AML Update for Gambling Operators

Insights /

Further to the changes to the Social Responsibility Licence Conditions and Codes of Practice (LCCP) implemented last year the Gambling Commission have now completed the review of the crime-related provisions. The revised version of LCCP as referenced in Andrew Cotton’s recent article will take effect on 31 October 2016. Details of the new AML licence conditions have been reproduced below for ease of reference.

Licence condition 12.1.1: Prevention of Money Laundering and terrorist financing

“All operating licences, except gaming machine technical and gambling software licences

Licensees must conduct an assessment of the risks of their business being used for money laundering and terrorist financing. Such risk assessment must be appropriate and must be reviewed as necessary in the light of any changes of circumstances, including the introduction of new products or technology, new methods of payment by customers, changes in the customer demographic or any other material changes, and in any event reviewed at least annually.

Following completion of and having regard to the risk assessment, and any review of the assessment, licensees must ensure they have appropriate policies, procedures and controls to prevent money laundering and terrorist financing.

Licensees must ensure that such policies, procedures and controls are implemented effectively, kept under review, revised appropriately to ensure that they remain effective, and take into account any applicable learning or guidelines published by the Gambling Commission from time to time.”

The Commission have made it clear that they expect the risk assessments and review of policy documentation to be completed by 31 October 2016 and the risk assessments must be produced on request.

Our head of AML and business ethics, Alex Ktorides, has recently joined our expanded betting, gaming, alcohol licensing and regulatory team and will be delighted to assist with undertaking the AML risk assessments and the review of policy material.

Licence condition 12.2.1: Measures for operators based in foreign jurisdictions

“All remote casino operating licences where any of the licensee’s remote gambling equipment is located outside Great Britain

Licensees must comply with Parts 2 and 3 of the Money Laundering Regulations 2007 (UK Statutory Instrument No.2157 of 2007) as amended by the Money Laundering (Amendment) Regulations 2007 (UK Statutory Instrument No.3299 of 2007), or the equivalent requirements of any UK Statutory Instrument by which those regulations are amended or superseded insofar as they relate to casinos (the MLR) whether or not the MLR otherwise apply to their business.”

(this condition was previously imposed as an individual condition on remote casino operating licences)

Licence condition 15.2.1: Reporting key events

(The additional requirement is added at 19b of the condition)

“All operating licences

A key event is an event that could have a significant impact on the nature or structure of a licensee’s business. Licensees must notify the Commission, or ensure the Commission is notified, in such form or manner as the Commission may from time to time specify, or the occurrence of any of the following key events as soon as reasonably practicable and in any event within five working days of the licensee becoming aware of the event’s occurrence.

Legal or regulatory proceedings or reports

19b Any criminal investigation by a law enforcement agency in any jurisdiction in relation to which:

  • the licensee is involved (including, but not limited to, investigations of crimes allegedly committed against the licensee or involving the gambling facilities provided under the licence), AND
  • the circumstances are such that the Commission might reasonably be expected to question whether the licensee’s measures to keep crime out of gambling had failed.

Notification of the event must occur as soon as practicable after the licensee becomes aware of any such investigation in which the licensee is involved and measures may have failed.”

Annex C of the Gambling Commission’s response document which provides guidance on reporting criminal investigations is available here.

New Licence Condition: Digital Marketing

In its consultation on changes to the crime related provisions of LCCP last autumn the Commission sought views on how to tackle the real and significant problem of digital advertisements for gambling services appearing on websites providing unauthorised access to copyrighted content. The Commission have been working with the City of London Intellectual Property Crime Unit (PIPCU) and the Federation Against Copyright Theft (FACT) to tackle this area of organised crime. The majority of respondents to the LCCP consultation agreed with the Commission’s conclusion that specific requirements needed to be added to LCCP to make licensees responsible for ensuring that advertisements of their brand do not appear on websites providing access to unauthorised content. Despite the Commission bringing such adverts to the attention of licensees over the past year adverts continue to appear on websites providing unauthorised access to copyrighted content. Therefore the Commission will be attaching the following licence condition to all operating licences when the new version of LCCP takes effect on 31st October 2016.

