Online Gambling Services

Online Gambling Services

The online gambling industry, with its dynamic growth and global reach, presents unique challenges and opportunities in the realms of AML/CFT. Drawing on insights from the FATF Guidance on the Risk-Based Approach for Casinos, the FATF report on vulnerabilities, the 4th AMLD, and the German GwG, this article delves into the essential aspects of regulatory compliance, risk management, and best practices for online gambling service providers.

Navigating the Landscape of Online Gambling Services

Regulatory Framework and Compliance

Online gambling services operate within a complex regulatory environment designed to mitigate the risks of money laundering and terrorist financing. The FATF’s risk-based approach encourages online casinos to understand and manage their specific risks, tailoring AML/CFT measures to effectively address these challenges. The 4th AMLD applies to providers of gambling services, mandating Customer Due Diligence (CDD) for transactions of €2,000 or more and offering guidance on identifying and reporting suspicious activities.

Understanding the Risks

The FATF report on the vulnerabilities of casinos and gaming sectors highlights the various methods and techniques used in money laundering within the casino sector, which also apply to online platforms. These include the misuse of casino value instruments, structuring and refining of transactions, exploitation of casino accounts, and manipulation of winnings. Awareness of these tactics is crucial for online gambling service providers to implement effective monitoring and preventive measures.

Best Practices for Online Gambling Services

  1. Robust CDD Measures: Implementing thorough CDD processes to verify the identity of customers and understand their gambling behavior is fundamental. This includes monitoring transactions and betting patterns for signs of money laundering.
  2. Advanced Transaction Monitoring: Utilizing sophisticated algorithms and analytics to detect unusual or suspicious transaction patterns can help in early identification of potential AML/CFT risks.
  3. Employee Training: Ensuring that all employees are well-trained in AML/CFT policies and procedures enhances the overall effectiveness of the risk-based approach.
  4. Collaboration with Regulators: Engaging in ongoing dialogue with regulatory bodies and participating in industry forums can help online gambling operators stay ahead of emerging risks and regulatory changes.
  5. Technology Utilization: Leveraging technology, such as blockchain and AI, can enhance the integrity and security of online gambling platforms, making it more difficult for money launderers to exploit these services.

Navigating Legal Variations

Operators must also navigate the legal and regulatory differences across jurisdictions. The German GwG, for instance, outlines specific obligations for online gambling service providers, emphasizing the need for gambling accounts, transaction monitoring, and restrictions on the use of certain payment methods.

Conclusion

The online gambling sector must continually adapt to the evolving landscape of regulatory requirements and emerging threats in money laundering and terrorist financing. By adopting a proactive, risk-based approach and leveraging technological advancements, online gambling service providers can not only comply with global and local regulations but also contribute to the integrity and security of the financial system at large.

Call to Action

For online gambling service providers looking to enhance their AML/CFT frameworks, it’s imperative to stay informed, invest in comprehensive training, and adopt advanced security measures. Embracing best practices and regulatory guidance will not only ensure compliance but also foster trust and sustainability in the online gambling industry.

FATF Guidance on the Risk-Based Approach for Casinos

The FATF (Financial Action Task Force) Guidance on the Risk-Based Approach (RBA) for Casinos, adopted in October 2008, is aimed at aiding the casino sector and regulatory bodies in understanding and implementing an RBA to combat money laundering and terrorist financing.

Purpose of the Guidance

  • Develop Common Understanding: The guidance aims to foster a unified comprehension of what an RBA entails within the context of the casino sector.
  • Outline High-Level Principles: It delineates the overarching principles that underpin the RBA, guiding casinos and regulators on how to apply these principles effectively.
  • Indicate Good Practice: The document suggests best practices for the design and execution of an RBA, ensuring that casinos can adopt measures that are both effective in mitigating risks and efficient in terms of resource utilization.

