Money Laundering Through Gambling – Insights From Four Markets
Gambling is one of the top methods for laundering money in Europe. The size and nature of the gambling sector varies across markets, as does regulatory developments and supervisory efforts. Looking at recent developments in Denmark, Sweden, Belgium and the UK, we discuss leading and lagging areas in the combat against money laundering. The baseline is data on fines and injunctions.
With the 6AMLD, comes a strengthened focus on customer due diligence. This is fundamental in any AML program and what financial institutions have struggled with for years. It may be concluded that there is a clear need for gambling companies to improve their processes on KYC and information on the source of funds/wealth.
Both online casinos and sportsbooks are targets for criminals. The sheer amounts flowing through the online sportsbook and casinos make that it is huge challenge to detect and prevent the placement and integration of dirty money. One money laundering strategy is to deposit a relatively large amount of money and placing a few bets before emptying the account. This is relatively easy to find for gambling companies, but in the same way, money mules are used in other criminal activities and the gambling sector. By depositing smaller amounts with a dozen betting accounts at various bookmakers, it is hard to detect by the individual bookmaker. Even with relatively low thresholds and scenarios to detect, they will look innocent and legitimate.
The recently published Supranational Risk Assessment for 2022 discusses the gambling sector in detail. The picture is varied across the continent, as the gambling industry in Europe is very diverse, ranging from state-controlled public operators to licensing systems and a mix between the two.
In Europe, the UK Gambling Commission is generally perceived to be on the forefront and has recent years levied fines ranging between GBP90 million and GBP36,8 million per year. There is a high degree of focus on combatting money laundering and terror financing via gambling. But how do the regulators manage the fight against money laundering and terror financing across Europe?
With EGBA, The European Gambling & Betting Association estimating the revenue from the European gambling market to be EUR108,5 billion in 2022,[1] the question is if countries like Belgium and Sweden will follow the UK example and start to tighten the reins towards the gambling companies – like the Financial Authorities have become toward the financial industry for money laundering failures.
Parallel developments
Authorities in Denmark, Belgium and Sweden are comparatively still behind the UK gambling commission with regards to proactive supervision, imposing injunctions and fines.
In Sweden, a stricter approach with a greater focus on processes and effective procedures has recently been observed, partly suggested by the detailed information available in the public domain on results and decisions from supervisory execution. This may seem to deter, but it is also valuable information to understand how AML programs are evaluated and where the authorities see a critical need for improvement.
Taking the example of Denmark, a legislative change would be needed to achieve a more rigorous approach to gambling companies. While IP-blocking is permitted to prevent suspected money-laundering, this is not the case in Sweden.
Information on sanctions and fines decisions available in the public domain in the four markets concerned vary considerably. Gambling authorities in Denmark and Sweden provide the most informative public communication on individual cases.
Out of the 38 reactions made by Spillemyndigheden in Denmark, eight were for KYC failings, 8 for lack of a proper risk assessment and 7 for failings in procedures. The results mirror the experience from the financial sector – when there are failings in the risk assessment, the lack of a red thread will impact all subsequent work. Looking at the Swedish cases, all of them contain a point about the lack of both ordinary KYC and enhanced KYC. This includes insufficient information about the source of funds. Several cases demonstrate that gambling companies stop at the explanation that the client has made gains on other gambling platforms without being able to present any documented evidence.
Cases observed in the UK are in line with the Scandinavian finding and are often coupled with the lack of player protection and social responsibility.
With the 6AMLD, comes a strengthened focus on customer due diligence. This is fundamental in any AML program and what financial institutions have struggled with for years. It may be concluded that there is a clear need for gambling companies to improve their processes on KYC and information on the source of funds/wealth.
A review of the numbers
Gambling authorities in the European market manage regulatory and compliance challenges in the regulated market differently. FCG has looked into four countries with a licensing system: Denmark, Sweden, Belgium, and the UK. All four countries have legislation to combat money laundering and terror financing through gambling, regulated via the EU AML framework and national legislation. Part of the challenge driving AML is how authorities and industry representatives in individual countries communicate and present information differently. There is a lack of common, comparable language, and limited chance to bench-mark between jurisdictions. Below follows a brief overview of the current state of fines and injunctions in the respective markets, to provide current state of play.
United Kingdom
The UK Gambling Commission has been at the forefront of regulating the market for years, making it one of the best regulated in the world. All decisions regarding regulatory reactions are published with a great deal of detail. For example, there were 22 regulatory cases in 2022, involving:
- Fines: 16
- Warnings: 4
- Permits revoked: 2
The fines are, of course, interesting. The largest fine was levied against LC International Limited £14.000.000,00, but penalties as small as £56.700,00 were imposed. Of the 22 cases, only seven had no ML/TF component. This means the gambling commission has imposed fines on an average of £2,4 million per case. In comparison to the other countries we have chosen to showcase in this paper, this is a huge difference.
Belgium
The information regarding the injunctions and fines levied in Belgium is presented differently than in the other counties we are looking at. Everything is gathered in an extensive yearly rapport; however, it is difficult to decipher the failings committed. The latest numbers available are from 2021, showing 87 investigated cases, which amounted to 119 sanctions. This is out of 15 606 active licenses in Belgium. The total fines were € 276.188,00, averaging a fine of €3.174,50 pr. Case. 2021 was, as stated in the report, a year with a much higher level of control than earlier due to Covid-19. The picture is slightly different from the previous years; with 23 cases in 2020 and 44 in 2019, the fines amounted to € 59.958,00 and €82.916,00, respectively.
Denmark
In Denmark, the regulating authority is Spillemyndigheden[2]. The Danish authorities can withdraw a provider’s license but cannot levy fines like its counterparts. The transgressions have to be severe or repeated. We have seen cases of gambling sites being IP-blocked, which has been due to illegal gambling and no failings in AML/CTF controls.
What we get from Spillemyndigheden is a clear overview of the failings leading to the injunctions. We find significant failings in risk assessment, policies and procedures, and KYC processes.
Sweden
In Sweden, 76% of the revenue is represented by the ten largest gambling companies, with an annual growth of 5%. 50% of the total income is generated by only 5% of the players.
There are published data from 2018 until now shows that the Swedish Gambling Authority has had six cases regarding money laundering (seven, but one was withdrawn). In five cases, fines were issued for an average value of SEK 4,1 million, ranging from SEK 1,5 million to SEK 10,9 million. One company lost its license to operate.
Going forward
Some fines or injunctions are given due to lacking proper policies and procedures, some for failing to ensure proper KYC and knowledge of the customer’s source of funds and finally, some for not submitting relevant SARs to the authority. Summarily, it suggests that companies are still operating in silos and do not look across business units to ensure a holistic and updated version of the company’s risk profile.
It starts with the risk assessment, which is based on updated data and provides the foundation for paperwork, such as policies and procedures. With the appropriate data and correct description of the company’s risk and controls, know-your-customer and transaction monitoring can start. Ensuring proper KYC and knowledge of the customer’s source of funds and align that with proper scenarios and thresholds in the transaction monitoring system.
As a few key recommendations as take-aways, gambling companies at large are well served to take a renewed look at how well they are doing with regards to:
- Sufficient understanding of the money-laundering risk and how it can be materialized.
- Structuring the risk assessment to follow the potential threat through to measures.
- Improvements in requirements specifications, audit and follow-up procedures.
- KYC and setting up appropriate automated AML limits.
- Control over the controls exercised by partner companies/subsidiaries.
- Demonstrating documented evidence, effective and efficient measures.
