Systemic failures in the betting and gaming sector

Written by David Jenkins Handy on Monday August 6, 2018

The betting and gaming sector has been the recipient of a number of financial penalties over the last eighteen months for a lack of compliance with statutory and regulatory measures. On 22 June 2018, 32Red were fined £2 million by the Gambling Commission over failures to conduct anti-money laundering checks on a customer whose pattern of deposits could not be accounted for by his income.

The Commission said that 32Red should have reviewed the customer’s account for the source of wealth and other checks in 2016, but ‘because of the existing relationship the customer was deemed low risk and deprioritised’. The issue came to the attention of 32Red staff when an unusual play happened, which presented a red flag for a possible gambling problem, resulting in a review in January 2017. As a result, it was discovered that the customer’s monthly net salary was about £2,150. This inexplicably contrasted with average monthly deposits that were in excess of £45,000.

Significantly, 32Red were found to have demonstrated:

• operational weaknesses and breaches of money laundering rules relating to ongoing monitoring and enhanced due diligence
• breaches to the Suspicious Activity Report (SAR) regime as policies and procedures for disclosures to the nominated officer and for SAR reporting were inadequate
• a failure to protect the customer from gambling-related harm.

Overall, it is clear that the firm had failures with their AML risk management because of substantive weaknesses with their compliance management system. However, 32Red is not alone in this respect.

In August 2017, online gambling firm 888 paid a record fine levied by the Gambling Commission of £7.8 million, after it found that there were significant flaws in the firm's social responsibility processes. The Commission also highlighted one individual case in which a customer staked more than £1.3 million, including £55,000 stolen from their employer, introducing proceeds of crime into the system.

While the focus of the Commission’s intervention was on vulnerable gamblers, it is clear that this incident also involves facilitation of money laundering, which begs the question, where was the due diligence and why wasn’t a SAR raised earlier? Worse still, the typology seems to extend widely across the entire industry. In February 2018 William Hill paid a £6.2 million penalty for systemic social responsibility and money laundering failures, while SkyBet paid a £1 million penalty in an issue that, once again, highlighted compliance failures.

Potential risks to gambling firms with weak compliance could include:

• criminal liability, which may also be incurred by relevant persons for failure to comply with the requirements imposed on them by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017).
• exposure to use of extended powers of civil recovery through the Criminal Finances Act (CFA) 2017 enabling both the FCA and HMRC to take actions to recover criminal property without the need for the owner to be convicted of a criminal offence.

In particular, MLR 2017 impose a number of responsibilities on relevant persons in the conduct of their business. This includes a duty to implement customer due diligence measures, internal controls and training/monitoring systems that are appropriate to the money laundering and terrorist financing risks faced by the business in question.

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ICA Audit has a company certification scheme that can help firms resolve weaknesses in their compliance management system, which can be focused on risk areas of greatest concern to the business, such as social responsibility and anti money laundering. Company certification provides evidence to regulators and law enforcement that organisations aim to achieve high standards of effective compliance.