Article by Roy Ramm, Managing Director of ExtraYard Ltd
Along with the other 27 countries of the European Union, the UK is committed to implementing the 4th EU Directive on Money Laundering by July 2017 but, unlike other EU countries, the UK is in a state of legislative paralysis due entirely to the referendum on EU membership on 23rd June.
In March of this year Treasury representatives said they hoped the consultation on the new UK regulations required to give force to the 4th EU Directive on AML requirements would begin around Easter. That promise was as hollow and lasted about as long as a chocolate Easter egg.
Since March there has been a deafening silence from Treasury on this critically important issue for the gambling industry. Privately, officials are frustrated at the political log jam that will inevitably and violently break, putting immense pressure on officials and the industry to evolve workable UK legislative measure by the implementation deadline in July 2017.
The industry, the trade associations and advisors will no doubt lobby hard but, I think, with little effect. Current concerns about terrorist financing and international organised crime mean that politicians will not want to appear weak and therefore when drafting the UK legislation the government is very unlikely to take any approach that could be characterised by the media as soft or ineffective. My advice to clients across all sectors of the industry is plan for the worst and hope for the best.
For businesses outside the casino and betting sectors, the changes are likely to be less impactive and businesses assessed as having ‘proven low risk’, may escape completely. However, whilst some relatively minor derogations may be achieved – perhaps for on–course bookmakers – as a result of changes to Article 2. 1(3)f which refers to the ‘providers of gambling services’ and the absence of any reference to the word ‘chips’ in Article 11, the betting industry is very likely to soon find itself in much the same position as the casino industry. Knowing who many more of its customers are and where they get their money from will become business critical. These wider AML customer due diligence requirements will also continue to be closely linked to an increasing emphasis on the measures companies are required to implement to promote socially responsible gambling. If they need proof, I invite them to read the public statements in relation to AML issues at various major gambling companies that can be found on the Gambling Commission’s website.
Just this week, the Commission found that Petfre (Gibraltar) Ltd t/a Betfred.com: did not adhere to the Money Laundering Regulations 2007, did not put into effect adequate policies and procedures intended to promote socially responsible gambling, and did not put into effect adequate policies and procedures for customer interaction with specific provision for customers designated as ‘high value’, ‘VIP’ or equivalent.
Betting companies – both on the high street and on-line – that that wait for the Treasury consultation to plan for July 2017 will be putting themselves at commercial risk. My advice is to start start preparing their own process risk assessments now, examining all internal processes to determine how they can remain compliant with new regulations. They should be modelling processes to minimise the negative impact of the potential changes on customer interactions, assessing staff training needs, customer education and ensuring that relationships with service providers in relation to due diligence enquiries meet commercial needs.
Operators should also be making an assessment of their technology and IT infra-structure. The Commission has already said it believes that to get a comprehensive picture of customer risk, operators should monitor customers across all the operator’s outlets, platforms and products. That means linking customer spend wagering at the counter to machine spend and to on-line spend within the same company or group of companies.
The BA has said it thinks this is highly aspirational, unrealistic and expensive for its members particularly the mid – size to smaller ones. But aspiration is what the Commission is seeking! Expect the some or all of those measures to be progressed and linked to improved AML and SR compliance.
There is not all downside in this, reluctant marketeers should be encouraged to see the value in the data that compliance with AML requirements will provide.
I am also telling clients in groups that include businesses outside the EU to read the provisions of Article 45 very carefully. It doesn’t just bring some onerous AML requirements, it also introduces additional data protection requirements!
UK regulations are likely to require companies licensed by the Gambling Commission that are part of a group to implement policies and procedures, including data protection policies and policies and procedures for sharing information within the group for AML/CFT purposes and, where they have branches or subsidiaries in third countries where the minimum AML/CFT requirements are less strict than those in the UK, to implement the UK requirements, including data protection, to the extent that the third country’s law allows.
Where a country’s law does not permit the implementation of the UK policies and procedures, companies are likely to be required to ensure that there are additional measures to effectively handle the risk of money laundering or terrorist financing and to tell the the Gambling Commission what they are. If the additional measures are deemed insufficient, the Commission is likely to be required to exercise additional supervisory actions, including where necessary, requesting the group to close down its operations in the third country!
Finally, some clients are asking what the impact of a Brexit vote might be? In my view none. David Clifton of Clifton Davies expressed the same view in his Licensing Expert article this month for SBC News. HMG will want to be seen to be cooperating in international measures to prevent crime and terrorist financing and will follow the EU Directive whatever the outcome of the referendum.
Time is going to be short, derogations minimal and the risks of failing to prepare for full implementation are serious.
Don’t wait, start now!