Source of funds – a crime or trying to prevent it?

‘IF you need to ask, you probably can’t afford it’ is a phrase attributed to US financier J. P. Morgan but for UK gamblers it’s more likely to be “Why do you ask when I can clearly afford it.’

Complaints about withdrawals being delayed or account balances being withheld are a significant part of the IBAS caseload with customers arguing that the checks being made and the documents being requested are unnecessary, an invasion of privacy and symptomatic of bookmakers gaming the system in order to eliminate unprofitable customers.

Some of that may be true of course but in the Panel’s experience the underlying reason for the checks is less likely to be for ‘affordability’ than for the regulatory responsibilities currently imposed on gambling operators.

Racecourses, betting shops and casinos have, of course, always attracted customers who may have obtained their wealth in a less than scrupulous way but the growth in online betting and the use of digital wallets has both provided additional opportunities for the unscrupulous and an increased ability for their activities to be detected.

That has not gone unnoticed by government and since 2017 the whole of gambling has been designated a regulated industry for the purposes of the Proceeds of Crime Act 2002 (POCA) and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).

The MLRs and POCA apply to all businesses but regulated industries such as banking and gambling have greater obligations imposed on them. The Gambling Commission’s guidance (https://www.gamblingcommission.gov.uk/guidance/duties-and-responsibilities-under-the-proceeds-of-crime-act-2002/poca-part-2-4-risk-based-approach) provides considerable detail on what operators need to look out for.

Both that guidance and the MLRs stress that the checks operators make should be risk-based. That implies that operators can use discretion but it also creates a situation where an operator has no clear criteria.

For example, as well as citing cases involving hundreds of thousands of pounds the GC guidance also quotes the following example: ‘A grandparent with no previous gambling history, on a state pension, began to make weekly bets of about £100. Investigations later revealed that the grandparent was placing the bets on behalf of a grandson, a known criminal, and that the money spent was the proceeds of his criminal activity.’

Operators therefore have to make a choice between using discretion and hoping the Commission would share that discretion or deciding ‘better safe than sorry’ and instead applying checks to all accounts which reach certain trigger points or for whatever reason arouse suspicion.

Many of those complaining to us argue that making checks at withdrawal and not previously breaches a term in the Gambling Commission’s Licence Conditions and Codes of Practice (LCCP) and ask why the checks weren’t made when the account was opened or a deposit made.

That is a valid point but the downside to making checks when an account is opened is that it would mean a delay in the account becoming active and the process not being frictionless.

There is also nothing in the LCCP which mandates operators checking more than an applicant’s name, age and address when an account is opened. At present most gambling operators do no more than ‘e-verify’ their customers against third party databases such as TransUnion and Experian when an account is opened. That process is, of course, quick but not foolproof.

Whether that e-verification was sufficient or not is not a call IBAS can make and is a matter for the regulator but the MLRs set out in Regulation 27 that an operator must apply customer due diligence measures if someone (a) establishes a business relationship or (b) carries out an occasional transaction that amounts to a transfer of funds within the meaning of Article 3.9 of the funds transfer regulation exceeding 1,000 euros.’ Regulation 27 also requires gambling operators to apply customer due diligence for withdrawals of 2,000 euros or more.

One thing that does seem curious to the Panel is that for most of the cases we see the funds whose propriety is being questioned are coming from a bank account.

Banks are also a regulated industry and subject to the same regulatory environment as gambling operators. That raises the question as to why the suspicious funds weren’t spotted when they were transferred or deposited to the bank but there is nothing in the MLRs or POCA which says gambling operators can treat such funds as being ‘clean.’

Overall it is hard to see how the current situation can or will change. Prevention of crime and preventing people benefitting from it is something most people in society would deem to be desirable. It is unlikely therefore that the MLRs and POCA will be going away or that the government will provide exemptions for the gambling and/or racing industries.

Similarly as a statutory body the Gambling Commission cannot tell its licensees that they are exempt from them, nor is it likely operators will risk financial penalties and threats to their licence by being less aggressive in their application of them..

That would seem to leave two choices – the current system with minimal checks at account opening or when a deposits is made with ad hoc checks during the course of an account or when a withdrawal is made; or all accounts being subject to much greater verification when they are opened or when a deposit is made.

It‘s clearly not a great choice but equally there would seem to be little point in yearning for the clock to be turned back to when there were no Know Your Customer requirements for gambling operators.