remote and non-remote casinos have part, or all, of their ownership structure based in other jurisdictions.

3.44 During 2019-20, the Gambling Commission had 4 full time employees dedicated to AML/CTF. However, AML/CTF work is also integrated into the Gambling Commission’s wider work. Employees in the legal, intelligence, licensing, compliance and enforcement areas also assist with AML/CTF supervision. Across these areas, there were an equivalent of 140 full-time employees.

3.45 The Gambling Commission’s risk assessment classifies the casino sector as high risk. Within this, there were 90 casino operators classed as ‘very high’ risk, 39 as ‘high’, 19 as ‘medium’, and ‘102’ as low. This greater breakdown of risk is reached by separating casinos with higher impact and higher likelihood of risk based on gross gambling yield.

3.46 The Gambling Commission’s most recent risk assessment identifies remote gambling (particularly remote casino remote bingo and remote betting activity), and non-remote casino and off-course betting as having a high risk of money laundering. The risk assessment also showed that gambling is currently at low risk of being exposed to terrorist financing.

3.47 The Gambling Commission has powers of entry to inspect, question, access written or electronic records, and remove and retain any items relevant to a suspected offence under the Gambling Act 2005, or a breach of licence condition. Any gambling company operating in Great Britain or providing gambling services to British customers must hold the appropriate licence.

3.48 The Gambling Commission’s supervisory activity increased over the reporting period in comparison with 2018-19. During the period, the Gambling Commission conducted 66 DBRs and 48 onsite visits to licensed businesses, this means that approximately 45% of the supervised population were subject to either a DBR [i.e. desk-based review] or onsite visit. This marks an increase of 14% compared to 2018-19.3.49 

3.49 The Gambling Commission found that 53% of firms subject to DBRs and 56% of firms visited were assessed as non-compliant.

3.50 The most common causes of non-compliance related to insufficient resources being allocated to AML, low-levels of understanding when it came to a risk-based approach and AML concerns being outweighed by commercial concerns.

3.51 Specifically, areas of non-compliance the Commission identified included, but are not limited to: inadequate staff training for AML/CTF; inadequate customer risk profiling; inadequate AML policies; procedures and controls that are not fit for purpose (either because they are out of date or they have failed to consider the Gambling Commission’s guidance); and failure to fully adopt a risk-based approach to AML/CTF including not conducting appropriate levels of due diligence on a case-by-case basis.

3.52 Following supervisory activity, the Gambling Commission took informal action against approximately 6% of firms subject to a DBR and 15% of firms subject to a visit. Formal actions were taken following approximately 6% of the DBRs and approximately 17% of visits. The proportion of actions taken following reviews and visits has gone down in this reporting period.

3.53 Other supervisory tools used by the Gambling Commission include: proactively maintaining oversight of the largest operators by conducting regular assessments of their policies and procedures, thematic pieces of work on specific topics, and requiring the largest operators to produce an annual assurance statement signed off at board level. This encourages licensees to reflect on processes, including AML and CTF, from board level down and ensure they have worked to raise standards in identifying, reviewing, and correcting compliance issues.

3.54 The Gambling Commission also provides information to its supervised population to promote AML/CTF compliance through a range of regular and ad hoc publications and outreach work, including through: twice yearly forum meetings for the remote and non-remote casinos, which are convened with the assistance of the relevant industry trade bodies; the dedicated AML sections of the Gambling Commission’s website; targeted emails to share information and request feedback; AML information sharing through the Commission’s fortnightly newsletter; the publication of the annual Compliance and Enforcement Report; and through targeted workshops and CEO briefings. The Gambling Commission has also continued to engage with HM Treasury and casinos during the launch of the Economic Crime Plan and the development of the Economic Crime (Anti-Money Laundering) Levy.

Box. 3B: Case Study

The Gambling Commission’s Compliance team conducted a full assessment of a higher impact operator (Operator X) as part of scheduled compliance activity.

The compliance activity included reviewing Operator X’s AML policies, procedures and controls and several customer records. The review identified insufficient internal audit of the procedures and controls that were in place. The review also found that the policies in place were inadequate and relied upon disproportionate financial triggers, whilst Operator X’s staff had not sufficiently identified risk which should have raised concern and led to further customer due diligence enquiries.

This matter was escalated to the Gambling Commission’s enforcement team, who subsequently opened a regulatory investigation. In response, Operator X put in place immediate action to mitigate any further risk.

 


Refusing licences to provide services

4.8 The … Gambling Commission often issue[s] ‘minded to refuse’ letters prior to formally declining an application for a licence to practice.

4.9 The Gambling Commission also has the power to issue licences to operators under the Gambling Act 2005, and, through specialist guidance and support from its AML team, considers AML compliance when assessing new licence applications. Additionally, the Commission licences and regulates individuals who work within the casino sector. In the reporting period this amounted to 16,333 personal functional licence holders, who typically work as cashiers and croupiers in casinos, and 560 personal management licence holders within casinos who complete key management functions such as head of overall strategy, head of compliance, as well as those responsible for the day-to-day management of specific casino premises. This is a slight increase in numbers of individuals licensed by the Gambling Commission from the previous reporting period.


Gambling Commission’s enforcement activity

4.31 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.

4.32 Operators failing to comply with AML/CTF obligations are in breach of their licence, which allows the Commission to impose sanctions, including fines, suspension or revocation of their licence.

4.33 Overall, the Gambling Commission carried out more enforcement activity during the relevant period compared to 2018-19, with both the number and value of fines having increased significantly. In 2019-20, the Gambling Commission issued 13 financial penalties, or agreed to settle in lieu of penalty, amounting to £43.6 million compared to just 5 fines, and settlements in lieu of penalty, amounting to £17 million in 2018-19.

Table 4D: Enforcement action by the Gambling Commission

2019-20

Expulsion / Withdrawal of membership

Suspension of membership

Number of Fines

Total amount of Fines

Gambling Commission

n/a (-)

n/a (-)

13 (5)

£43,670,071 (£17,005,018)

4.34 As part of its enforcement action, the Gambling Commission publishes sanctions relating to AML/CTF failings on its website. During the relevant period, 25 entries for AML failings were published on these public registers. 5 related to individuals holding management licences within their respective gambling business and 20 related to firms/casino businesses.

4.35 Of these failings there were:

  • 2 financial penalties
  • 11 regulatory settlements
  • 4 warnings
  • 4 impositions of additional conditions
  • 5 operators were suspended by the Commission
  • 1 operator voluntarily suspended operations
  • 4 licences were revoked

4.36 The Commission made 35 referrals to law enforcement for ML/TF related matters during the relevant period, compared to 108 in 2018-19. The Commission continues to engage and collaborate with law enforcement where appropriate.

Box. 4B: Case study

In April 2020 the Gambling Commission published a public statement detailing findings of systemic failings within the Casino Group C.

The Commission examined AML controls at two casinos owned and operated by Casino Group C. The Commission considered that, at both premises, the processes and procedures used to manage AML risks did not comply with the requirements of the MLRs and they did not satisfy the duty to comply with the licensing objective to keep crime out of gambling.

Specifically, the failures related to assessment of customer risk, appropriate levels of ongoing monitoring, not undertaking appropriate due diligence checks on customers or obtaining adequate information regarding customers’ source of funds or wealth amongst other factors.

Casino Group C paid £13m as part of a regulatory settlement and was required to implement a series of improvements following this catalogue of social responsibility, AML and customer interaction failures.

As a result of this investigation three senior managers at Casino Group C surrendered their personal licenses and 7 others have since been subject to sanctions (this fell outside the reporting period).