Why is the gambling industry covered by the Money Laundering Act?
According to Swedish police, there is a great need for knowledge regarding money laundering and terrorist financing in the gambling industry. Casinos and betting companies offer the opportunity of high stakes and winnings, meaning they run an extra high risk of being used in money laundering activities. Some insurance companies have assessed that the risk of gambling being used in money laundering is so great that they have chosen to remove gambling companies in all forms of savings. There are many different ways that betting can be used to launder money or to finance terrorism, such as:
- Money that has been earned illegally is deposited in betting accounts to be hidden from authorities.
- Making deposits to another person's betting account or pre-determined losses in poker games, to convey dirty money between individuals.
- Fixed poker games can also be used cases of terrorism financing.
Money laundering explained
Money laundering means that criminally acquired money, ie "dirty money", is transferred in a way to make it seem legally earned. One way to do this is to use dirty money in gambling, casino games for example, where winnings can be converted into legitimate receipts. Therefore it is important that casinos and other gambling businesses continuously work to reduce the risk of being used in money laundering.
Guide: Gambling AML
As a company in the gambling industry, you have a lot of obligations under the Money Laundering Act. We've put together this guide for you to create a solid routine in countering money laundering and terrorism financing.
The first thing a betting company should do is perform a general risk assessment of their own business, by documenting how the business services can be used for money laundering and/or terrorist financing. This risk assessment will form the basis for the company's routines and measures in regards to the Money Laundering Act.
"Turnover in the Swedish gambling industry by game form in 2019 (bingo and municipal and regional lotteries not included). Source: Spelinspektionen"
Once the risks have been identified, risk-based internal routines must be established, with the aim of reducing the risk of money laundering and terrorist financing activities. Examples of routines are the risk classification of customers, customer knowledge (KYC) and monitoring of ongoing business relationships.
Each customer should be risk-classified according to the gambling company's knowledge of the customer, before the business relationship begins. The customer's risk classification should then be checked and updated continuously throughout the customer relationship.
KYC - Knowing Your Customer
KYC stands for Knowing Your Customer and is an important part of the work to counter money laundering and/or terrorist financing. All businesses in the gambling industry must attain good customer knowledge to comply with the requirements of the Money Laundering Act.
The KYC-process includes measures to verify the customer's identity and data needed to analyze and assess risk of money laundering in the relationship. The betting company must continuously monitor the customer's activities and transactions throughout the business relationship. This monitoring is based on and adapted to the customer's risk classification, where high-risk customers require more accurate monitoring and in-depth analysis of behavior. A betting company may only accept customers where sufficient customer knowledge can be achieved, and if sufficient customer knowledge cannot be achieved for an existing customer, the business relationship must be terminated.
PEP - Politically Exposed Person
Gambling companies must check whether their customer is PEP, or a politically exposed person. A person in a politically exposed position refers to a person who currently has - or previously had - an important public function in a country, for example heads of state or government, ministers or judges of the Supreme Court. A person in a politically exposed position also includes a person who has or had a function in the management of an international organization. If a customer is to be regarded as a person in a politically exposed position - or is closely related to one - the gambling company must, in addition to the basic requirements for customer knowledge, take stricter measures. This is to prevent corruption, among other things.
Is your customer a beneficial owner in a company? In the case of a customer being involved as an owner of a business, the risk of money laundering is potentially greater. Therefore checking for status as a beneficial owner should be checked, when reviewing both new and existing customers.
What happens if you fail to comply?
If you fail to comply with regulations and/or fail to provide the right information to authorities, you risk being convicted of a crime. You do not have to be aware that the money comes from criminal activity, but it is enough that you should have realized it. If a company in the gambling industry does not fulfill its obligations under the Money Laundering Act, the Swedish Gaming Inspectorate can revoke the company's license, and you risk being convicted of money laundering offenses where the penalty is a fine or imprisonment. An example would be in failing to monitor and control transactions to the extent required.
Gambling companies that violate the Money Laundering Act may be subject to penalty fees of up to one million euros, a maximum fee which according to the Swedish Gaming Inspectorate is too low. They believe that since many gaming companies licensed in Sweden turn over such large amounts that it is required that the fees are proportionate. According to the Swedish Gaming Inspectorate's proposal, which is being considered by the Ministry of Finance, sanction fees for money laundering offenses should instead be increased to a maximum of ten percent of the company's turnover in the most recent financial year.
How can gambling be used in money laundering?
- Dirty money is deposited in the perpetrator's bank account, before being transferred to a payment service provider and/or or a betting account.
- The perpetrator plays on a game with a high payback percentage and the money is turned over many times, among other things to avoid the betting companies' monitoring.
- The perpetrator transfers the money from the betting account to his bank account.
- Since the money has gone through several banks and payment services - and through winnings can be seen as legitimate - the origin is now concealed.
- Money from trafficking is deposited into two perpetrators' betting accounts.
- These two perpetrators then play poker online with a third person. During the game, the three perpetrators have contact by phone to ensure that most of the money is transferred to the third person.
- The third person can now transfer this money to their bank account and report it as winnings.
- A customer begins to show a change in betting behavior, and goes from having gambled for small sums from time to time, to making large deposits continuously.
- These deposits do not match what is known about the customer's private finances.
The explanation given could be that the customer has developed gambling problems and has started to finance this by embezzling money from his employer.
"Example 3. Source: Spelinspektionen"
Companies offering gambling/betting services run a high risk of being used in activities related to money laundering and terrorist financing. Careful inspections of new customers, ongoing inspections of existing customers and competence / knowledge during follow-up will therefore be very important to stay compliant and avoid reviews, badwill and penalty fees.