Shortly after the conflict began, the Gambling Commission issued a reminder that operators must, “apply a risk-based approach in any third-party or business relationships they conduct, or customer relationships which are associated with Russia and any of the sanctioned individuals, banks or entities named.”
David Inzani, Associate Solicitor at Poppleston Allen, explains what’s expected of operators in the current environment and provides some advice on staying on the right side of both government legislation and the regulator.
What are gambling operators’ main responsibilities in terms of complying with government sanctions and how do they differ from the obligations placed on companies in other industries?
All businesses have to comply with government legislation, in this case, the most relevant being the Sanctions and Anti-Money Laundering Act 2018. However, gambling operators also have to comply with the Licence Conditions and Codes of Practice (LCCP) set out by the Gambling Commission.
Any failure in this regard could mean they are not only in breach of legislation but also potentially the terms of their gambling licence. This could result in enforcement action being taken by the Gambling Commission and there is a serious risk to their ongoing ability to trade if their licence is reviewed over a breach.
What are the main requirements of the LCCP in this regard?
The condition placed on gambling operators by the LCCP is that they have to conduct a risk assessment of their business being used for money laundering and terrorist financing and make sure they have appropriate policies, procedures and controls in place to prevent this.
The risk assessment and policies, procedures and controls have to be reviewed on an ongoing basis – they must be reviewed at least once annually, but also in the event of any change in circumstance. Typically, a change in circumstance might refer to a new product, a change in technology or a new payment method. However, the war in Ukraine is also something that would be considered a change in circumstance, albeit an extreme one.
What are the expectations in terms of fast-moving situations such as the current scenario, where people are being added to sanctions lists regularly?
The government is constantly amending primary legislation with new sanctions and anti-money laundering regulations related to Russia and all companies, including gambling operators. The government has just recently added additional Russian businesses, products and exports to the sanctions list. It can be difficult for businesses to keep up due to the pace of the changes, but they have a legal obligation to do so.
To mitigate the risk of falling foul of the sanctions, we would advise operators to carry out enhanced due diligence before interacting with customers or potential business partners where there is a possibility that the individual or business is connected with a sanctioned entity. They also need to screen existing customer and business relationships to ensure they stop any transactions or freeze assets where funds may originate from sanctioned sources.
If an operator was in breach of any sanctions, what would they be expected to do?
They would have to report it to the Office of Financial Sanctions Implementation (OFSI) and they are also obliged to report it to the Gambling Commission as a key event. The latter should be done as soon as possible, but in any event within five working days of the licensee becoming aware of the situation.
What would the likely consequences of this be?
If an operator has breached the licence conditions it is a criminal offence, although when the Gambling Commission investigates a breach of conditions it typically exercises regulatory powers instead of criminal powers. It would review the operating licence by investigating the failing, usually by interviewing personnel at the operator and reviewing the policies, procedures and management controls that were in place. It would then have the power to take action – it could give the operator a warning, it could put conditions on the operating licence, issue unlimited fines or, in the worst cases, it could revoke an operator’s licence.
There is no one-size-fits-all solution to preventing money laundering and it isn’t something operators can automate; generic risk assessments and policies just aren’t going to cut itDavid Inzani
The level of enforcement and actions taken by the Commission would depend on the severity of any breach of condition. In determining the imposition of a penalty, the Commission would take into account certain factors such as the nature of the licensee and whether the licensee knew or ought to have been aware of the breach. If an operator’s risk assessment and policies and procedures for money laundering and terrorist financing are strong and regularly reviewed, this reduces the risk of a breach.
If a breach does occur, if an operator can demonstrate that it has been diligent and the possibility of a breach would not have been likely, then this can help mitigate the extent of any enforcement action by the Commission. It’s worth noting that we have seen the Commission impose some pretty significant fines on gambling operators for money laundering failings in recent years.
Yes, we do continue to see sizeable operators receiving fines in this area. Why do you think some operators are still getting it wrong here?
A lot is expected of the gambling industry and it is highly regulated, so it is a big task for operators to keep up with AML regulations and responsibilities. However, though it may be difficult, the fact is they have to do it. There is no one-size-fits-all solution to preventing money laundering and it isn’t something operators can automate; generic risk assessments and policies just aren’t going to cut it. As the current geopolitical situation shows, preventing money laundering is an ongoing task that requires a consistently high level of due diligence.
