As gambling expands globally, it is more accessible than ever before, driving explosive growth. The market for casinos and online gambling soared to an astounding USD 263.3 Billion1 in 2023, with the online segment projected to reach USD 136.30 Billion 2 by 2029.
With rapid growth comes serious risks. In Europe, gambling tops the list for money laundering methods, thanks to the surge in online gambling. In 2023, the UK gambling market alone was valued at GBP 14.3 Billion.3 Meanwhile, the US is quickly catching up, especially after its Supreme Court overturned a federal ban on sports betting, opening the floodgates for legalization in many states.4
Globally, countries like the UK, US, Canada, India, Italy, Germany, Spain, Australia, France and Mexico are embracing various forms of gaming, betting and wagering. This legal landscape makes cash-intensive businesses such as casinos, hotels, movie theaters, restaurants and liquor stores particularly vulnerable.
With regulatory bodies cracking down on money laundering, commercial casinos are categorized as "financial institutions" in many places due to the sheer volume of cash they handle. In some jurisdictions, they are designated as "reporting entities," obligated to report suspicious activities and comply with strict regulations.
In this article, we dive into the mechanics of money laundering in the gambling industry and highlight the crucial role that Anti-Money Laundering (AML) solutions play in protecting and ensuring compliance for industry players.
What Makes Casinos a Money Laundering Haven?
With vast sums of money moving in and out and significant opportunities for anonymity, casinos and online gambling platforms can become black holes, making them prime targets for illicit activities. The ability to mask income through gambling winnings makes these venues even more attractive to fraudsters and money launderers. Some top money laundering strategies include straightforward cash-in, cash-out operations, using multiple sources or destinations for funds to confuse tracking, and the notorious Vancouver model, which combines cash transactions with underground banking systems like Hawala.
Here's a breakdown of the three main stages of money laundering in the gambling industry:
Placement of funds
Fraudsters inject their dirty money into the gambling system via casinos, online gambling or sports betting. They buy chips with cash, effectively blending illegal funds with legitimate ones.
Layering of transactions
To obscure the source of their money, launderers make multiple bets, transfer money between various accounts or engage in complex transactions using intermediaries. This step is all about creating a tangled web that's hard to trace
Integration
Finally, the “cleaned” money is re-introduced into the legitimate economy. This can happen through cashing out chips as legitimate winnings, withdrawing funds from gambling accounts or buying assets.
Betting Big on Compliance
AML compliance requirements in the gambling industry mirror those for banking and financial institutions. Since 1985, US state-licensed casinos have been stamped as "financial institutions" under the Bank Secrecy Act (BSA), binding them to rigorous BSA reporting, recordkeeping and AML program obligations.
Entities must navigate both international gambling standards and local AML regulations with exacting precision. Globally, several regulatory bodies like the Financial Action Task Force (FATF), the American Gaming Association (AGA), the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) and the UK's Proceeds of Crime Act (POCA) enforce stringent rules and regulations. Some crucial compliance and reporting demands include:
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Transaction Reporting and Customer Due Diligence (CDD):
Casinos worldwide must file Currency Transaction Reports (CTRs) and conduct Patron Identification Procedures (PIPs or CIP in AML parlance) for bets exceeding a specified threshold — typically over USD 10,000 within a casino-defined gaming day.
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Suspicious Activity Reporting:
Casinos are mandated to file Suspicious Activity Reports (SARs) if they are aware of or suspect that a transaction or attempted transaction aggregating to USD 5,000 or more:
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Involves efforts to conceal illicit funds
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Seeks to evade BSA obligations
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Utilizes the casino for criminal ends
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Lacks legitimate economic or business purpose
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Deviates from expected patron behavior
Playing Your Cards Right: 4 AML Best Practices
Here are four key moves to ensure rigorous AML compliance.
Enhancing internal controls through rigorous risk assessment
Conducting detailed risk assessments annually, tailored to the business model, location, volume of activity and customer demographics, is an essential first step. SkyCity Adelaide, a prominent Australian casino operator, faced scrutiny from financial watchdog AUSTRAC for allegedly lacking adequate risk-based systems in its AML framework – a completely preventable scenario had the right AML solutions been in place.5 Leading-edge technologies involving Artificial Intelligence (AI) and Machine Learning (ML) can significantly boost the efficacy and efficiency of internal controls.
Implementing a tailored Know Your Patron (KYP) approach
Casinos must rigorously conduct KYP and due diligence to verify customer identities against databases of Politically Exposed Persons (PEPs), sanctioned entities and adverse media reports. Prioritizing Enhanced Due Diligence (EDD) to validate the legitimacy of funding sources, particularly for high-risk clientele, is a must-do. The repercussions for failing to adhere to these KYP protocols are severe. Crown Resorts faced a substantial AUD 450 Million penalty in July 2023 due to inadequate CDD measures concerning high-risk patrons and the lack of a risk-based transaction monitoring program to detect and report suspicious activities.6
Building a culture of compliance through targeted training
Leveraging employees as the first line of defense can significantly bolster AML efforts. AML training, when meticulously designed with a clear purpose, serves a pivotal role in enhancing the organization’s capability to effectively detect and report suspicious activities. Globally relevant training sessions, aligned with evolving AML regulations and standards, are crucial to defining the best course of action and enabling employees to effectively counter emerging threats from non-compliance, money laundering and terrorism financing.
Partnering with experts to ensure rigorous compliance
In June 2022, the Cullen Commission, a money laundering inquiry established by the Canadian province of British Columbia, uncovered sophisticated money laundering schemes, including the use of Hawala systems, and significant compliance failures.7 The report revealed that drug traffickers and organized crime gangs frequently exploited casinos to conceal illicit financial transactions, often with the intent of evading taxes.
Teaming up with AML compliance specialists enables casinos to implement comprehensive AML programs to proactively address such systemic shortcomings. Collaboration enables casinos to leverage their partners' skilled personnel and advanced anti-financial crime solutions, integrated with AI and ML capabilities, to manage end-to-end compliance processes effectively. Areas such as identity verification, KYP, CDD, EDD, sanctions screening and transaction monitoring — including support for SARs — are excellent starting points for collaboration.
In today's dynamic gambling landscape, static AML solutions are impractical. To stay effective, solutions must evolve continuously, anticipating emerging trends and threats in financial fraud, and adapting proactively. In addition to partnering with experts, fostering proactive collaboration with local and global financial networks is crucial for balancing exceptional customer experiences with regulatory compliance.
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References
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https://www.statista.com/statistics/1177376/global-casinos-online-gambling-industry/
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https://www.statista.com/outlook/amo/online-gambling/worldwide
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https://www.thelondoneconomic.com/lifestyle/my-business/uk-gambling-industry-statistics-in-2023-a-comprehensive-overview-352087/
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https://www.wsj.com/articles/sports-gambling-a-growing-money-laundering-risk-u-s-says-b13d5ab8
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https://www.austrac.gov.au/news-and-media/media-release/federal-court-makes-ruling-skycity-casehttps://cullencommission.ca/files/reports/CullenCommission-FinalReport-Full.pdf
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https://cullencommission.ca/files/reports/CullenCommission-FinalReport-Full.pdf
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https://cullencommission.ca/files/reports/CullenCommission-FinalReport-Full.pdf