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The U.K. Gambling Commission has emerged over the past three years as Britain’s most prolific enforcer of anti-money laundering rules, which the regulator has also used to great effect to address a seemingly unrelated societal issue: compulsive gambling.

On Sept.1, three years after fining online casino Daub Alderney £7.1 million for failing to comply with AML standards and protect “vulnerable consumers,” the regulator imposed a second fine of nearly £6 million against the company for similar violations, including failures to vet the income of patrons and act on red flags of “problem gambling.”

Both the penalties and the infractions that led to them further illustrate the tough supervisory and enforcement landscape that U.K. online casinos and other gaming operators must now navigate despite the government’s assessment as recently as December of last year that gambling poses a low risk of financial crime in Britain.

The Gambling Commission finalized 12 enforcement actions and extracted £34 million in total penalties and other outlays in the 12 months up to the assessment, and has already finalized 11 actions for £18 million combined in the first nine months of 2021.

All 23 of those actions, including this month’s penalty against Daub Alderney and the regulator’s record £13 million penalty against Caesars Entertainment in April of last year, covered AML violations.

Perhaps more surprising is that 17 of them also explicitly address failures by the targeted companies to prevent problem gambling, which the U.K. government generally defines as gambling activity that harmfully impacts patrons, their relatives or employers.

Last year’s record penalty against Caesars, which operates 11 land-based casinos in the United Kingdom, criticized the company for a long list of “social responsibility failings.”

“A customer [was] allowed to lose £18,000 in a year despite identifying herself as a self-employed nanny and informing [Caesars’] staff that her savings had been spent, and that she was borrowing money from family and using an overdraft facility to fund gambling activities,” the commission found.

Several of the social responsibility violations at Caesars appear to overlap with a second tranche of breaches that the commission described as “money laundering failings,” including neglecting to carry out “adequate source-of-funds checks” on a patron who deposited £87,000 and lost £15,000 over a 12-month period after identifying herself as a waitress.

Prior to those results, six of the commission’s seven total enforcement actions in 2018 and eight of the 10 that the regulator completed in 2019 similarly reference “gambling-related harm,” “gambling harm” or “vulnerable customers.”

All told, only one of the 40 total actions the commission has finalized since January 2018 appears to have been triggered solely by AML violations: the £322,000 penalty assessed against Gibraltar-based Petfre in October 2019 for failing to vet the income of a patron who gambled away £140,000 of stolen funds two years prior.

“The commission uses AML requirements not just to mitigate the risk of what it calls ‘classic’ money laundering, but also as a tool against problem gambling,” Guy Wilkes, former head of enforcement at the U.K. Financial Conduct Authority, told the Cambridge International Symposium on Economic Crime on Sept. 8.

“Due diligence [is required] at a fairly low level of spend, which far exceeds requirements in any other sector,” he said.

U.K. officials have frequently warned that compulsive gamblers sometimes turn to theft or other crimes to fund their habit, and may not convert their illicit proceeds into casino chips only to cash them out quickly as money launderers often do. Wagering illicit funds still qualifies as money laundering, however, and thus brings the AML rulebook into play.

In February 2018, the commission ordered all online gaming companies to review their compliance programs after a sector-wide inquiry uncovered widespread failures to adopt a risk-based approach, keep records current and train staff in AML processes. Six months later, the regulator found that problem gambling regularly went unnoticed.

“Our compliance activity and enforcement cases continue to evidence that some licensees’ money laundering and terrorist finance risk assessments, and policies, procedures and controls continue to be not fit for purpose,” Tim Miller, the commission’s executive director, told an industry conference in London on Sept. 1.

Affordability

Towards the end of last year, the U.K. government launched a wide-ranging review of gambling laws to ensure they protect young patrons and other vulnerable customers amid a massive growth in online gaming during the novel coronavirus pandemic.

Andrew Tait, a gaming attorney with Ince in Gibraltar, home to dozens of U.K. betting and gaming firms, said the commission’s currently robust approach towards AML enforcement follows pressure from lawmakers and civil society to tackle problem gambling.

“Both the frequency and severity of enforcement is increasing all the time,” Tait told ACAMS moneylaundering.com. “Operators are struggling to keep pace with … new regulations and rigid enforcement, and having to divert more and more resources to try and stem the tide.”

The commission banned the use of credit cards to buy chips in April 2020, and five months later ordered gaming companies to conduct deeper, ongoing due-diligence on VIP clients, including by reviewing their occupations, salaries and other income to ensure their spending is “affordable and sustainable” and does not indicate compulsive gambling.

But affordability was already a key aspect of due diligence for every customer, regardless of their income.

U.K. officials have not specified an exact monetary threshold at which they expect gaming operators, whether online or land-based, to intervene against problem gamblers, Tait said, but have sometimes expected “affordability checks … around the £200 per month loss mark, with a hard brake of £1,000 on monthly deposits.”

In November 2020, the commission unveiled plans to update existing know-your-customer guidance for online casinos and noted that the lowest threshold for intervention with problem gamblers is “likely to be” £100 in losses per month.

The regulator, which did not respond to a request for comment by press time, is expected to publish findings from a three-month industry consultation on the plans by the end of the year.

More gaming operators are responding to the consultation and robust enforcement by vetting income at lower levels to substantiate their estimates of affordability, including by asking patrons for pay stubs, bank statements, tax returns and other records.

“That’s where there’s been a lot of pushback from the industry, because it’s so intrusive,” Tait said.

In February, the Betting and Gaming Council, a U.K. lobby group, estimated that 460,000 patrons had used unlicensed online gaming websites in the year up to November 2020, more than doubling the total of the previous 12 months. Total wagers placed on the online black market doubled to £2.8 billion over the same period, according to the group.

Daub Alderney, a licensed gaming operator, is appealing the penalty issued this month.

Contact Koos Couvée at kcouvee@acams.org