Significance of the Gaming and Gambling Industry
The gaming and gambling industries are covered under AML regulations because it is exposed to the risk of financial crimes. Much of this industry has moved online, and the combination of technology and globalization has made this a safe haven for criminals who wish to take advantage of the financial system.
In China, over half of virtual goods transactions are linked to illegal activities. As you can imagine, this has made anti-money laundering efforts very significant in the gaming and gambling industry.
The gaming industry is one of the largest in the world, and it is estimated that there are over 2.5 billion players. These players spent over $152 billion on games in 2019, and it is projected that this amount will reach almost $200 billion by 2022.
Traditional ways of money laundering have become more difficult, so criminals are being creative and using the gaming industry.
In-game currencies are one of the greatest areas at risk for money laundering. They can earn the currency in a game by beating a level or selling items within the platform, but in many cases, it can be purchased with real money as well.
Criminals can download games and create accounts under aliases to use the proceeds of their illegal activities – such as stolen credit cards. They will then buy rare avatars or in-game weapons through microtransactions. These small denomination purchases are made in a large volume, so it is difficult to trace. Once they have spent their laundered funds, they will sell in-game currency or the account itself on a third-party website.
Casinos are a target for money launderers because they operate largely in cash. Most operations don't care who you are – if you walk in and have the cash to play, you are going to be welcomed!
The money launderer can then buy casino chips with illicit cash. All they have to do is play for a while and cash in the chips – then they will get a check and a receipt for gambling winnings. Now that cash is “clean” because they won it in the casino.
Overview of AML Regulations
AML regulations are established by the Financial Action Task Force, FATF, and by the U.S. Department of Treasury’s Financial Crimes Enforcement Network, FinCEN. If you are doing business in other areas like the European Union, you will be subject to their anti-money laundering directives and other laws instituted by their regulatory authorities.
Although casinos are not banks, FinCen has published regulations specifically for the gaming and gambling industry which requires the following:
- an internal control system that ensures compliance with the Bank Secrecy Act
- proper training for staff so that they can identify suspicious activity
- adequate record-keeping in compliance with the Bank Secrecy Act
- identifying customers through their name, address, and Social Security number
It is important to note that casinos are not generally required to identify customers unless they trigger certain requirements, such as currency transaction report.
Best Practices for AML Compliance in the Gaming & Gambling Industry
The American Gaming Association – AGA - has guidelines for best practices to comply with anti-money laundering regulations. the following are some of their recommendations to create strong anti-money laundering practices and a culture of compliance within your organization.
The Risk-Based Approach
Utilizing a risk-based approach is an essential best practice when it comes to AML compliance. Your processes should include a risk assessment that allows you to identify the areas that are most at risk for money laundering.
For example, where are the entry and exit points for money that is coming from illicit sources? Cash deposit accounts and check cashing services at the casino will likely be at greater risk.
One way to combat these risks is to not allow cash for cash exchanges or refuse to accept cash to initiate a wire transfer or buy a casino check. For example, if there is a patron with large cash-in transactions, but no cash-out activity that cannot be reasonably explained through gaming activity, further review measures should be taken.
Which casino games are most likely to be used for fraudulent activity? Remember that the goal of a money launderer is to move funds through the casino through games so that they can get a receipt for gambling winnings. Games where the individual can play both sides of the bet, like craps or roulette, are riskier because they can bet both sides so that the funds can be laundered through the game.
Your organization should have an anti-money laundering compliance officer that has expertise in managing risk and ensuring compliance with AML regulations. They should be able to implement the anti-money laundering framework and serve as a resource for the rest of the organization.
All employees should be trained - and receive ongoing training - so that they can recognize red flags that can be used to identify illegal activities. Those employees who operate casino games should be trained to recognize a change in an individual's playing patterns or suspicious use of services.
Know Your Customer Process
They know your customer process should always involve identifying your customers when they are opening a front money account, credit accounts, or a safety deposit box with your organization. You should obtain their name, address, and Social Security number if necessary - verify that this information is correct by requiring proof of identification like a driver’s license.
Consider ongoing and enhanced due diligence measures for customers that seem to have a very high volume of transactions. This red flag may prompt you to obtain more information from the customer, such as what is the source of the funds. In addition it is recommended to check if the customer is on any sanctions list or on any other list such as Interpol's / FBI's most wanted or any other lists of criminals. If necessary, you must file a suspicious transaction report.
Photo by Carl Raw on Unsplash