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Public statement

Annexio (Jersey) Limited trading as Affiliate Empire Public Statement

Published:

20 January 2022

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Our public statements make reference to breaches of the Licence Conditions and Codes of Practice (LCCP) requirements which were in effect at the time of the breach. In some cases, the requirements have since been updated.

Annexio (Jersey) Limited trading as Affiliate Empire; lottogo.com

Key failings

• breach of Licence Condition 12.1.1 Paragraphs 1, 2 and 3 - Prevention of money laundering and terrorist financing
• failure to comply with Social Responsibility Code Provision (SRCP) 3.4.1 Paragraph 1 (a), (b) and (c) and Paragraph 2 – Customer interaction
• breach of Licence Condition 15.2.1 - Reporting key events and other reportable events.

Operators are expected to consider the issues outlined and review their own practices to identify and implement improvements in respect of the management of customers’ accounts.

Introduction

Licensed gambling operators have a legal duty to ensure their gambling facilities are provided in compliance with the Gambling Act 2005 (the Act), the conditions of their licence and in accordance with the licensing objectives, which are to:

• prevent gambling from being a source of crime or disorder, being associated with crime or disorder or being used to support crime
• ensure that gambling is conducted in a fair, safe and open way
• protect children and other vulnerable people from being harmed or exploited by gambling.

Annexio (Jersey) Limited Executive Summary

This investigation resulted in the commencement of a section 116 regulatory review¹ of Annexio (Jersey) Limited (Annexio), combined remote operating licence number: 051692-R-329113-006. The Commission commenced a regulatory review on 14 April 2021. The regulatory review found failings in Annexio’s processes which were aimed at preventing money laundering (ML) and protecting vulnerable people.

Between October 2019 and November 2021 Annexio failed to comply with the Licence conditions and code of practice (LCCP), specifically:

• paragraphs 1, 2 and 3 of licence condition 12.1.1, requiring Licensee’s to conduct an assessment of the risks to their business being used for money laundering and terrorist financing; have appropriate policies, procedures and controls to prevent money laundering and terrorist financing and ensure they are kept under review, revised appropriately and take into account any applicable learning or guidelines published by the Commission
• paragraph 1 and 2 of social responsibility code provision (SRCP) 3.4.1, requiring licensees to identify customers who may be at risk of or experiencing harms associated with gambling, interact with such customers and understanding the impact on the customer and the effectiveness of their actions and approach. Licensees must also take into account the Commission’s guidance on customer interaction
• licence condition 15.2.1 requiring operators to report key events to the Commission.

Taking into account the remedial action taken by Annexio and in line with our Statement of principles for licencing regulation, Annexio will pay a total of £612,000 in lieu of a financial penalty.

Annexio (Jersey) Limited Findings

The investigation and subsequent regulatory review found:

• failings in Annexio’s implementation of anti-money laundering (AML) policies, procedures and controls
• deficiencies in its responsible gambling policies, procedures, controls and practices, including weaknesses in implementation
• weaknesses in its reporting arrangements.

Breach of Paragraph 1 of Licence Condition 12.1.1 (Anti-Money Laundering) between October 2019 and November 2021

Licence condition 12.1.1(1) states: “Licensees must conduct an assessment of their 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.”

Annexio accepted its MLTF risk assessment had not addressed certain risks in sufficient detail including:

• the risk of customers making numerous low-level transactions to minimise suspicion and evade CDD requirements
• the risk of customers using third parties or agents to obscure the source or ownership of money
• risks associated with prepaid cards or crypto asset transactions
• risks of customers being linked to high-risk jurisdictions either from business relationships or place of birth.

Following the Assessment Annexio updated its MLTF risk assessment.

Breach of Paragraph 2 of Licence Condition 12.1.1 between October 2019 and December 2020

Licence condition 12.1.1(2) states: “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.”

Annexio acknowledged that some of its AML policies and procedures in place at the time of the Assessment were not compliant with the Licence conditions and codes of practice (LCCP).

Annexio accepted in respect of some customer accounts reviewed:

• there were unjustified delays in completing customer due diligence (“CDD”) and enhanced due diligence (“EDD”) which enabled customers to gamble significant sums before a limit was applied to their account
• when EDD was carried out, further steps should have been taken to corroborate the information provided by certain customers during the assessment, to establish their financial circumstances
• recorded decision making did not always adequately assess the MLTF risks presented by certain customers reviewed or explain reasoning as to why the customer had been permitted to continue gambling
• information that was subsequently obtained could not support the customers’ level of spend.

Breach of paragraph 3 of Licence Condition 12.1.1 between October 2019 and December 2020

Licence condition 12.1.1(3) states “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.”

