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Public statement

LC International Limited Public Statement

Published:

17 August 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.

This licensee is part of the Entain Group (Entain) (formerly named the GVC group) of companies.

Operators are expected to consider the issues outlined as follows 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 gambling facilities are provided in compliance with the Gambling Act 2005 (opens in new tab) (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, and open way
• protect children and other vulnerable people from being harmed or exploited by gambling.

LC International Limited Executive summary

This investigation followed a compliance assessment and resulted in the commencement of a section 116 regulatory review¹ of LC International Limited (LCI), Combined Remote Operating Licence number: 000-054743-R-330863-0072². The regulatory review found failings in LCI’s processes which were aimed at preventing Money Laundering (ML) and safer gambling.

Between December 2019 and October 2020, LCI failed to comply with certain Licence Conditions and Codes of Practice (LCCP), specifically:

• paragraphs 1, 2 and 3 of licence condition 12.1.1, requiring the prevention of money laundering and terrorist financing (ML and TF)
• licence condition 12.1.2 requiring operators based in foreign jurisdictions to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information of the Payer) Regulations 2017
• paragraphs 1 and 2 of Social Responsibility Code Provision (SRCP) 3.4.1, requiring licensees to interact with customers in a way which minimises the risk of customers experiencing harms associated with gambling, and to take into account the Gambling Commission’s guidance on customer interaction
• paragraphs 1 and 2 of SRCP 3.9.1 requiring Licensees to put into effect policies and procedures designed to identify separate accounts which are held by the same individual and where customers hold more than one account, the Licensee must have and put into effect procedures which enable them to relate each of a customer’s such accounts to each other.

Taking into account remedial action taken by LCI and in line with our Statement of Principles for licensing and regulation, LCI will voluntarily divest itself of £544,048.03 and pay £13,455,952 in lieu of a financial penalty resulting in a total payment in lieu of a financial penalty of £14,000,000.

LC International Limited Findings

The investigation and our subsequent regulatory review found:

• failings in LCI’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
• certain customers who were the subject of AML restrictions were able to open account(s) on different brands.

We found that between December 2019 and October 2020 LCI had been in breach of the following licence conditions and Social Responsibility Code Provisions.

Breach of paragraph 1 of licence condition 12.1.1

Licence condition 12.1.1(1) states: “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.”

LCI accepted it breached this licence condition as its ML and TF risk assessment did not sufficiently reflect the Commission’s expectations or fully take into account the Commission’s ML and TF risk assessment of the British gambling industry.

The failings were that LCI’s risk assessment did not:

• refer to terrorist financing
• make specific reference to customer nationality or business risks in the geographical risk section³.

Breach of paragraphs 2 and 3 of licence condition 12.1.1

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.”

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.”

LCI accepted it breached this licence condition as:

• there were weaknesses and shortcomings in relation to the adequacy and maintenance of its policies and procedures, and their implementation
• the Commission identified that certain customers were able to deposit large amounts of money without an interaction being triggered (in particular, a Source of Funds (SOF) check):
• customer A had £742,000 in deposits during a membership period of 14 months, having first registered in May 2019. The Licensee established via open source that this customer was a director of a newly formed company. The customer’s salary was not known by the Licensee as no personal financial information was available on open source. At the time of the Assessment, the customer had lost £59,000 in the preceding six months
• customer B’s total deposits over the life of a six-month account, which was registered in February 2020, were £186,000 with a loss of £31,000 at the time of the Assessment, including almost £25,000 in losses in the last three months. The Licensee acknowledged it should have acted sooner when it identified that the customer’s home address was a social housing property.
• in relation to certain customers identified by the Commission, it placed an overreliance on recycled winnings
• in relation to certain customers, it should have conducted Enhanced Customer Due Diligence (ECDD) checks sooner than it did:
• customer C deposited £157,698 in two months. The Licensee first requested SOF evidence on 9 August 2020, however, the customer was allowed to continue gambling until the account was restricted on 27 August 2020. The Licensee later closed the account on receipt of the customer’s SOF evidence due to the Licensee’s concerns about the legitimacy of the evidence provided
• customer D deposited a total of £524,501 in the period of the failings, incurring losses of £75,600. The customer was not requested to provide SOF evidence until April 2020, which they refused to provide, and the account was subsequently closed.
• it placed excessive reliance on open-source information in certain cases:
• customer A hit an AML trigger in June 2020 by depositing £10,000 in one day. This prompted the Licensee to review the account (via open-source checks) for the first time and no adverse information was found. The customer was allowed to continue playing until they hit a further AML trigger by depositing £60,000 in 7 days, which prompted a SOF check by the Licensee
• the Licensee believed customer E to be a wealthy individual based on assumptions made during open-source checks. However, prior to a source of funds request in August 2020, no evidence had been obtained to show that the assumed wealth was being used to fund the account. The customer deposited £140,700 in the period of the failings with an overall net loss of £60,300.

Breach of paragraph 1 of licence condition 12.1.2 (Anti-Money Laundering measures for operators based in foreign jurisdictions)

Paragraph 1 of this condition has been in place since October 2016 and requires that:

“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”.

The Licensee accepts it breached this licence condition as the AML failings, set out above, constitute a breach of the 2017 Money Laundering Regulations, namely:

• regulation 19 (1)(a) requires that the ‘relevant person’ must maintain policies, controls and procedures to mitigate and manage effectively the risks of money laundering and terrorist financing identified in any risk assessment undertaken by the relevant person
• regulation 28 (11)(a) requires ongoing monitoring of a business relationship which includes, where necessary, checking source of funds to ensure that the transactions are consistent with the relevant person’s knowledge of the customer, the customer’s business and risk profile
• regulation 33 imposes an obligation to apply ECDD measures and enhanced ongoing monitoring in any case identified as one where there is a high risk of money laundering or terrorist financing.

