Gambling Commission fines Daub Alderney £7.1m for anti-money laundering and social responsibility failures

On 13 November 2018, the Gambling Commission ("Commission") announced its findings that online gambling business Daub Alderney t/a Stride ("Stride") had breached conditions of its licence relating to anti-money laundering measures ("AML") and had failed to comply with social responsibility codes of practice ("SRC"). Stride will also have extra conditions placed on its licence. The Commission's full statement can be found here.

The Commission's findings

Stride were found by the Commission to have breached the following licence conditions in respect of AML:

Appropriate risk assessment

Licence condition 12.1.1.1 requires an operator to conduct a risk assessment of the potential for their business being used for money laundering and terrorist financing.

It was found, and Stride accepted, that when it completed a corporate evaluation in June/July 2017 the appropriate risk assessment was not in place.

Measures for operators based in foreign jurisdictions

Licence condition 12.1.2.1, and an additional licence condition attached to Stride's licence, required them to put in place and implement the measures in Parts 2 and 3 of the Money Laundering Regulations 2007 (superseded by the 2017 Regulations) insofar as they relate to casinos.

Stride accepted that it had not been compliant with the 2007 Regulations and was not compliant with the 2017 Regulations. It agreed that it had failed to document in adequate detail its risk-sensitive policies and procedures relating to AML and terrorist financing.

In particular, it was found that Stride:

• did not have an effective AML policy in particular in relation to establishing source of funds;
• had not assessed its AML policies and procedures;
• did not have adequate staff resource engaged in its customer due diligence teams, leading to delays in processing information gathered about customer activity; and
• had not put in place any mitigation of the risk at the time of the staff shortages.

Further, the Commission concluded that Stride had failed in respect of its social responsibility ("SR"):

Customer Interaction (SRC 3.4.1)

It was found that there were significant limitations in Stride's ability to proactively identify and mitigate risk. For example, the SR policy and procedure was not sufficient, there had been inadequate resources for identifying and mitigating SR risk, and customer bases were not joined up.

Self-exclusion (SRC 3.5.1.1)

It was accepted by the Commission that a technical failure, which was made known to the Commission by Stride, was not a deliberate breach of the SRC.

Nevertheless, it was noted that this failure occurred for such a period of time and was likely to have had a significant impact on the self-excluded customers as they were able to continue to deposit funds into, and play on, their accounts. This money was refunded to the customers.

Decision

It was decided that given the seriousness of the licence breaches it was appropriate to issue Stride with a warning and impose additional licence conditions on the operating licence requiring them to:

• appoint an appropriately qualified Money Laundering Reporting Officer;
• ensure that all relevant staff undertake outsourced AML training; and
• continue its review of the effectiveness and implementation of its AML and SR policies and procedures.

In reaching the decision to impose a financial penalty, the Statement of principles for determining financial penalties (June 2017) was considered. It was concluded that a fine of £7,100,000 was appropriate and that this was a proportionate outcome.

Richard Watson, the Commission's Executive Director, said: “This action is part of an ongoing investigation into the online casino sector. The operator’s standards did not match the protections required, and this fine reflects the seriousness of these lapses.”

Comment

This decision comes less than a month after the Commission ordered Paddy Power Betfair to pay a fine of £2.2m for AML and SR failures.

The industry should be aware that this trend is likely to continue. Earlier in the year, the Commission wrote to all online casino operators to raise concerns about their approach to AML and SR. The letter made clear that the Commission expects operators to review their processes to ensure consumers are protected and that crime is kept out of gambling.

The letter was sent after a review by the Commission, following which it revealed that it was investigating 17 online operators, and was considering licence reviews. These developments stress the importance of maintaining adequate and up to date policies, and ensuring sufficient resources to secure compliance.

Further, the level of fine imposed in this decision provides further evidence to suggest that while recent regulatory settlements have been substantial, they tend to be slightly lower than going to the panel. Although it is difficult to discern any meaningful tariff, it may be that settlement is the more attractive option.

Co-authored by Laura Bilinski