Anti-money laundering and social responsibility voluntary settlement - Betfred

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

Petfre (trading as Betfred.com) was the subject of the latest public statement issued by the Gambling Commission related to an operator's anti-money laundering and social responsibility controls.

In this case, the issues identified by the Gambling Commission included as follows:

a. Failure to carry out customer due diligence on a risk-sensitive basis - Inadequate enquiries about the customer's source of funds were made, and Betfred relied on an unsubstantiated assumption that the customer was a professional gambler due to their familiarity with the website and gambling jargon. Where Betfred did make enquiries, these were on an ad-hoc basis and records were not kept. The fact that the customer supplied a bank statement showing irregular deposits, made significant losses and was gambling remotely should have prompted Betfred to challenge the assumptions it was making and flagged the customer as being at a higher risk of money laundering.

b. Inadequate on-going monitoring - Betfred did not scrutinise the customer's transactions on a risk-sensitive basis in order to ensure that its monitoring was appropriate to the level of risk of money laundering being presented, nor did they react with any additional due diligence or source of funds checks when they designated the customer a 'VIP' or when their gambling activity and losses significantly increased.

c. Failure to carry out enhanced due diligence - Betfred did not carry out enhanced due diligence and on-going monitoring to verify the customer's identity and sources of funds when situations presented a higher risk of money laundering. This was pertinent in this case, since Betfred's relationship with the customer should have flagged them as being at a higher risk. Instead, Betfred relied on the incorrect belief – disproved by open source checks by the Commission – that the customer was a director of an established company and owned a valuable property.

d. Record-keeping - In breach of Regulation 19, Betfred did not keep records of the evidence it collected as part of its due diligence, nor could Betfred produce records to back up its claim that its staff had spoken to the customer on a number of occasions – which it said contributed to its view that the customer was a professional gambler. Any records of interactions with the customer were inadequate, which further indicated a lack of due diligence measures.

e. Failure to establish and maintain policies and procedures - Betfred's written policy document was found to contain out of date references, took an over-simplistic view of money-laundering, did not provide guidance to staff on how to spot suspicious transactions in remote gambling, focused on individual employee responsibility rather than Betfred's corporate responsibility, and made no mention of the need to identify customers, their sources of funds and to keep records.

f. Failure of social responsibility obligations - In addition to the money laundering risk, the customer's behaviour also should have meant that they were flagged as a potential problem gambler. For example, they gambled in increasing amounts, lost large sums of money quickly, finished sessions at or close to a zero balance and chased losses. Despite these signals, Betfred did not interact with the customer from a SR perspective and instead the individual's account was routinely topped up with bonuses of £1,000 when their account balance reached zero.

The licence review was concluded on the basis that Betfred would pay £443,000 to the victims of the customer's crime, pay a further £344,500 to be spent on socially responsible causes in lieu of a penalty that might otherwise have been imposed by the Commission, pay £30,240 to cover the Gambling Commission's costs of its investigation, arrange for an independent review and audit of its AML and SR policies and update those policies in line with the Commission's findings and the recommendations of its third party auditor.

The Gambling Commission added to the questions published in other voluntary settlements that operators should ask themselves the following questions:

a. Are we confident we can evidence all of the information we rely on when assessing a customer’s risk?

b. Are we conducting appropriate on-going monitoring and how can we evidence this?

c. Is our enhanced due diligence and on-going monitoring applied to customers on a risk-sensitive basis?

d. Are our policies and procedures up to date and effective?

e. How do we ensure we adhere to social responsibility code provision 3.1 of the Licence Conditions and Codes of Practice?