Gambling Sector: Compliance and Enforcement Report reveals concerns over weak AML controls

16 December 2021

On 9 December the Gambling Commission published its annual Compliance and Enforcement Report for the financial year 2020–2021. This confirmed that the period was particularly active for the Enforcement and Compliance teams, with a record total of £32.1 million being paid by 15 gambling businesses as a result of fines or regulatory settlements. This included over £1.3m being paid by White Hat Gaming Ltd, after a January 2020 review by the Commission of its operating licence revealed inadequate policies and produces in respect of anti-money laundering (“AML”) and safer gambling.

In launching the report CEO Andrew Rhodes confirmed that he was: “impressed by the amount of enforcement work carried out” – the amount recovered in fines was more than any other year – but that it was “also disappointing that it should be necessary.”  In terms of key findings, he confirmed that it was almost always the same two weaknesses which arose in every case – operators failing to adhere to social responsibility and AML rules. 

Rhodes went on to explain that whilst the Commission recognised the challenges brought to the industry by Covid-19, the regulator would continue to take active steps to protect consumer safety. This would involve particular attention on operators’ compliance with the Licence conditions and codes of practice (LCCP) and AML guidance. He sounded the alarm that: “operators are either not making suitable resources available or are simply putting commercial objectives ahead of regulatory ones” which was “simply unacceptable”.

A number of common poor AML and Counter-Terrorist Financing (“CTF”) practices were highlighted in the report, including:

  • Risk assessments not being utilised properly to inform the implementation of AML and CTF policies, procedures and controls;
  • Inadequate due diligence measures and Know Your Customer (“KYC “) checks;
  • Failures to identify the circumstances in which Enhance Due Diligence (“EDD”) should be applied, with a number of businesses setting arbitrary financial trigger limits with no clear rationale;
  • Failures to take into account the various updated relevant guidance on money laundering and terrorist financing risks which, in turn, meant a failure to incorporate them into existing policies and procedures;
  • Too much reliance being placed on third party providers to conduct due diligence checks;
  • Breaching the LCCP by conducting customer identification checks after the individual had been permitted to gamble;
  • Misdirecting the focus in risk assessments towards the potentially negative media coverage of poor AML and CTF practices. Instead, the mitigation of risks associated with money laundering and terrorist financing should be the central concern;
  • A lack of clear methodologies applied to risk assessments, resulting in a failure to properly engage with the money laundering and terrorist financing risks relevant to each particular business; and
  • A lack of awareness as to how problem gambling could be a sign of money laundering or terrorist financing.

The criticism of current practices and the forthcoming focus of the Commission means that for operators and their senior managers to avoid costly interventions and potential criminal proceedings, they will need to: carefully assess their compliance with the current guidance and be aware of updates as and when they are published (see here); implement or amend policies, procedures and controls which properly mitigate the risk of money laundering and terrorist financing; ensure that robust due diligence and EDD checks are conducted; understand the obligations in respect of reporting SARs (and the quality of the report expected); and finally, ensure that all employees are properly trained in AML and CTF procedures. For more information, see here.

Further Information

For further information on the issues raised in this blog post, please contact a member of our criminal litigation team.

About The Authors

Sophie Wood is a Senior Associate in the Criminal Litigation team with extensive experience in advising corporate and individual clients involved in a wide range of internal, criminal and regulatory investigations. Sophie has acted for individuals prosecuted for money laundering, advised HNW businesses within the regulated sector, from the art world to those regulated by the Gambling Commission, of their obligations under POCA and the Money Laundering, Terrorist Financing and Transfer of Funds (information on the Payer) Regulations 2017. Sophie has also advised businesses, MLROs and individuals obliged to make or affected by the making of SARs.

Nicola Finnerty is a Partner in our Criminal Litigation team and a leading expert in white collar and business crime, proceeds of crime & asset forfeiture. Over the last 25 years she has been involved in many of the most high-profile, complex criminal and regulatory investigations and prosecutions, both in the UK and in matters which span multiple jurisdictions. Her expertise includes money laundering, fraud & bribery and corruption along with being regularly consulted by individuals and institutions in the regulated sector in respect of the Money Laundering Regulations 2017. Nicola represents high net worth individuals, multi nation corporate clients, financial institutions and professional firms in investigations and proceedings brought by UK enforcement agencies.

 

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