Guidance
The 2023 money laundering and terrorist financing risks within the British gambling industry
The Gambling Commission's money laundering and terrorist financing risk assessment for the British gambling industry in 2023.
8 - Casinos offering Money Service Businesses (MSBs)
The Regulations designate the Gambling Commission (the Commission) as the supervisory authority for casinos in the United Kingdom (UK). While under the Regulations HMRC is the supervisory authority for authority for money service businesses facilities (MSBs), the Commission and HMRC have agreed, under Regulation 7(2), that the Commission will act as the supervisory authority for MSB activities carried out by casinos (which includes foreign exchange, third-party money transmission and third-party cheque cashing).
The Commission found that around 2 percent of business to customer remote casinos offered some form of MSB activity. In the same period, around 66 percent of non-remote casinos offered some form of MSB activity1.
Commission-based research found that:
- 20 casinos offered cheque cashing
- 34 casinos offered foreign currency exchange
- 4 offered third party money transfer to customers’ accounts
- 8 offered third party money transfer from customers’ accounts
- 3 casinos offered all these types of MSB services.
All types of MSB activity are seen as carrying Money Laundering and Terrorist financing (ML/TF) risk as they could be used by criminals to break their funds up and conceal its source or destination, which makes it harder for the flow of funds to be tracked and disrupted.
Specific risks include:
- combining of winnings and proceeds of crime funds into a third-party casino business’ winner's cheque which is then cashed out at another unrelated casino venue
- structuring of foreign currency exchange transactions to circumvent reporting thresholds and to facilitate layering
- transmission of funds to or from a high-risk money laundering or terrorism financing jurisdiction - transactions to subsidise gaming or outwardly remit winnings
- significant amount of cash movement involving foreign currencies, such as Dirham and US dollars
- customer may buy in using a number of different payment methods
- use of foreign currency exchange to facilitate refining - exchange of low denomination currency for high denomination currency
- deferred cashing of cheques potentially complicates and delays source of funds checks
- open loop system for foreign exchange transactions, for example, deposits in one currency with requests to withdraw in a different currency and missing details on money transfers
- high reliance on due diligence information from third party diligence providers
- funds transferred into accounts from unknown sources
- funds transferred from unlicensed MSBs
- payments received from politically exposed persons (PEPs) or persons appearing on financial sanction lists
- MSB activities (foreign currency exchange) may result in overseas criminally derived funds infiltrating the UK’s financial system and the potential for committing criminal offences by circumventing other jurisdictions’ money laundering legislation and controls.
Some red flag risk indicators identified with MSB activity are:
- casino operators with weak customer due diligence (CDD) policies and the implementation of those policies
- casino operators who demonstrate a lack of curiosity concerning customers’ source of funds
- operators with a high turnover of staff, especially those working in Compliance teams, the Money Laundering Reporting Officer (MLRO) and staff of the MLRO’s office
- operators with an MLRO who are not a personal management licence (PML) holder with the Commission or professionally qualified (MLROs do not currently have to be PML holders, although we strongly advise this as it allows us to perform criminality, identity, integrity and competency assessments on the individual)
- operators who do not demonstrate a risk-based approach in their interactions and checks relating to customers
- customers from high-risk jurisdictions using MSBs. Operators are required to consider geographical risk in their risk assessments.
Case studies
Third party payment MSB activity for online casinos may include cases of a spouse’s card being used to fund the gambler’s account, or the money is paid out from the account to a third party. Clearly there are risks associated with this and we expect operators to have measures in place such as identification and source of fund checks.
The Commission found that some remote casino operators were unable to separate their financial data accurately in relation to MSB activity and other activity in customers’ e-wallets. Failing to do so means that operators are not sufficiently assessing, monitoring, and controlling the risks associated with MSB activity.
This highlights the importance of operators adopting a risk-based approach in order to mitigate the potential money laundering and terrorism financing risks associated with MSB activity.
References
1 In the period between 1 January 2020 to 31 December 2021. Please note this time frame includes the COVID-19 lockdown period, and so may not be fully reflective of the number of casinos that offer MSB activities.
2023 money laundering and risks - Casino (non-remote) Next section
2023 money laundering and risks - Betting (remote)
Last updated: 30 November 2023
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