UKGC’s annual assessment of ML & TF risks within the British gambling industry demands very careful attention

Categories: News

Hard on the heels of the third HM Treasury and Home Office National Money Laundering (“ML”) and Terrorist Financing (“TF”) Risk Assessment comes (belated) publication of the Gambling Commission’s annual assessment of the ML and TF risks within the British gambling industry (that you can download below).

This risk assessment compares individual gambling sub-sector risks of vulnerability to ML and TF and rates them appropriately in comparison with each other as follows:

The Commission states that: “whilst some of the ratings have changed in individual sub-sector risk areas, the overall risk ratings for each gambling sector have not changed since the previous risk assessment (with the exception of the overall risk of terrorist financing to Great Britain’s gambling industry which has decreased from medium to low risk)”.

The Commission’s risk assessment is an essential resource for all UK licensed gambling operators in informing their own ML and TF risk assessments required pursuant to Licence Condition 12.1.1 with the consequence that all such operators should now review their existing risk assessments as a matter of priority (and thereafter update as necessary their AML/CTF policies, procedures and controls).

Announcing its publication, the Commission states as follows on its website:

All relevant licensees are reminded that Licence Condition 12.1.1.3 Prevention of money laundering and terrorist financing means they must:

“ensure that such policies, procedures and controls are implemented effectively, kept under review, revised appropriately to ensure that they remain effective and take into account any applicable learning or guidelines published by the Gambling Commission from time to time.”

In drafting its updated risk assessment, the Commission has analysed information from various other sources including:

  1. The EU Supranational Risk Assessment on Money Laundering and Terrorist Financing (SNRA) (PDF opens in new tab)
  2. HM Treasury’s National Risk Assessment (NRA) of Money Laundering and Terrorist Financing 2020 (opens in a new tab)
  3. Financial Action Task Force (FATF’s) recommendations (opens in new tab) (the global standard setter on combating Money Laundering and Terrorist Financing)
  4. FATF’s Terrorist Financing (TF) Risk Assessment Guidance July 2019 (PDF) (opens in new tab)
  5. The Home Office July 2019 Asset Recovery Action Plan (opens in new tab)
  6. FATF’s Mutual Evaluation Report (MER) (opens in new tab) of the UK’s AML and CTF framework
  7. The UK government’s Economic Crime Plan 2019 (opens in new tab)
  8. The Anti-Corruption Strategy 2017 (opens in new tab)
  9. The Serious and Organised Crime Strategy 2018 (opens in new tab)
  10. The UK’s Anti-Money Laundering and Counter-Terrorist Financing Action Plan 2016 (opens in new tab).

In setting out below:

  1. additional inherent and emerging ML risks per sector and
  2. additional inherent TF risks

identified by the Gambling Commission in this new risk assessment, we urge all operators to take thorough account of all that is said within each relevant section, particularly bearing in mind that the Commission has changed certain of its risk ratings from those set out within its 2019 risk assessment.

1. Additional inherent and emerging ML risks per sector

In addition to existing inherent ML risks, the Commission describes in some detail the following additional inherent, emerging and (in the case of casinos offering Money Service Businesses) other ML risk indicators that must be carefully considered by operators:

Remote casino operators

    • Additional inherent risks:
      • Organised crime gangs
      • Mule accounts
      • High monetary thresholds
      • ‘High value’ customer schemes
      • Failure to implement a ‘closed loop’ system
    • Emerging risks
      • Payment providers
      • High-stakes gambling/Feature buy-in slots

Non-remote casino operators

    • Additional inherent risks:
      • Cashless payments
    • Emerging risks
      • Crypto-asset payments
      • Bank drafts
      • ‘Bring your own devices’
      • Transfer of funds between casino customers
      • Unlicensed employees carrying out ID checks
      • Key person responsible for regulatory compliance

Casinos offering money service businesses

    • Red flag risk indicators identified with MSB activity were:
      • casino operators with weak KYC policies and/or implementation of those policies
      • casino operators who demonstrate a lack of curiosity concerning customers’ source of funds
      • operators with a high turnover of staff, especially those working in Compliance teams, the Money Laundering Reporting Officer (MLRO) and staff of the MLRO’s office
      • operators with an MLRO who is not a personal management licence holder with the Commission or professionally qualified (MLROs do not have to be PML holders, though we strongly advise this as it allows us to perform criminality, identity, integrity and competency assessments on the individual)
      • operators who do not demonstrate a risk based approach to their interactions and checks relating to customers
      • customers from high risk jurisdictions using MSBs. Operators must be considering geographical risk in their risk assessments.

Remote betting operators

    • Additional inherent risks:
      • Peer to peer betting
      • ‘Closed loop’ system
      • Use of third parties or agents to obscure the source or ownership of money gambled by customers and their identities
      • ‘High value customer’ schemes
      • High monetary thresholds
    • Emerging risks
      • Unregulated betting events
      • Customer identity verification
      • ‘Smurfing’
      • ‘Mule’ betting accounts
      • Politically exposed persons (PEP)

Non-remote betting operators

    • Additional inherent risks:
      • Dyed notes
    • New emerging risks
      • ‘Closed loop’ system
      • Organised criminal gangs
      • Unlicensed gambling activities
      • Scottish notes
    • Existing emerging risks
      • ‘Bring your own devices’

Remote bingo operators

    • Additional inherent risks:
      • Poor source of funds checks
      • Smurfing
      • Customers on the sanctions list
      • Inadequate/lack of ‘know your customer’ (KYC) checks
    • New emerging risks
      • Use of third parties or agents to obscure the source or ownership of money gambled by customers and their identities

Non-remote bingo operators

    • Additional inherent risks:
      • Cash payments
      • Cashless payment

Arcades

    • Additional inherent risks:
      • Dyed notes
    • New emerging risks
      • ‘Bring your own devices’

Remote and Non-remote Society Lotteries and External Lottery Managers

    • New emerging risks (applicable to ELM sector only)
      • Failure to transfer lottery proceeds

National Lottery (Remote and Non-remote)

    • New emerging risks
      • KYC checks

Remote and Non-remote Gambling Software

    • No merging or additional inherent risks

Remote and Non-remote Gaming Machine Technical

    • New emerging risks
      • Lack of adherence with Technical Standards

2. Additional inherent TF risks 

In addition to existing inherent TF risks, the Commission describes in some detail the following additional inherent TF risks that must be carefully considered by operators:

  • Cash transactions
  • Money Service Businesses
  • Pre-paid cards
  • ‘Mule’ accounts
  • Crypto-asset transactions
  • Charities and terrorist financing
  • Domestic and international terrorism
  • Terrorism ‘red flag’ indicators

Anyone requiring advice or assistance in reviewing existing (or preparing fresh) ML/TF risk assessments or reviewing their existing (or preparing fresh) AML/CTF policies, procedures and controls is invited to contact us. We have considerable experience in these areas, including in relation to enforcement action arising from AML/CTF compliance assessments conducted by the Gambling Commission.

UPDATE: On 29 December 2020, under the heading “Changes to the UK’s financial sanctions framework w.e.f. 11pm on 31 December 2020”, we:

  • reported that, with effect from that time, the UK will no longer apply EU sanctions regulations and all sanctions regimes will be implemented through UK regulations, and
  • drew gambling operators’ attention to OFSI’s blog article “Get ready for the end of the transition period”, which provides information on the changes which will come into effect from 1 January 2021.
Download article PDF: UKGC ML & TF Risk Assessment 2020 18.12.20