Place your bets: The gaming industry and bookmakers - low risk for money laundering or not?

Written by Pekka Dare on Wednesday March 23, 2016

We need to talk about the gaming sector in the UK. A debate is currently raging between the industry, policymakers, and regulators. The stakes are high indeed with the industry arguing disproportionate regulation could lead to hugely increased costs (in the millions of pounds) and job losses across the high street retail betting shop sector.

The recent Paddy Power fine (technically a voluntary settlement) for poor controls around social responsibility and anti money laundering failures could not have come at a worse time or an industry aiming to demonstrate its lower risk profile and rising compliance standards. Was the Paddy Power case a one off aberration or an indication of a wider malaise in an industry that has yet to properly address the risks of financial crime?

For those unaware, Paddy Power was criticised by the industry regulator, the Gambling Commission, for inadequate AML controls and in particular, failure to report suspicions of money laundering. One particular eyebrow raising detail was that:

A shop manager was told by more senior members of staff that transactions involving Scottish banknotes were not likely to involve money laundering because the notes were UK currency and not stained or counterfeit.

What really is the risk of money laundering and financial crime posed by the gaming sector? Of course the gaming industry is an incredibly diverse one, with the casino sector, online operators and bookmakers. All of the Industry is caught by the UK’s Proceeds of Crime Act however, currently only the Casino sector is caught by the Customer Due Diligence requirements under the Money Laundering Regulations. So just to be clear, retail betting operators (including bookmakers) are not currently required to verify or record the identity of their customers.

However all bets are off as the 4th EU ML directive makes it clear that:

Member States may decide to exempt, in full or in part, providers of certain gambling services from national provisions transposing this Directive on the basis of the proven low risk posed by the nature and, where appropriate, the scale of operations of such services.

According to the UK National Money Laundering Risk Assessment there are over 9,000 licensed betting shops in Great Britain. They represent the largest market within the industry with a 47% market share.

So what are the real risks? Many in the gaming industry would argue that they are moving in the right direction in terms of raising standards around financial crime.

According to the figures, the number of suspicious activity reports (SARs) submitted by the casino and gaming industry is on an upward trend, with the number of reports in 2013/14 up 12% on the year before, and the number of reports received from the unregulated gaming sector up by nearly 80% over the same period.

My personal experience of higher end casinos and online operators is that they make positive efforts to implement AML controls and are working collaboratively with their peers to raise standards. In the wider retail betting sector, new industry standards are being promoted but have controls kept pace with the risks?

The Gambling Commission has expressed the view in the UK National Risk Assessment that:

…retail betting operators’ compliance with the licence requirement to prevent gambling being used to support crime is mixed. Weak controls of a number of operators have been exploited to launder at times large amounts of criminally derived cash. The Commission is of the view that there remains significant scope in the sector to improve defences against criminal spend in particular.

The sector operates a business model based on high footfall, high turnover and low margins, where quick cash transactions are the norm. The combination of anonymity and extensive use of cash exposes the betting sector to particular money laundering risks. This can create a tension between commercial imperatives and the need to comply with controls which, if conducted properly, can be time consuming and increase the attractiveness of using black-market operators. It can also lead to suspicious behaviour being missed.

Operators can offer facilities for customers to deposit cash at a betting premises and collect payments at a later date, and/or at a different location. These services offer customers the ability to transfer and to store money outside of the conventional banking system. If operators are not carrying out due diligence on such customers this can present a money laundering/terrorist financing vulnerability.

So where does this leave us? The next few months will be vital as the case is made out as to the risk profile of bookmakers and the rest of the gaming industry. With the importance of the outcome clear, it's essential that the legal framework is developed on the basis of an evidence-led approach. Ensuring proportionate regulation that doesn't cripple a huge UK industry while restricting the flow of criminal assets will be a challenge for all involved in the debate.

If you’re interested in learning more about money laundering risks in betting and gaming, check out ICA’s online specialist certificate course.