Application of RBA

  • Not Mandatory: While the guidance promotes the RBA, it acknowledges that adopting this approach is optional and not necessarily less burdensome than traditional methods. The decision to use an RBA depends on each country’s specific risk landscape, the size and nature of its casino sector, and other pertinent factors.
  • Alternative Approaches: Some countries might find a rules-based system more suitable, especially if there are concerns about the DNFBPs‘ (Designated Non-Financial Businesses and Professions) experience and capability to effectively implement an RBA.

Target Audience and Scope

  • Primary Audience: The guidance is primarily intended for casinos, including internet casinos, that are subject to the FATF Recommendations. It aims to assist these entities in understanding their risks and how to manage them effectively.
  • DNFBP Sector Inter-relationships: The guidance recognizes the varying risks and operational characteristics across different DNFBP sectors and between DNFBPs and financial institutions. It highlights the need for a tailored approach that considers these differences.

Implementation and Partnership

  • National Authorities and Casinos Partnership: A key recommendation is for countries and their regulatory bodies to collaborate closely with the casino sector. This partnership is crucial for developing and implementing effective AML/CFT measures that are both practical for casinos and meet national and international standards.
  • Adaptability to Different Jurisdictions: The guidance is intentionally high-level to accommodate the diverse practices of casinos across different countries and the varying degrees of regulatory oversight.

In summary, the FATF’s Guidance on the RBA for Casinos is a strategic document that encourages a nuanced, flexible approach to AML/CFT compliance within the casino sector, promoting collaboration between regulators and the industry while allowing for adjustments based on national contexts and risk assessments.

FATF Vulnerabilities of Casinos and Gaming Sector

The FATF report on the „Vulnerabilities of Casinos and Gaming Sector“ highlights the sector’s susceptibility to money laundering (ML) activities while recognizing the significant steps taken to enhance regulatory obligations for casinos as per the revised FATF 40 Recommendations. Despite these efforts, the report identifies several areas of concern and vulnerabilities that contribute to the sector’s risk profile.

Key Findings

  • Lack of Awareness: There is a notable lack of awareness within the sector regarding the typologies and methods used for money laundering, which undermines the effectiveness of AML/CFT measures.
  • Regulatory and Enforcement Gaps: The report points out deficiencies in the regulatory framework and the enforcement mechanisms, leading to inconsistent application and oversight of AML/CFT measures across different jurisdictions.
  • Online Gaming Vulnerabilities: While the focus of the report is on casinos with a physical presence, it acknowledges gaps in understanding and regulating online gaming typologies, which could be exploited for ML purposes.
  • Junket and VIP Program Risks: The control mechanisms over junkets and VIP programs are identified as inadequate, providing loopholes that could be exploited for laundering illicit funds.
  • ‚High Seas‘ Gaming Concerns: There are significant control issues with gaming activities that take place outside national territorial waters (‚high seas‘), where regulatory oversight is minimal or non-existent.
  • Global Coverage Gaps: The report underscores a widespread lack of comprehensive global coverage in AML/CFT controls within the casino sector, posing a considerable vulnerability to the integrity of the financial system.

Policy Implications

The vulnerabilities identified in the report suggest a need for a more coordinated and comprehensive approach to mitigating ML risks within the casino and gaming sector. This includes:

  • Enhancing Awareness: Increasing awareness and understanding of ML typologies specific to the casino sector among operators, regulators, and law enforcement.
  • Strengthening Regulation and Enforcement: Closing the regulatory gaps and ensuring consistent and effective enforcement of AML/CFT measures across jurisdictions.
  • Addressing Online and ‚High Seas‘ Gaming Risks: Extending regulatory frameworks and oversight to include online gaming and activities conducted in less regulated environments like the high seas.
  • Improving Controls over Junkets and VIP Programs: Implementing robust controls and due diligence processes for junkets and VIP programs to prevent their misuse for ML purposes.

Overall, the report calls for enhanced efforts at the domestic and international levels to address the identified vulnerabilities, ensuring a more resilient casino and gaming sector against the threats of money laundering and terrorist financing.