New licence condition 16: Responsible placement of digital adverts

“All licences

Licensees must:

  1. ensure that they do not place digital advertisements on websites providing unauthorised access to copyrighted content
  2. take all reasonable steps to ensure that third parties with whom they contract for the provision of any aspect of their business related to the licensed activities do not place digital advertisements on websites providing unauthorised access to copyrighted content.
  3. ensure that the terms upon which they contract with such third parties enable them, subject to compliance with any dispute resolution provisions, to terminate the third party’s contract promptly if, in the Licensee’s reasonable opinion, the third party has been responsible for placing digital advertisements for the licensed activities on such websites.”

It may well be that you will need to review your contracts with third parties and affiliates in order to ensure you can comply with this new licence condition.

Implementation of 4th EU AML Directive

The UK government is required to transpose the 4th EU AML Directive (“4th AMLD”) into national legislation by 27th June 2017. The 4th AMLD widens its scope to include all gambling providers. Under the current 3rd Directive only casinos are subject to regulation and in implementing the 3rd Directive the UK government included the holders of both remote and non-remote casino operating licences within the definition of relevant persons in the Money Laundering Regulations 2007.

The government is able to exempt, in whole or in part, providers of specified gambling services, with the exception of casinos, from the requirements laid down in the 4th Directive on the basis of proven low risk posed by the nature and scale of operations. If the UK is to exempt any sectors it is required to notify the European Commission of those exemptions along with the justification for them on the basis of the risk assessment undertaken by the government, which will then be communicated to other EU Member States.

The Treasury launched their long awaited consultation on the transposition of the 4th EU AML Directive on 15th September 2016. The consultation will last until 10th November and the Treasury invite responses and are calling for evidence of perceived risk with credible, cogent and open-source evidence to support the claims in responses. The consultation document can be found here.

It is almost certain that the land based betting sector and all forms remote gaming will be brought within the regulated sector, which will trigger additional requirements for the verification of the identity of customers. Given the higher risk of money laundering where a customer is not physically present remote casinos are already required to undertake enhanced due diligence measures. The Gambling Commission has recently revised its guidance to casino operators on the prevention of money laundering, which can be found here.

Suspicious Activity Reports

The UK Financial Intelligence Unit have undertaken a review of its operating procedures relating to requests for consent to continue a business relationship under the Proceeds of Crime Act 2002 and Terrorism Act 2000, which apply to all operators licensed by the Gambling Commission. The process has been re-categorised and is now known as seeking a defence against a principal money laundering offence. The requirement for overseas based operators to file SAR’s with the National Crime Agency (NCA) is dependent on whether the jurisdiction in which their remote gambling equipment is based is a member of the Egmont Group. If it is and the local FIU accepts gambling SAR’s the report is filed with the FIU in that jurisdiction, who will then relay the report to the NCA and the operator must provide the SAR reference to the Gambling Commission. If the jurisdiction is not in the Egmont Group and/or the local FIU do not accept gambling related SAR’s then the report must be filed with the NCA. The NCA unique reference number must be reported to the Gambling Commission as a key event.

The NCA have requested that all operators check that their registered e-mail address on SAR online is up to date as they will be using email correspondence in processing applications for a defence to committing the principal money laundering offence. The UK definition of money laundering is extremely wide and as can be seen from the voluntary settlements over AML failings in the past year there is no requirement for a customer to be disguising or layering proceeds of crime. The simple use of the proceeds of any criminal activity by any customer puts the gambling operator and its employees at risk of the commission of the same offence in the absence of an application for a defence. 

The NCA have also published a revision to the glossary codes for suspicious activity reports and it is extremely important to use the correct code. From 1st October 2016 the old glossary codes that have been replaced will no longer be valid and if the wrong code is used this could invalidate an application for a defence. Details can be found here.

Consultation on the tax treatment of freeplays in Remote Gaming Duty

In the 2016 budget the government announced that it would align the tax treatment of free gaming subject to Remote Gaming Duty with the treatment of free betting within General Betting Duty. Her Majesty’s Revenue and Customs launched a consultation on their proposals in August and the final date for responses is 16 October 2016. The proposal is to remove the more generous treatment of freeplays currently enjoyed by remote operators. The consultation can be found here.

Contact us for more information

Please do not hesitate to contact us if you require any clarification or further information on the implementation of the revisions to the crime related provisions of LCCP and the new AML licence conditions. We will also be delighted to assist you with money laundering risk assessments and the review of your policy documentation that will be required to incorporate the changes to LCCP.

Our tax colleagues, Huw Wittyand Roger Harding are also able to assist with any enquiries about the impact of the proposed changes to Remote Gaming Duty.

Andrew Cotton

Andrew Cotton Director of Betting and Gaming

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