Gambling on Compliance Always a Risky Bet


Can the Gaming Industry Stay Ahead of Financial Crime Challenges?

In any gambling establishment, the house always has the edge, or statistical advantage.

However, when it comes to managing financial crime, such as money laundering and tax evasion, the house can find itself as a serious underdog against illicit activity.

Gaming the System

The gambling ecosystem is characterized by its variety that is creating its own set of challenges.

Online operators are competing with physical establishments covering a wide spectrum of “services” from casino games to sports betting. Additionally, gaming regulations are disparate from country to country. In the US, even neighboring states take radically different approaches in setting their own sports betting legislation (e.g., Utah vs. Nevada), especially with the Supreme Court recently overturning the 25-year old federal Professional and Amateur Sports Protection Act (PASPA).

As the gaming industry undertakes various financial activities as part of its operations, exposure to money laundering risks increases. The cash-intensive nature of gaming, as well as the ability for financial criminals to use gambling services for storing and transferring ill-gotten funds, poses significant money-laundering risks.

With online services, specific risks appear as gambling services are provided to customers onboarded remotely. Online onboarding may also allow the use of non-transparent payment instruments (anonymous electronic money or virtual currencies) for transferring funds across borders without passing through the transaction screening processes run by banks.

Numerous examples of money laundering schemes through gambling services are published on a yearly basis in reports issued by the Financial Intelligence Units. These schemes include structuring buy-ins or buy-outs, misusing of casino value instruments (e.g., chips, casino cheques, or gaming machines vouchers), intentional losing or artificial winnings, and tampering (purchasing winning receipts or chips at a higher-price than face-value).

Facing regulatory scrutiny

Enforcement actions in the US have skyrocketed in recent years from only $2 million in fines for 2003-2014 to $110 million in 2015-2016. While fewer fines have been issued since 2017, Kenneth A. Blanco, FinCEN Director, recently emphasized that the fact there hadn’t been any enforcement actions lately does not mean gaming operators are under-watched. Investigations are running continuously, and fines will eventually be issued for any violation to the BSA.

Next to enforcement, there is a noticeable effort from regulatory bodies to better support and assist operators with their compliance requirements by publishing recommendations and guidance to help institutions build sound Bank Secrecy Act/Anti-Money Laundering (BSA /AML) compliance programs.

Coping with the challenge

The substantial increase of Suspicious Activity Reports (SARs) filled by the gaming industry since 2013 has not gone unnoticed. FinCEN data shows a 203% increase from 2013 to 2018 while “only” 178% across all reporting industries. Whether it comes across as a significant increase in absolute terms, the share or SARs from all gaming entities remains stable overall, accounting for slightly less than 3% of the total received by FinCEN.

However, there are warning signs that the industry may not be doing enough.

FinCEN also expressed concerns about compliance budget cuts that might indicate that part of the industry still fails to realize the financial and reputational risks. At the same time, repercussions could be pushed higher by the current industry growth.
At a high level, financial crime compliance requires gaming operators to:

  • Conduct and maintain a risk assessment
  • Design written Anti-Money Laundering/Countering the Financing of Terrorism and sanctions compliance policies and procedures
  • Conduct thorough customer due diligence, including screening (sanctions, PEP, adverse media)
  • Monitor and report suspicious transactions (large cash deposits/withdrawals and other suspicious activities)
  • Provide continuing training to the workforce

“To stay on top of the gaming industry compliance challenges our team meets regularly with regulators and law enforcement to better identify and address emerging issues. Through the work with our casino operators, we are committed to growing the business responsibly to benefit all British Columbians”, said Kevin deBruyckere, Director of AML & Investigations, British Columbia Lottery Corporation

Doubling down

The progressive legalization of diverse gambling services presents the industry with both an opportunity and a challenge.

On one side, it massively expands the spectrum of their audience, but financial crime risks are a serious challenge that call for sound investments across technology, processes and human capital. As for any reporting entity, gaming operators should be engaging in an ongoing journey for building up compliance programs that are effective, efficient and explainable to regulators.

While greater collaboration with regulators and with other gaming institutions is critical in setting best practices, ultimately each institution will be held accountable if it falls short in implementing the required risk and control functions.

Those that are serious about staying ahead of financial crime challenges will maintain their reputational and financial integrity, and statistical advantage.

For more information:

  • Join the Accuity Knowledge Breakfast at the ACAMS AML & Financial Crime Conference on September 24 at the Aria Resort and Casino in Las Vegas, Nevada to explore financial crime risks in the gaming sector and learn how to ensure the efficiency of your KYC program.
  • Access our industry page to learn more about Accuity solutions for the Gaming sector