Money Laundering Methods and Techniques in Casinos

The FATF report on the vulnerabilities of casinos and the gaming sector details various methods and techniques employed in money laundering (ML) within casinos.

  • Use of Casino Value Instruments: Indicators include purchasing chips with minimal gaming activity, using chips as currency in illegal transactions, and transferring chips across borders without declaration.
  • Structuring and Refining: Signs include frequent transactions just below reporting thresholds, using gaming machines to refine low denomination bills into larger sums, and the systematic exchange of small transactions for larger denominations.
  • Casino Accounts: Red flags include frequent, unexplained deposits and withdrawals, account activity inconsistent with the customer’s profile, and the use of casino accounts by third parties.
  • Winnings: Suspicious activities include frequent claims of winnings without corresponding gameplay, buying winnings from legitimate customers, and engaging in low-risk bets to launder funds.
  • Currency Exchange: Indicators include large, frequent currency exchanges, use of currency exchange services for no apparent legitimate purpose, and structured currency exchanges to avoid detection.
  • Employee Complicity: Warning signs include unusual interactions between patrons and staff, discrepancies in recorded winnings, and employees facilitating suspicious transactions.

Red flags of ML using Casino Value Instruments

  • Inserting funds into gaming machines and immediately claiming those funds as credits.
  • Customers claiming gaming machine credits/payouts with no jackpot.
  • Customers claiming a high level of gaming machine payouts.
  • Noticeable spending/betting pattern changes.
  • Customers frequently inserting substantial amounts of banknotes in gaming machines that have high payout percentages and do not play „max bet“ to limit chances of significant losses or wins, thereby accumulating gaming credits with minimal play.
  • Frequent even-money wagering when conducted by a pair of betters covering both sides of an even bet (e.g., in roulette, baccarat/mini-baccarat, or craps).
  • Customer‟s intention to win is absent or secondary.
  • Two or more customers frequently wagering against one another on even-money games.
  • Customer in possession of large amounts of coinage or bills.
  • Customer befriending/attempting to befriend casino employees.
  • Purchasing and cashing out casino chips with little or no gaming activity.
  • Customer requests to add cash to casino winnings and then exchanging the combined cash and winnings for a single cheque.
  • Multiple cheques being requested or drawn on account.
  • High volume of transactions within a short period.
  • Multiple chip cash outs on the same day.
  • Structuring of chip/cheque transactions.
  • Chip cash out is same/similar to chip purchase.
  • Requests for credit transfers to other casinos.
  • Use of multiple names to conduct similar activity.
  • Use of third parties to purchase casino chips.
  • Use of credit cards to purchase casino chips.
  • Use of personal cheques, bank cheques and traveller‟s cheques to purchase casino chips.
  • Customer due diligence challenges, e.g. refusals, false documents, one-offs, tourists passing trade.
  • Customer purchases chips and leaves casino shortly after.
  • CPV, TITO, ticket or voucher dated prior to date of redemption.
  • Large chip purchases.
  • Frequent purchase of casino gift certificates.
  • Unexplained income inconsistent with financial situation/customer profile.
  • Supposed winnings do not correspond with recorded winnings.
  • Dramatic or rapid increase in size and frequency of transactions for regular account holder.
  • Detection of chips brought into the casino.

