On 10 January 2020 the Gambling Commission issued updated guidance to remote and non-remote casinos on the prevention of money laundering and combating the financing of terrorism (the “Guidance”, available here) which comes into force immediately. This is in response to the updated Money Laundering Regulations (“MLR”), which implement the EU 5th Money Laundering Directive (“5MLD”), which came into force on the same day.
5MLD builds on its more extensive predecessor, the Fourth Money Laundering Directive which passed into UK law as the Money Laundering Regulations 2017. Many of the changes made by 5MLD will not directly impact gambling operators. The main aim of 5MLD appears to be to increase transparency in the financial sector and bolstering know your client checks. A key change is to make virtual currency exchanges subject to anti-money laundering (“AML”) laws, requiring the verification of customer identities and the need for due diligence procedures. Perhaps more importantly in this sphere it introduces a definition for “virtual currencies”, potentially paving the way for further regulation. It also places an obligation on EU Member States to develop registers to identify the ultimate beneficial ownership of corporate entities which are accessible and potentially interconnected across countries.
Changes to the Guidance
The Commission has highlighted the main changes made to the MLR as they are likely to affect the gambling sector, which have been incorporated into the new Guidance. Remote and non-remote casinos should focus on the following issues:
- Ensuring appropriate measures are taken during the adoption of new products or business practices and to mitigate any money laundering risk from their adoption. Operators are required to have policies, procedures and controls in place to comply with the MLR in this respect. (Regulation 19)
- Taking appropriate measures to ensure that any agents that operators use for the purposes of their business are given appropriate training in AML and counter terrorist financing (Regulation 24)
- Further requirements for enhanced customer due diligence measures for:
- high-risk third countries;
- complex or unusually large transactions;
- where the transactions have no apparent economic or legal purpose;
- customers who are beneficiaries of life insurance policies; or
- the customer is a third country national who has received citizenship in an EEA state in exchange for the transfer of capital, purchase of property, government bonds or investment in corporate entities in the EEA state. (Regulation 33)
What remains the same in the guidance is the responsibility on senior management to manage the operator’s AML and counter-terrorist financing risks. It also reiterates that this should be carried out on a risk-based approach. In order to achieve this, senior management must have a firm understanding of how their business is designed to operate which will be achieved by ongoing and repeated assessments of the risks they face.
EU Member States had until 10 January 2020 to transpose 5MLD into national legislation. Despite the UK scheduled to leave the EU on 31 January 2020, as a current Member State, it was required to implement the Directive into domestic legislation. Under current arrangements, post-Brexit, the UK is not obligated to implement any future EU directives relating to money laundering which leaves the possibility of the UK diverging from EU standards in the future. However, the EU has updated its own money laundering provisions in order to stay in line with the Financial Action Task Force’s (“FATF”) global standards. Therefore, if the UK wants to remain a leading global financial hub it is likely that it will follow future FATF decisions which are, more likely than not, going to involve the tightening of regulation and enforcement of AML and terrorism funding regimes. Consequently, more likely than not, operators can expect yet more stringent obligations even in a post-Brexit world.
It is important to remember that a failure to uphold the licensing objectives, for example by being ineffective in applying AML controls, will cause the Commission to consider reviewing the operator’s licence under section 116 of the Gambling Act 2005 as well as the potentially imposing a very substantial financial penalty. Whilst the Commission has explicitly said it is affording time for operators to update their compliance procedures in light of the updated MLR and Guidance, it is key that operators do ensure compliance with these updated rules promptly. The Commission is increasingly keen to test the extent to which compliance procedures are implemented effectively to ensure that the MLR are being properly adhered to.