Anti-money laundering: recent and future developments
This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
Anti-money laundering ("AML") issues have been and are set to continue to be a high priority for the Gambling Commission in Great Britain.
In its Annual Report for 2015/16 the Gambling Commission issued the following warning to the industry:
"Over the last two years we have emphasised to boards and owners of betting and gaming businesses the importance of putting the risks of gambling-related harm and money laundering at the heart of their business strategy. There is no doubt a very welcome change in attitude in a number of major companies. However, whilst there has been a great deal of activity, it is also clear that much still needs to be done to deliver real impact in reducing the risk of harm and criminal activity…
It is critical that boards and owners of businesses throughout the gambling sector engage fully with these issues. They need to accept the risks to consumers and the risk from criminal activity as just as fundamental a part of the culture of their business as commercial risk."
This article highlights some of the recent and expected developments in the area of AML both in terms of the Gambling Commission's regulatory controls and approach and the underlying legal framework, particularly in light of Brexit as follows:
- the new AML licence condition for gambling operators;
- the new AML guidance from the Gambling Commission for casino operators;
- recent voluntary settlements between the Gambling Commission and operators on AML issues;
- the next steps for the Gambling Commission on AML issues; and
- the EU's Fourth Anti-Money Laundering Directive.
Given the recent and potential developments, the industry faces the challenge of implementing sufficient AML and social responsibility ("SR") policies and procedures to satisfy regulatory and legal requirements whilst remaining commercially viable and attractive to customers.
The steps that an operator should be taking will depend in large part on their current policies and procedures. In general terms an operator based in the UK or whose facilities are used in the UK may want to consider:
a. Conducting and recording a risk assessment. To the extent that a risk assessment has already been conducted, operators should ensure it accords with the Gambling Commission's guidance and is fully recorded in a manner that could be produced to the Gambling Commission.
b. Assessing how AML controls interplay with SR controls.
c. Reflecting the content of the Gambling Commission's new guidance in policy and training documentation and implementation.
1. NEW LICENCE CONDITION
The Gambling Commission's Licence Conditions and Codes of Practice (the "LCCP") and guidance ("The Prevention of Money Laundering and Combating the Financing of Terrorism - Guidance for remote and non-remote casinos" being the "Casino Guidance" and "Duties and responsibilities under the Proceeds of Crime Act 2002 – Advice to operators (excluding casino operators)" being the "Non-Casino Guidance") are key touchstones for AML policies, particularly for overseas operators (that are otherwise potentially outside the reach of the UK's statutory provisions).
A new version of the LCCP is due to come into effect on 31 October 2016 and includes a new AML licence condition (condition 12.1.1) for all licensed operators (with the exception of only gaming machine technical and gambling software licence holders). It is not therefore limited to casino operators, even though current EU and UK laws regarding money laundering (the Third Anti-Money Laundering Directive and the Money Laundering Regulations 2007) apply only to casino operators.
The new licence condition will make it mandatory for operators to conduct and keep under review an assessment of the risk of their business being used for money laundering and terrorist financing.
The Gambling Commission does not intend to provide a template for the risk assessment. The Gambling Commission has stated that it will be publishing its own anti-money laundering risk assessment later in the year, which may provide some assistance to licence holders in terms of the approach that may be taken. As set out below, the revised Casino Guidance from the Gambling Commission also provides a substantial amount of material in relation to conducting a risk assessment.
Whilst it will be difficult for operators to have complete certainty that a risk assessment is compliant with regulatory requirements, the Gambling Commission's approach does mean operators have considerable latitude to devise their own approach to the risk assessment, on the basis that they are best placed to know and identify the risks to their business model. The Gambling Commission has confirmed that existing assessments that operators have conducted may already be adequate.
The new licence condition also requires operators to (i) have appropriate policies, procedures and controls in place having regard to the risk assessment; and (ii) ensure policies, procedures and controls are implemented effectively and take into account "any applicable learning or guidelines published by the Gambling Commission from time to time". The current LCCP includes an ordinary code provision that casino operators are to act in accordance with the Casino Guidance and non-casino operators are to act in accordance with the Non-Casino Guidance. The new licence condition therefore makes clear that all operators should have regard not only to the specific guidance documents on AML but also to any other publications by the Gambling Commission (including those in relation to voluntary settlements) in devising and reviewing its AML policies, procedures and controls.
Key event reporting by operators has been extended to require an operator to report to the Gambling Commission where it is involved in a criminal investigation and where the Gambling Commission might reasonably be expected to question whether the licensee's measures to keep crime out of gambling had failed. An operator is not required to report to the Gambling Commission where they have knowledge or suspicion of criminal conduct connected to their operations but there is no criminal investigation.
Finally, the new LCCP will also include a new licence condition (12.1.2) for all remote casino operators based in overseas jurisdictions, requiring them to comply with the UK Money Laundering Regulations 2007. However, in substance this is not a new condition because remote casino licences have been made subject to individual conditions in similar terms.
2. NEW CASINO GUIDANCE
On 28 July, the Gambling Commission published a revised version of the Casino Guidance for casino operators. The revised Casino Guidance was effective immediately.