Red flags of ML using Structuring/Refining methods

  • Activity was inconsistent with the customer‟s profile.
  • Associations with multiple accounts under multiple names.
  • Use of multiple names to conduct similar activity.
  • Depositing multiple amounts of cash and receiving multiple cheques drawn on that account.
  • Multiple individuals sending funds to the one beneficiary.
  • Cheque issued to a family member of the person.
  • Third party presents for all transactions but does not participate in the actual transaction.
  • Transferring funds into third party accounts.
  • Transactions on casino accounts conducted by persons other than the account holder.
  • Use of third parties to undertake structuring of deposits and wire transfers.
  • Use of a remittance dealer / junket operators to deposit or withdraw cash.
  • Use of third parties to purchase gaming chips.
  • Use of third party to conduct wagering.
  • Cash handed to third party after cash out.
  • High volume of transactions within a short period.
  • Purchasing and cashing out casino chips with no gaming activity.
  • Exchanging large quantities of quarters from non-gaming proceeds for paper currency.
  • Frequent betting transactions just under thresholds.
  • Frequent „buy in‟ and „cash out‟ transactions just under thresholds.
  • Cash deposits / withdrawals just under thresholds.
  • Wire transfers / currency exchanges just under thresholds.
  • Requests for winnings in separate cash or chip amounts under reporting threshold.
  • Cashing in winnings in a multiple combination of chips, cheque and cash.
  • Customer conducts several transactions under reporting thresholds over several shift changes.
  • Customer moving from table to table or room to room before the wagering amounts reach the reporting threshold.
  • Opening a casino account or purchasing casino chips with small denominations bills.
  • Customer gambling with large amounts of small denomination bills.
  • Currency exchange from small denomination bills to larger denomination bills.
  • Frequent „cash out‟ transactions without corresponding „buy in‟ transactions or vice versa.
  • Customer due diligence challenges, e.g. refusal, false documents, one-off/tourist or passing trade.
  • Dramatic or rapid increase in frequency of currency transactions for regular account holders.
  • Noticeable spending/betting pattern changes.
  • Insert banknotes in electronic gaming devices with no gaming activity, press the “cash out” button which generates a TITO ticket, and redeem ticket at cashier‟s desk or ticket redemption kiosk machine.

Red flags of ML using Casino Accounts

  • Frequent deposits of cash, cheques, bank cheques, wire transfers into casino account.
  • Funds withdrawn from account shortly after being deposited.
  • Significant account activity within a short period of time.
  • Account activity with little or no gambling activity.
  • Casino account transactions conducted by persons other than the account holder.
  • Funds credited into account from country of concern.
  • Large amounts of cash deposited from unexplained sources.
  • Associations with multiple accounts under multiple names.
  • Transfer of funds from/to a foreign casino/bank account.
  • Transfer of funds into third party accounts.
  • Funds transferred from casino account to a charity fund.
  • Multiple individuals transferring funds to a single beneficiary.
  • Structuring of deposits / withdrawals or wire transfers.
  • Using third parties to undertake wire transfers and structuring of deposits.
  • Use of an intermediary to make large cash deposits.
  • Use of gatekeepers, e.g. accountants and lawyers to undertake transactions.
  • Use of multiple names to conduct similar activity.
  • Use of casino account as a savings account.
  • Activity is inconsistent with the customer‟s profile.
  • Unexplained income inconsistent with financial situation.
  • Transfers with no apparent business or lawful purpose.
  • Transfer of company accounts to casino accounts.
  • Use of false and stolen identities to open and operate casino accounts.
  • Customer name and name of account do not match.
  • U-turn transactions occurring with funds being transferred out of country and then portions of those funds being returned.
  • Customer due diligence challenges, e.g. refusal, false documents, one-off/tourist or passing trade.
  • Requests for casino accounts from Politically Exposed Persons (PEPs).

Red flags of ML using Winnings

  • Frequent claims for winning jackpots.
  • Frequent deposits of winning gambling cheques followed by immediate withdrawal of funds in cash.
  • Customers watching/hanging around jackpots sites but not participating in gambling.
  • Multiple chip cash outs on the same day.
  • Customers claiming gaming machine credits/payouts with no jackpot.
  • Customers claiming a high level of gaming machine payouts.
  • Purchasing and cashing out casino chips with no gaming activity.
  • Requests for winnings in separate cash or chip amounts under reporting threshold.
  • Frequent „cash out‟ transactions without corresponding „buy in‟ transactions.
  • Cashing in winnings in a multiple combination of chips, cheque and cash.

