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IN-DEPTH 17 June 2016
FOBTs debate: Money laundering issues are a new battleground
David Cook asks industry figures how open bookmakers are to being exploited for money laundering via FOBTs, and whether the threat is being taken too lightly
By David Cook

This article could be seen as something of a complementary piece to the current media attention surrounding fixed-odds betting terminals (FOBTs). For some time now, national newspapers and campaign groups have faced off against UK bookmakers, predominantly on the grounds that FOBTs, now one of the premier profit generators in the bookies’ armoury, are an unregulated danger to a society containing gambling addicts that need to be better supervised. The war of words has primarily focused on the potentially addictive, and consequentially destructive, nature of FOBTs, but in the background further accusations have been made about a separate issue.

Reports of UK bookmakers being exploited for money-laundering practices are not new to the industry. In November 2013, the Guardian published an article profiling a drug dealer who admitted to using FOBTs to wash dirty money i.e. giving it the appearance of being earned legitimately. The process could be carried out by printing out a ticket from an FOBT and asking for the winnings on the ticket to be paid into the player’s bank account, thus appearing as proof on a bank statement that the money was earned through legitimate means, without distinguishing where the stake originated from or the initial amount wagered.

Fast forward to December 2015, when an increased volume of data surfaced to highlight the issue further. The Gambling Commission (GC) responded to a Freedom of Information request asking for the number of unique reference numbers given to bookmakers when replying to suspicious activity reports (SARs) submitted to the GC by non-remote betting operators between April 2014 and March 2015. The GC confirmed that 633 SARs were filed by the UK non-remote betting sector to law enforcement agency the National Crime Agency (NCA) in that time period. The GC later confirmed to Gambling Insider that this number included racetracks and not purely betting shops, but was not able to break down the number of reports from betting shops and racetracks specifically or whether greyhound and horseracing tracks were included individually or collectively. The overall industry total was 1,237 for the period from August 2014 to March 2015. August 2014 was the month where it became a requirement to report SARs to the GC.

In February, further scrutiny was placed on the industry when it was confirmed that Paddy Power was to pay £280,000 to socially responsible causes, following an investigation by the GC. The debate about whether FOBT maximum stakes should be reduced and their effect on problem gamblers is another matter entirely, but that does not alter the fact that it is becoming increasingly important for the UK bookmaking industry to come out fighting the allegations of money-laundering problems.

While the GC was not able to go into any detail as to the nature of the reports, it was able to point us in the direction of the NCA, which told us it only publishes details about SARs in its annual reports. The latest annual report stated that bookmakers filed 520 SARs between October 2014 and September 2015, accounting for 21% of an industry-wide total of 2,459 SARs. SARs for all sectors totalled 381,882, giving bookmakers a 0.1% share overall, though it should be noted that banks accounted for a vast majority of overall SARs with 318,445.

The 520 figure for the 2014/15 period was up from 405 the previous year, which itself was more than double the previous year’s total of 161, but it would seem that the 2014/15 figure was the first to include the regulated sector.

The 633 figure published by the GC was later jumped on by The Mirror, which ran the headline: “Betting shops fear drug barons are laundering cash in gambling machines” and reported that “criminals plough drug money into gambling machines”. This was not based on anything concrete, as nothing seems to have been revealed about the number of SARs that specifically involved drug-money laundering.

The Association of British Bookmakers (ABB), a trade association for UK betting shops, responded by saying: “The reality is that anyone looking to launder money would sensibly steer well clear of the high street bookmakers. CCTV, smart technology and highly-trained staff combine to mean that anyone looking to launder money stands a high chance of getting caught.”

When asked about the issue of FOBTs potentially being exploited for money laundering, James Cook, GC Corporate Affairs Officer, replied: “We recognise the money-laundering risk associated with transferring FOBT winnings onto debit cards or to online accounts, particularly when this wasn’t the source of funds for the stake. This issue was also recently consulted on as part of the changes to the LCCP [licence condition and codes of practice in the context of crime], including the best ways to mitigate the risk. A response to this will be published in the coming months.”

Arguing for the side wanting heavier regulation on this issue is Adrian Parkinson, consultant for the Campaign for Fairer Gambling. While Parkinson was unhappy with the 633 GC number, it was for a different reason to what you might expect. He said: “My view on it is that the figures are extremely low. We pushed the story about 633 SARs and one of the reasons we did that is not because we’re trying to say that 633 is a huge number – it’s actually not.

“We don’t assume that FOBTs are the be all and end all of money laundering, absolutely not. The point that we’re trying to make is that not enough SARs are being reported and that the product that is offered within betting shops that offers the best opportunity for people to launder money and transact proceeds are FOBTs, because of the anonymity factor.”

We approached five of the leading UK bookmakers to get their take on the matter. Betfred was not able to pass comment. Ladbrokes was happy to field questions, and offered this statement, via Director of Media David Williams: “High street bookmakers are the safest place to gamble

in the UK. At Ladbrokes we have a range of measures in place to detect money laundering, including CCTV, highly-trained colleagues and a crime and security team based in Gateshead that monitors suspicious customer activity.”

William Hill was also happy to answer our questions. According to its group communications director Ciaran O’Brien, the gambling industry is being harshly treated. He said: “It shouldn’t be surprising that out of the millions of shop visits by customers every year bookmakers can be targeted by criminals, as with many other types of businesses. These reports are examples of the industry undertaking its regulatory responsibilities and they should not be criticised for doing so.”

In more pointed remarks, O’Brien continued: “These reports should not affect the image of the industry. However, there is an active campaign who will misuse information to portray the industry in a negative light. Gambling does divide opinion and it does make good copy for the media.”

Paddy Power and Coral both declined to comment, while the ABB, after agreeing to look at our questions, decided it did not want to offer any more comment on top of an already-released statement.