The Commission’s review of the specific customers identified during the compliance assessment found no evidence of criminal spend with the Licensee.

Failure to comply with paragraph 1 and 2 of Social Responsibility Code Provision (SRCP) 3.4.1 (Customer Interaction)

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.”.

LCI accepted it was not fully in compliance with SRCP 3.4.1 as:

• it was slow to interact with, or did not interact with, certain customers identified by the Commission in a way which minimised their risk of experiencing harms associated with gambling
• during their custom with the Licensee, customer F made a large number of deposits and withdrawals and played for extended periods of time overnight and in the early morning; with total deposits of £186,889 in 2019 and £43,956 within six months in 2020. They were twice referred to the safer gambling team and received just one chat interaction. The Licensee accepts there was a lack of interaction with this customer and also accepts that an analyst error in November 2018 led to the customer’s account being reopened, contrary to previous decisions to permanently close it
• in respect of customer A who deposited £742,000 in 14 months, the Licensee accepts that its actions in relation to this customer were not of a standard that the Commission or the Licensee, itself, expects. It acknowledges it should have engaged with the customer sooner and when doing so it should have asked further questions regarding affordability and income. The Licensee has since amended its thresholds and related processes to ensure that such an oversight does not happen again.
• its policies were not updated in a timely fashion to reflect the introduction of the October 2019 SRCP 3.4.1
• in evaluating the adequacy of its customer interaction processes as a whole, the operator should have kept better records of those evaluations
• in its interactions with certain customers identified by the Commission, affordability ought to have been considered sooner.

Failure to comply with paragraphs 1 and 2 of Social Responsibility Code Provision 3.9.1 (Identification of individual customers)

Paragraphs 1 and 2 of SRCP 3.9.1 state:

“1 Licensees must have and put into effect policies and procedures designed to identify separate accounts which are held by the same individual.

2 Where licensees allow customers to hold more than one account with them, the licensee must have and put into effect procedures which enable them to relate each of a customer’s such accounts to each of the others and ensure that:

• a. if a customer opts to self-exclude they are effectively excluded from all gambling with the licensee unless they make it clear that their request relates only to some forms of gambling or gambling using only some of the accounts they hold with the licensee;

• b. all of a customer’s accounts are monitored and decisions that trigger customer interaction are based on the observed behaviour and transactions across all the accounts;

• c. where credit is offered or allowed the maximum credit limit is applied on an aggregate basis across all accounts; and

• d. individual financial limits can be implemented across all of a customer’s accounts.”.

LCI accepted it was not fully in compliance with SRCP 3.9.1 as:

• there was an ability for customers subject to AML enquiries and restrictions to open multiple accounts with the Licensee’s other brands
• in one instance customer A had their account blocked with Coral because they had spent £60,000 in 12 months and failed to provide source of funds, but was immediately able to open an account with Ladbrokes and deposit £30,000 in a single day.

LC International Limited Regulatory Settlement

This regulatory settlement consists of:

• (i) divestment of £544,048.03 and (ii) a payment in lieu of £13,455,952 making a total payment of £14,000,000 in lieu of a financial penalty, which will be directed towards socially responsible purposes
• agreement to the publication of a statement of facts in relation to this case
• agreement by LCI to vary its operating licence to add conditions to its operating licence, namely:
• to appoint a Board-level sponsor, reporting directly to the Chair, to assume responsibility for the implementation of its action plan, and
• undertake a follow-up independent audit of relevant policies and procedures within 12 months to ensure whether it is effectively implementing its AML and safer gambling policies, procedures and controls, and that any further recommendations made by the independent audit should be implemented thereafter.
• payment of the Commission’s costs of conducting the review.

In considering an appropriate resolution to this investigation, the Commission has had regard to the following aggravating and mitigating factors:

Aggravating factors

• the serious nature of the breaches identified
• the impact on the licensing objectives
• there has been a repeated breach or failure by the operator or other group companies
• the breach 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 need to encourage compliance among other operators
• the nature of the breaches may mean other customers were affected that the Commission has not reviewed
• LCI’s senior management should have been aware of governance issues that lead to the breaches, given their significance.

Mitigating factors

• the extent of steps taken to remedy the breach - the Licensee implemented an early action plan to remedy its failings
• the Licensee procedurally met the Commission’s timetable in respect of providing material and, where such material could not be provided within the expected time period, sought an extension.

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 procedures, and are findings adequately recorded?
• do you efficiently record all compliance 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 were 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 the level of detail provided?
• have your staff received sufficient AML and SR training?

Notes

¹The Commission commenced its regulatory review on 11 November 2020.

²LCI trade under: Cheeky Bingo; Coral; Foxy Bingo; Foxy Games; Gala; Gala Bingo; Gala Casino; Gala Coral; Gala Spins; Game Bookers; Ladbrokes; Party Casino; Party Poker; Sporting Bet; bwin.

³The AML Guidance and the Commission’s MLTF risk assessment sets out a number of factors licensees must and should consider when undertaking their own MLTF risk assessments. In addition, the Licensee is required, by virtue of Regulation 18(2)(a) of the Regulations, to take these documents into account when carrying out its own MLTF risk assessment.