Red flags of ML using Currency Exchange

  • Bank drafts/cheques cashed in for foreign currency, e.g. Euros, USD.
  • Multiple currency exchanges.
  • Dramatic or rapid increases in size and frequency of currency exchange transactions for regular account holders.
  • Currency exchange for no reasonable purpose.
  • Currency exchanges with low denomination bills for high denomination bills.
  • Currency exchanges carried out by third parties.
  • Large, one-off, or frequent currency exchanges for customers not known to the casino.
  • Requests for casino cheques from foreign currency.
  • Currency exchanges with little or no gambling activity.

Red flags of Employee Complicity

  • Contact between patrons and casino staff outside of the casino.
  • Supposed winnings do not correspond with recorded winnings.
  • Dramatic or rapid increases in size and frequency of currency transactions for regular account holders.
  • Large sums of cash from unexplained sources.
  • Large sums credited into accounts from other jurisdictions or countries of concern.20
  • Associations with multiple accounts under multiple names.
  • Transactions on casino accounts conducted by persons other than the account holder.
  • Deposits into casino account using multiple methods.
  • Cheques issued to a family member of the person.
  • Multiple individuals sending funds to a single beneficiary.Third party presents for all transactions but does not participate in the actual transaction.
  • Transferring funds into third party accounts.
  • Use or third parties to undertake wire transfers.
  • Use of an intermediary to make large cash deposits.
  • Use of gatekeepers, e.g. accountants and lawyers to undertake transactions
  • U-turn transactions occurring with funds being transferred out of a country and then portions of those funds being returned.
  • Use of remittance agents to move funds across borders.
  • Use of third parties to purchase gaming chips.
  • Use of third party to conduct wagering.
  • Wire transfers from third parties in tax haven countries.Junket tours where funds can be concealed amongst the pool for the group.
  • Cash handed to third party after cash out.

Red flags of ML using credit/debit cards

  • Purchasing casino chips using credit card.
  • Purchasing casino chips using debit card.
  • Purchasing and cashing out casino chips/plaques with no gaming activity.
  • Customer purchases chips and leaves casino shortly after.
  • Use of stolen or fraudulently obtained credit card.
  • Use of multiple credit/debit cards to purchase casino chips.
  • Use of third parties to purchase chips using credit/debit card.
  • Structuring of credit card transactions.
  • Conducting debit card transactions up to the maximum limit.
  • Chip cash out is same/similar to chip purchase.
  • Customer due diligence challenges, e.g. refusals, false documents, one-offs, tourists passing trade.

Red flags of ML using false documents and counterfeit currency

  • Associations with multiple accounts under multiple names.
  • Purchasing chips or undertaking cash transaction and immediately leaves casino.
  • Transferring funds into third party accounts.
  • Use of multiple names to conduct similar activity.
  • Use of altered/fraudulent or stolen identification to conceal identity.
  • Customer due diligence challenges, e.g. refusal, false documents, one-off/tourist or passing trade.
  • Inconsistent identity information presented.
  • Refusal to provide identification / false identification or Social Security numbers.
  • Using false or multiple Social Security numbers.
  • Refusing to provide required identification.

4th AMLD

The 4th AMLD (Directive (EU) 2015/849), specifically in its 21st recital, highlights concerns regarding the potential use of gambling services for laundering proceeds from criminal activities. To counteract these risks, the Directive mandates that gambling service providers identified as posing higher risks must implement customer due diligence (CDD) measures for transactions of EUR 2,000 or more. This requirement extends to various aspects of gambling, including the collection of winnings and the placing of bets, whether directly or through the purchase and exchange of gambling chips.

Member States are tasked with ensuring that this threshold is uniformly applied across all relevant transactions within their jurisdictions. Additionally, for providers operating physical venues such as casinos, there’s an emphasis on linking CDD efforts taken at entry points to the specific transactions conducted by customers within these premises.

