Further to its warning last month of heightened money laundering and terrorist financing risks during the coronavirus pandemic (as reported by us here), the Gambling Commission has published on its website additional AML news items intended to provide its licensees with advice on high risk jurisdictions, card fraud, vulnerable gamblers, re-opening of land-based gambling premises and new £20 notes, online ID verification and additional Financial Action Task Force advice.
The Commission summarises each of the above as follows:
Scheduled re-opening of land-based betting shops and arcades on 15th June and new £20 notes
The recent government announcement of the re-opening of ‘non-essential’ shops on 15th June includes land-based betting shops and arcades.
Gambling businesses are reminded of their mandatory responsibilities under the Gambling Act 2005, the Licence Condition and Codes of Practice (LCCP), the Proceeds of Crime Act 2002 (POCA), The Terrorism Act 2000 (TACT) and other applicable laws to keep crime out of gambling.
Linked to the above point regarding the re-opening of some land-based businesses, on the 20 February 2020 the Bank of England launched the new polymer £20 note. Although the old paper £20 note continues to be accepted as legal tender, it will eventually be removed from circulation.
During the transition from the paper note to the polymer note, individuals with quantities of the paper £20 note, including notes that may be the proceeds of crime, are likely to try to exchange them before they are removed from circulation.
Where gambling businesses and their frontline staff have knowledge or suspicion of money laundering or terrorist financing involving the old paper £20 note, they must submit suspicious activity reports (SARs) to the UKFIU in the normal way.
More information about the new polymer £20 note can be found on the Bank of England’s website, here: https://www.bankofengland.co.uk/banknotes/polymer-20-pound-note
New list of high-risk jurisdictions available
On 7 May 2020, the European Commission (EC) amended its list containing high risk third jurisdictions with strategic deficiencies in their regime regarding anti-money laundering to include the following:
The Bahamas, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mauritius, Mongolia, Myanmar, Nicaragua, Panama and Zimbabwe.
Customers that are associated with high risk third countries (because of citizenship, country of business or country of residence) may present a higher money laundering risk to your business. Licensees are reminded to ensure they have adequate ‘Know Your Customer’ (KYC) and/or customer due diligence checks in place. Additionally, casino businesses are required to conduct mandatory enhanced due diligence (EDD) checks where a customer resides or is situated in a high risk third country. This includes undertaking source of funds and source of wealth on the customer as required under the Regulations. Please see our guidance for casino businesses and all other remaining gambling businesses for further information regarding legal duties.
Increase in card fraud/theft
There has been a reported increase in card fraud/theft which has then been used for gambling purposes which are the proceeds of crime.
Gambling businesses are reminded to be vigilant on affordability and source of funds for their customers. Where there is knowledge or suspicion of money laundering (including criminal spend) a suspicious activity reports (SAR) must be submitted to the United Kingdom’s Financial Intelligence Unit (UKFIU) as required under POCA and a Key Event under 15.2.1 (24) submitted to the Commission referencing the SAR’s Unique Reference Number (URN).
Vulnerable gamblers seeking to increase self-imposed gambling limits
Licensees must remain vigilant to the increased risk that vulnerable gamblers may seek to break their self-imposed gambling limits because of the current pandemic. Gambling businesses should consider affordability as a starting point for benchmarking customer interaction triggers.
Licensees should be vigilant that a customer attempting to spend criminal proceeds or launder money could also be a problem gambler. Patterns of increased spending or spend inconsistent with apparent source of income could be indicative of money laundering but also equally of problem gambling, or both. Licensees are directed towards the Commission’s recently published guidance, specifically for online gambling businesses regarding how they should conduct customer interaction. Please see here for further information.