Annexio accepted:

• in relation to one of the customers reviewed, the compliance team incorrectly determined that EDD had been completed using a bank statement that had been collected and used for CDD purposes
• a decision made to lift a deposit limit after CDD had been completed had been made in error, as the specific customer had also hit the EDD trigger, yet EDD had not been completed. The Licensee stated that steps should have been taken to complete EDD, but instead the customer was permitted to gamble. It concluded it had not complied with the EDD procedures in place at the time. Evidence subsequently collected did not provide adequate support for the reviewed customer’s level of spend

Annexio has implemented a number of new procedures including the following:

• introduction of a £500 monthly gross deposit limit on all new customers as an interim measure pending implementation of its affordability check
• if a customer wanted to increase the £500 deposit limit, their account was flagged for review and no increase will be permitted until the review has been completed against AML and responsible gambling policies
• all existing customers that (a) reached a lifetime deposit of £10,000 but (b) had not provided satisfactory evidence to enable affordability and source of wealth and responsible gambling checks, are put on a deposit limit of zero
• the system has been changed so that no customer can override any limit imposed by Annexio
• additional resource has been recruited and reallocated to increase the number of employees undertaking customer account checks for CDD, EDD and responsible gambling reviews
• Annexio has conducted a review of all active customers (active in the last six months) where EDD had been completed. These customers were reviewed individually, and appropriate deposit locks applied. Updated EDD requests were made where required and deposit limits set pending receipt of documentation and completion of necessary reviews
• only pdf documents will be accepted for review, no screenshots or similar will be accepted
• a new AML and responsible gambling flowchart has been implemented in respect of customers, which includes revised triggers.

Failure to comply with Paragraph 1 and 2 of SRCP 3.4.1 (Customer Interaction) between October 2019 and December 2020

Compliance with a SRCP is a condition of the licence by virtue of section 82(1) of the Act. SRCP 3.4.1 (amended from 31 October 2019) states:

“1. Licensees must interact with customers in a way which minimises the risk of customers experiencing harms associated with gambling. This must include:
a. identifying customers who may be at risk of or experiencing harms associated with gambling.
b. interacting with customers who may be at risk of or experiencing harms associated with gambling.
c. understanding the impact of the interaction on the customer, and the effectiveness of the Licensee’s actions and approach.

2. Licensees must take into account the Commission’s guidance on customer interaction.”

Annexio accepted it had:

• failed to trigger appropriate enquiries sufficiently early in its relationship with some customers, resulting in those customers being able to gamble without having undergone the appropriate affordability checks, (now mandated in the Licensee’s updated affordability processes)
• failed to adequately assess bank statements and payslips, provided by certain customers (reviewed during the compliance assessment), which resulted in the customers being able to gamble longer than they should have been able to and spend more than they could afford
• on one occasion refused a request from a customer, who had placed a limit on their account, to have the limit reduced. This resulted in the customer continuing to gamble without the Licensee mitigating the risk that their gambling may have been financially unsustainable
• failed to interact with some customers in a way that minimised the risks associated with gambling
• failed to fully implement the Commission’s guidance in relation to customer interaction.

Breach of Licence condition 15.2.1 (Reporting key events) in August 2020

A key event is an event that could have a significant impact on the nature or structure of a licensee’s business. Licence condition 15.2.1 requires licensees to notify the Commission, or ensure the Commission is notified, in such form or manner as the Commission may from time to time specify, of the occurrence of specified key events as soon as reasonably practicable and in any event within five working days of the licensee becoming aware.

Annexio failed to notify the Commission of a “bug” discovered on 11 August 2020 which was removed on 26 August 2020. The bug allowed customers to override and circumvent deposit limits set by Annexio.

Annexio (Jersey) Limited Regulatory settlement

This regulatory settlement consists of:

• payment of £612,000 (comprising of £112,000 divestment and £500,000 penal element) in lieu of a financial penalty, which will be directed towards delivering the National Strategy to Reduce Gambling Harms
• payment towards the Commission’s costs of investigating the case.

In considering an appropriate resolution to this investigation, the Commission took the following aggravating and mitigating factors into consideration:

Aggravating factors

• the breaches had an impact on the licensing objectives
• the breaches arose in circumstances that were similar to previous cases the Commission has dealt with which resulted in the publication of lessons to be learned for the wider industry
• the Licensee should have been aware of the breaches
• the need to encourage compliance among other operators
• the nature of the breaches may mean other customers were affected that the Commission has not reviewed.

Mitigating factors

• the extent of steps taken to remedy the breaches
• Annexio co-operated throughout its dealings with the Commission
• an ongoing programme of remedial action was commenced following identification of and notification of the breaches to Annexio
• on the data seen at the time of the Commission’s investigation, there was no evidence that the Licensee has received any proceeds of crime.

Good practice

Gambling operators should take account of the failings identified in this investigation to ensure industry learning. Operators should consider the following questions:

• do you have formal processes in place to measure the effectiveness of your AML and safer gambling policies and are findings adequately recorded?
• do you efficiently record all compliance-related decisions and are you able to demonstrate to the Commission, on request, evidence of ongoing assessment, evaluation and improvement?
• do lessons learned from public statements flow into your policy and processes?
• are your customer risk profiles formed by or linked to your money laundering and terrorist financing risk assessment?
• do you have a formalised process for analysing the effectiveness of customer interactions to ensure that reviews are adequately documented and consistent in their approach?
• do you log the types of behaviour which have triggered a customer interaction and keep sufficient records of interactions, along with decisions not to interact especially in terms of the level of detail provided?
• have your staff received sufficient AML and SR training?

Footnotes

¹ The Commission commenced a regulatory review on 14 April 2021.