However, the Directive also acknowledges the possibility of lower-risk scenarios within the gambling sector. In such cases, Member States are granted the discretion to exempt certain gambling services from some or all of the AMLD’s stipulations, provided these exemptions are justified by strictly limited circumstances and a demonstrably low risk of money laundering or terrorist financing. Any such exemptions must be backed by a detailed risk assessment, considering the vulnerability of the transactions and aligning with findings from the Commission’s supranational risk assessment reports. These exemptions must also be communicated to the Commission, ensuring transparency and regulatory oversight.

General Provisions

  • Scope: The Directive applies to providers of gambling services, categorizing them as „obliged entities“ under AML regulations. This establishes the foundational requirement for gambling service providers to adhere to AMLD stipulations.
  • Exemptions: While casinos are explicitly covered, Member States have the discretion to exempt other gambling service providers from the AMLD, partially or fully, based on a risk assessment. Such exemptions are contingent on demonstrating a low risk associated with the nature and scale of the gambling services offered.

Definitions

  • Gambling Services: The Directive defines gambling services as those involving the wagering of a stake with monetary value in games of chance, including lotteries, casino games, poker, and betting. This definition encompasses services provided both physically and remotely, highlighting the broad application of AMLD to various gambling modalities.

Customer Due Diligence (CDD)

  • CDD Requirements: Gambling service providers must apply CDD measures when transactions related to the collection of winnings or wagering of stakes amount to EUR 2,000 or more. This can be in a single transaction or several linked operations, ensuring thorough scrutiny of significant transactions to prevent money laundering.

Supervision

  • Regulation and Supervision:
    • Licensing and Regulation: The Directive mandates that providers of gambling services must be regulated, which may involve licensing or registration to ensure compliance with AML standards.
    • Enhanced Supervisory Powers: Competent authorities are granted enhanced supervisory powers over credit institutions, financial institutions, and gambling service providers, emphasizing the need for rigorous oversight in sectors with high money laundering risks.

In summary, the 4th AMLD integrates gambling services into the European AML regulatory framework, mandating CDD for significant transactions, allowing Member States to tailor exemptions based on risk assessments, and emphasizing stringent supervision and regulation to mitigate money laundering risks in the gambling sector.

German GwG

The German GwG includes specific provisions related to online gambling services, which are outlined in Section 2 (1) No. 15 and Section 16. These sections establish the regulatory framework for organizers and brokers of online games of chance, emphasizing due diligence, player identification, and transaction monitoring to prevent money laundering and terrorist financing.

Obliged Entities

  • Section 2 (1) No. 15 of the German GwG defines the obliged entities within the gambling sector, which include organizers and brokers of games of chance, with certain exclusions such as operators of gambling machines, certain clubs, non-internet-based lotteries with a state license, and social lotteries.

Special Requirements for Online Gambling Services

  • Gambling Accounts: Online gambling service providers must create a gambling account for players before allowing them to participate. They cannot accept deposits or other refundable monies in these accounts, and the balances must not accrue interest.
  • Transaction Controls: Transactions to gambling accounts must be conducted through direct debits, credit transfers, or payment cards in the player’s name, from a payment account established in the player’s name with an obliged entity. There’s an exception for small transactions not exceeding specific limits.
  • Notification Requirements: Obliged entities must inform the supervisory authority about the opening or closing of payment accounts used for online gambling.
  • Identity Verification: When monetary value instruments are used for gambling transactions, the identity of the holder must match the gambling account holder.
  • Payment Transactions: Payments to players can only be made through specified payment transactions to accounts in the player’s name, with a clear payment reference to ensure transparency.
  • Provisional Identification: Providers may provisionally identify players when setting up gambling accounts, with full identification required subsequently. The process can align with gambling law requirements for identification and authentication.

These provisions reflect a comprehensive approach to regulating online gambling, focusing on the integrity of financial transactions, the verification of player identities, and the transparent movement of funds, all aimed at mitigating the risks associated with money laundering and terrorist financing within the online gambling sector.

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