Licence Condition 17 of the LCCP and Online ID Verification
Licence Condition 17 of the LCCP came into effect on 7th May 2019 and covers age and verification procedures for online gambling businesses (with the exception of low frequency or subscription lotteries, gaming machine technical, gambling software, host, ancillary remote casino and ancillary remote bingo). The change means that online gambling businesses are not permitted to allow a customer to gamble before they have verified the customer’s identity. This Licence Condition was implemented to improve industry standards by ensuring that ID checks are carried out at the start of the customer relationship and not only at a later stage. The revision is also consistent with the Regulations which requires ongoing monitoring of customer relationships (Regulation 28(11)) and our published Guidance which states that risks should be considered at all stages of the customer relationship.
The Commission is reminding online businesses that only verifying a customer’s identity at the point of withdrawal is a high risk policy from a money laundering and terrorist financing perspective and may be in breach of Licence Condition 17, as it means that CDD or EDD checks (if required and applicable only to casinos) or KYC checks are carried out too late in the customer journey. This poses a risk to the Licensing Objective, ‘keeping crime out of gambling’ along with potential breaches of TACT (Part 3) and POCA (Part 7) which requires that a SAR is submitted to the NCA where there is knowledge or suspicion of money laundering (including criminal spend) with failure to do so amounting to a criminal offence carrying a maximum penalty of up to 5 years imprisonment (s.330 and s.331 POCA).
Advice from the Financial Action Task Force (FATF)
FATF (the global standard-setter for combating money laundering and the financing of terrorism and proliferation) has published a paper which identifies the challenges, good practices and policy responses to new money laundering and terrorist financing threats and vulnerabilities arising from the coronavirus crisis.
The Commission is drawing licensees’ attention to this advice paper, advising where necessary to revise their risk assessment, policies, procedures, and controls to mitigate all relevant identifiable risks within their business, as set out by FATF in this paper.
Please see here for further information.
You can download below the above-mentioned FATF paper entitled “COVID-19 AML/CTF Risks & Policy Responses”, which contains the following key findings:
The increase in COVID-19-related crimes, such as fraud, cybercrime, misdirection or exploitation of government funds or international financial assistance, is creating new sources of proceeds for illicit actors.
Measures to contain COVID-19 are impacting on the criminal economy and changing criminal behaviour so that profit-driven criminals may move to other forms of illegal conduct.
The COVID-19 pandemic is also impacting government and private sectors’ abilities to implement anti-money laundering and counter terrorist financing (AML/CFT) obligations from supervision, regulation and policy reform to suspicious transaction reporting and international cooperation.
These threats and vulnerabilities represent emerging money laundering (ML) and terrorist financing (TF) risks. Such risks could result in:
- Criminals finding ways to bypass customer due diligence measures;
- Increased misuse of online financial services and virtual assets to move and conceal illicit funds;
- Exploiting economic stimulus measures and insolvency schemes as a means for natural and legal persons to conceal and launder illicit proceeds;
- Increased use of the unregulated financial sector, creating additional opportunities for criminals to launder illicit funds;
- Misuse and misappropriation of domestic and international financial aid and emergency funding;
- Criminals and terrorists exploiting COVID-19 and the associated economic downturn to move into new cash-intensive and high-liquidity lines of business in developing countries.
AML/CFT policy responses can help support the swift and effective implementation of measures to respond to COVID-19, while managing new risks and vulnerabilities. These include:
- Domestic coordination to assess the impact of COVID-19 on AML/CFT risks and systems;
- Strengthened communication with the private sector;
- Encouraging the full use of a risk-based approach to customer due diligence;
- Supporting electronic and digital payment options.
You can also view here a FATF YouTube video entitled “FATF Webinar on COVID-19-related Money Laundering and Terrorist Financing – Risks and Policy Responses”.
UPDATE: The Gambling Commission has subsequently published on the “AML News” page of its website its Coronavirus emerging risks bulletin 3 that covers the following topics:
- Increased use of informal value transfer systems (IVTS),
- Money Service Businesses (MSBs),
- Reliance on third parties and
- The importance of conducting affordability checks and customers occupation.