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The e-gambling industry has always been lucrative for gamers. However, it has also been constantly plagued by issues such as lack of trust, insecure payment gateways, and hacked games. However, over the last few years, the gambling industry has shifted its attention toward developing an entire digital ecosystem for players. As online games took off, so did the opportunities for players and criminals. However, remaining compliant with global AML laws and regulations is one aspect that the industry must recognise.
The vast majority of land-based casinos are closing down due to a shift brought about by the COVID-19 pandemic to online gaming and gambling.
The European Commission and Periodic Risk Assessments
The EU Commission conducts risk assessments regularly to determine the risk of terrorist financing and money laundering across the entire region.
It recently published its 2022 Supranational Risk Assessment Report to the European Parliament. The report analyses and provides a concrete action plan to fight money laundering and terrorism financing.
After several years of study and in-depth analysis, the report has rated the gambling sector with the highest possible risk of money laundering. The Commission highlights that online gambling poses a severe risk for AML and CFT due to multiple factors, such as:
- Complex and huge volumes of transactions
- Non face-to-face element
- Use of cryptocurrencies and e-money
- Unlicenced and unregulated online gambling sites
As the EU lays the framework for efficient risk management in gambling, the US faces an alarming increase in online sports betting and gambling. This happened in 2018 when the US Supreme Court made a historic decision to reverse a 1992 federal law that banned sports betting in the country. Until 2018, Nevada was the only US state that legalised sports betting.
Fast forward to today, the situation has dramatically changed. Today, gambling has been officially declared legal in more than 30 states.
How to Develop a Risk-Based Approach for Gaming and Gambling?
A risk-based approach is imperative to efficiently detect and manage the risk of money laundering & terrorism financing in the industry.
Every new user signing up to avail sports betting services, should be thoroughly scanned against sanction lists, PEPs, and financial crime databases. Other than this, strong KYC measures need to be in place with regular ongoing transaction monitoring to ensure that the gambling operator does not face non–compliance fines and penalties.
4th and 5th EU AML Directive for Gaming and Gambling Industries
In 2015, the EU Commission launched its 4th Anti-Money Laundering Directive (4AMLD) to fight money laundering. The Directive demands the implementation of Know Your Customer (KYC) and Enhanced Due Diligence (EDD) measures.
Customer Due Diligence (CDD)
Customer Due Diligence helps gambling and gaming operators to scan, evaluate, and ensure that only legitimate individuals and businesses are signed up. CDD significantly reduces customer onboarding risks.
Here are some factors to consider while determining the risk score for each user:
- Player’s country of origin
- Type of Product offered
- Payment methods
- Source of income
The risk rating determines the type of due diligence required for each player they bring to the platform. After the due diligence process is complete, assessing the player’s risk score and comparing it with their earlier scores to assess risk accurately is better.
A structured and pragmatic approach to KYC can help businesses better assess risks while onboarding new players. Compliance is not an easy feat; however, it should also not be taken for granted.
Know Your Customer (KYC)
Before running a KYC on customer, it is always imperative for businesses to consider the following factors:
- Do customers hold influential positions prone to embezzlement or bribery?
- Are they from a high-risk or sanctioned country?
- What evidence suggests that the funds they are using to gamble with are from legitimate sources?
Enhanced Due Diligence (EDD)
When conducting enhanced due diligence, look for signs beyond the typical “sources of income” or “sanction country”. Be watchful of the following red flags:
- Sources of Income?
- Student, fresh grad – Too much money, problem gambler, avoiding answering questions
- Corporate, professional – Answers all questions and has an appetite for managing risks
- Property Records
- Any recently purchased or sold a property for large sums of cash that cannot be traced? It is a high-risk customer
- Criminal Activity
- Any past records of criminal activity?
- Sanctioned for crimes?
- Screened for AML lists?
Enhanced due diligence goes beyond basic KYC to ensure the players’ businesses onboarding are genuine and have income from legitimate sources.
FATF’s Designated Risk Categories
Regulatory watchdogs want to put a special emphasis on unusually large transactions. If cash goes beyond a certain threshold, it could mean the transaction is suspicious. FATF uses three specific criteria to determine the risk factor for each player. These are:
- Country or geographic risk
- Customer risk
- Transaction risk
Let’s study these in more detail.
Country and Geographic risk
Some geographies and countries post a higher risk of terrorism and money laundering than others. Casino operators can refer to the FATF’s sanctions list and determine the countries on the greylist and blacklist.
Even though the customer may not have any unusual transactions, enhanced due diligence must be carried out if they are from a high-risk country.
Sometimes, a customer may be from a low-risk country, but given their influential power, it could be considered high-risk. FATF advises gambling operators to consider the following factors in understanding customer risk:
- PEPs – Politically Exposed Persons
- Unusually high amount of cash transactions
- Casual customers such as tourists
- Problematic gamblers such as students
- Involvement of multiple shell companies to obfuscate the owner’s identity
- Duplicate accounts by the same customer
Gambling operators, sports betting websites, and online poker are all ranked as high-risk sectors and prime attractions for money launderers. This is why gambling service providers need to implement risk assessment solutions to ensure the players onboarding are low-risk customers.
Shufti Pro’s risk assessment service is a viable option for gambling service providers as they help detect potential customers through the most advanced KYC & AML checks, including customisable questionnaires, multiple risk parameters, and fraud prevention data points. Powered by AI algorithms, Shufti Pro’s risk assessment system completes verification in a matter of seconds with a ~99% accuracy.
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