The revisions to the Casino Guidance are detailed and are throughout the document, rather than being limited to specific parts. Operators would therefore be well advised to consider the detail of the revised Casino Guidance in full and compare it to their current policies and procedures and should make relevant staff aware of the detail of the revised Casino Guidance. The revisions include substantive amendments and additions in the following key areas:
a. Risk assessment – Section 2 of the Casino Guidance sets out risks that should be considered as part of the risk assessment. The Gambling Commission has stated that the parts of the revised Casino Guidance that relate to the amended LCCP are intended to be used in preparation for the amended LCCP coming into effect in October 2016.
b. Customer due diligence and on-going monitoring – Sections 3 and 6 provide further and detailed guidance, including to reflect recent voluntary settlements entered into with operators found to have deficiencies in their AML policies and procedures. In particular, the revised Guidance highlights that the effective identification and management of both AML and SR risks rests on the ability of casino operators to know their customer relationships.
c. Explanation of terms – The Casino Guidance has been significantly expanded to include greater explanations of how money laundering can occur in gambling (1.5-1.10), the relevant legislation and offences (1.15-1.29) and what constitutes suspicious activity (8.12). These additions may assist with the training of relevant staff.
d. Consent procedure – Section 8 of the Casino Guidance sets out a revised procedure for applying for consent to handle suspected proceeds of crime.
Relevant responses to the consultation were published in parallel with the Casino Guidance, which provide some helpful further description to understand the revisions made.
3. VOLUNTARY SETTLEMENTS
In the last year the Gambling Commission has reached a string of voluntary settlements with operators in relation to both AML and SR controls. The statements issued by the Gambling Commission in relation to these settlements provide potentially important indications of the approach the Gambling Commission expects to be taken by operators. Moreover, from 31 October 2016 it will be a licence condition that operators take account of such statements in reviewing their AML policies, procedures and controls.
The latest public statement regarding a voluntary settlement related to Petfre (trading as betfred.com). Further details of the Gambling Commission's review of Petfre can be found here.
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? Are our policies and procedures up to date and effective?
d. How do we ensure we adhere to social responsibility code provision 3.1 of the Licence Conditions and Codes of Practice?
4. NEXT STEPS FOR THE GAMBLING COMMISSION
AML policies and procedures and their enforcement will no doubt be high on the agenda of the Gambling Commission for some time to come.
In terms of specific further steps by the Gambling Commission, non-casino operators can expect an updated version of the Non-Casino Guidance to be published later in 2016. Further revised guidance (and potentially also licence conditions) related to the transposition of the Fourth AML Directive into UK law can also be expected. Depending on the terms of the transposition this may extend to casino operators and non-casino operators.
The Gambling Commission considered whether in the future it should elevate the current ordinary code provisions to conditions that casino operators are to act in accordance with the Casino Guidance and non-casino operators are to act in accordance with the Non-Casino Guidance. It was determined that this change was not necessary immediately but this will be kept under review.
The Gambling Commission is also due to conduct a review of Regulatory Returns later in 2016, which may include matters relevant to AML controls and how the Gambling Commission monitors their implementation. In particular the Gambling Commission has indicated it will consider whether to gather information on discontinued customer relationships due to AML concerns.
5. FOURTH ANTI-MONEY LAUNDERING DIRECTIVE
The underlying legal framework for AML originates from the European Union. The Third AML Directive sets a minimum standard that each member state is required to have transposed into domestic law. The UK Government transposed the Third AML Directive in the Money Laundering Regulations 2007, which casino operators in the UK and overseas are required to comply with under the terms of their licence from the Gambling Commission.
The Fourth AML Directive was formally adopted by the European Union on 5 June 2015 and again sets a minimum standard, which is currently due to be implemented by Member States by 26 June 2017. The European Commission has proposed a further Directive to amend the Fourth AML Directive, which includes that the implementation date will move forward to 1 January 2017.
In any event, given the current and expected rate of progress, it is likely that the UK will have been required to implement the Fourth AML Directive before any exit from the European Union. Depending on the terms of the UK's exit from the EU (and in particular whether it joins the European Economic Area) the UK Government may be able to repeal any domestic legislation implementing the Fourth AML Directive. However, it is difficult to see any basis on which the UK Government would consider that substantial review of domestic AML legislation would be both desirable and a priority issue post-Brexit. The referendum vote is therefore unlikely to alter substantially the application of the Fourth AML Directive, at least in the short term.
For the gambling industry, the key issue in relation to the transposition of the Fourth AML Directive is whether HM Treasury opts to exempt any gambling sectors on the basis of proven low risk posed by the nature and scale of their services, following an appropriate risk assessment. Unless HM Treasury introduces such exemptions, the AML regime would be extended beyond casino operators to non-casino operators.
HM Treasury has stated that it intends to consult on proposals in this area as part of the wider work to transpose the Fourth AML Directive, and all stakeholders will have the opportunity to contribute to the consultation process.
For more information and advice about AML requirements, please contact Tamsin Blow or Dan Tench.