As expected, it seems clear that neither side is going to back down on the issue. But moving forward, there is one method that could, in Parkinson’s opinion, whip the bookies into shape. “The UK Government is considering whether to include betting shops in the EU4 money-laundering directive, which already includes casinos,” he says. “Our argument to the industry is: Why would you want to be excluded? All it asks for is that anybody transacting £1,500 of cash in a 24-hour period should be identified by a company and the company should keep a record of those individuals losing that amount of money.”

O’Brien does seem open to change, but stopped short of indicating that the current risk of money laundering via bookmakers is high. “We are looking at ways the industry can co-operate more closely to share information and minimise risks. The anti-money laundering directive regulations are onerous on the industry – tracking play across channel for relatively low staking sums, for example. These do not reflect the low level of risk in the industry compared with say banking or property transactions.”

The eventual decision on whether bookmakers fit into the EU4 money-laundering directive will be eagerly anticipated while the squabbling continues.

THE MECHANICS OF MONEY LAUNDERING
It is easy to take reports as gospel, but instead Gambling Insider wanted to look into the method of cleaning money as reported by the Guardian for ourselves. So a Gambling Insider source walked into a betting shop, which shall remain unnamed, and placed a stake into a FOBT. The source then played a few spins on an electronic roulette wheel, staking equal sums on red and black and a much smaller sum on zero. After making a minor loss, the source then printed a ticket to cash their remaining stake and asked for the money to be transferred to their bank account. Staff obliged, and the transaction was completed by the source placing their card into a reader before being given a receipt. The only number that appeared on the receipt was the final cashed total and made no reference to any specific bets that were placed. The money appeared in the source’s account within a few days.
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IN-DEPTH 4 September 2019
Virtual reality: Creating next-gen experiences for players

Singular CEO George Shamugia discusses a new revenue stream for casino operators

The competition in online gaming is intensifying, with players becoming more and more demanding. In some markets, single-customer acquisition costs can reach up to €400 ($440) alongside growing churn rates. Furthermore, the online gaming sector struggles to attract one of the most lucrative groups of players – millennials. The experience provided by casinos no longer appeals to the younger generation.

On  the other hand, the video gaming industry perfectly understands the needs of millennials and by introducing elements of luck in their games offers the best of both worlds. With the launch of loot box systems and Grand Theft Auto’s in-game casino, we have seen their first successful steps in targeting the online gaming sector. GTA V online, with 33 million active players, recently opened an in-game casino, where players gamble real money on games such as poker, roulette, slots, etc. As a result, churn users returned and GTA Online reached the highest number of active players since its launch in 2013.

The online gaming industry has almost fully utilised the potential of the mobile medium. The time has come to look for new, innovative ways of delivering a next-gen experience to customers.

The potential of VR

Could the next big thing for online gaming be a fully fledged virtual reality (VR) casino delivering an immersive experience and limitless new opportunities?

Although not widely adopted yet, VR has a sizable number of customers. Analysts predict it’s poised for explosive growth to become mainstream in about five years. According to market intelligence firms, the VR market will be worth $117bn by 2022, and according to Juniper Research bets made through VR will reach $520 billion by 2021. Upcoming 5G mobile network technology will propel VR’s mass adoption by allowing the development of fully portable untethered and affordable VR headsets.

Different level of social interaction

The captivating nature of gambling comes from its social aspect. Unfortunately, personal interaction is widely missing from online gambling sites. VR technology creates multiple opportunities to bring back and even enhance that social moment. The ability to connect with other players is one of the main reasons behind Fortnite’s popularity. This form of co-experience is the next generation of entertainment. Research conducted by Facebook has found participants spend more time on VR compared to any other medium. This directly translates into increased profits for casinos.

Pokerstars has made efforts in this direction by implementing Voice UI. Instead of using hand controllers to make a call, pass, or raise, players give voice commands.

Another opportunity for bringing in the social element are the players’ avatars. They enable players to build their identity reflected in the avatars’ appearance, but also the avatar's social, competitive and community status. For instance, players are willing to pay real money for virtual drinks at the bar. Operators can offer these social touchpoints for free to VIP customers as an act of appreciation.

VR also brings a new dimension to customer support. Customer support can also be represented with avatars to assist the player in person. The social moment increases the LTV of players and contributes towards lower churn rates.

Rethinking game design

VR is a way more capable medium than a 2D mobile or desktop screen. Instead of copying the existing online experience, games must be redesigned from the ground up for a competitive advantage with VR. For example, a VR slot game can become fully immersive by teleporting the user into the slots’ world of Ancient Egypt. Next, enrich the experience with high-fidelity graphics, realistic spatial sounds and animations. When betting on virtual race cars, the user can be teleported inside the car he/she made a bet on and experience the race firsthand.

New revenue streams

VR casino lobbies create new revenue stream opportunities: ad placement of brands on the venue walls, company logos decorating the bar etc. This kind of branding is not intrusive in the VR space and feels natural from the user's perspective. VR also gives users the ability to change venues from a Las Vegas casino today, to Macau or even Mars casino, the very next day. The dynamic and diverse experience increases retention rates.

The majority of profits for online gaming operators come from their high-roller players. Although they represent a small subset of active players, an operator can launch a separate VR casino brand for them. Providing exclusive VR gaming experiences to high rollers/VIPs, the operator can minimise churn and maximise VR efforts for these player demographics.

The catch with VR is to focus on quality, rather than scale. The target audience might be limited yet, once these players experience it, they will become ambassadors for your offering.

Surely, the opportunities and possibilities offered by the VR medium truly exceed anything offered by mobile and desktop. VR is a new frontier not just for gaming but for every industry, and it’s exciting to see where it takes the industry and what kind of innovation it brings upon us.

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