UKGC: Operators must stay vigilant of AML and terrorist financing red flags

The British betting gaming sector faces a dynamic range of risks from money-launderers (ML) and terrorist financiers (TF) almost as multifaceted as the industry itself, according to the UK Gambling Commission (UKGC).

Recent guidance published on the Commission’s website has sought to reiterate to British licenced operators that money launderers use ‘similar methods to store, move and obtain funds, although their motives differ’.

The risks

Whilst the methods of these financial criminals may vary, the risks to the betting sector are unanimous across the board. There is ‘significant potential’ in the high-risk gaming industry for ML and TF, which can in turn cause further detriment to wider society.

For the businesses themselves, breaches can lead to the need for costlier AML and counter terrorist-financing (CTC) controls which the UKGC notes ‘could potentially amount to a significant part of an operator’s budget’.

For the numerous gambling plcs which report their quarterly and annual results to investors several times a year, increased costs are never a good thing. In addition, AML and TF risks also pose significant regulatory risks.

The past two years have seen the UKGC go into overdrive in enforcing compliance with social responsibility and AML licensing requirements. This has grabbed the headlines on two notable occasions, with Entain charged £17m in 2022 and William Hill £19m in 2023, both record breaking penalties.

Whilst dealing a heavy blow to operator finances, these charges also pose a threat to the gambling industry’s image, both at home and abroad. This is of particular importance in the aftermath of the Gambling Act review, with the UKGC and DCMS currently engaged in consultations on how to implement the White Paper’s recommendations.

The UKGC noted that concerns could lead to ‘governmental inquiry or sustained adverse national and international media coverage’, which could be detrimental to operators, the UK market as a whole and the consumers who use its services.

In the worst case scenario, ML and TF could contribute to “critical failure of gambling operations and businesses such as the survival of the operator is under imminent or severe threat, ultimately harming consumers or negatively impacting the gambling industry”.

Using information from the Treasury and Home Office National Risk Assessment, the UKGC has informed British betting stakeholders that the impact of terrorist financing has risen from low to high, but the overall risks faced by each sector remains medium.

“The assessment of the terrorist financing risk is partially based on information from the National Risk Assessment, which has assessed this area as low risk for gambling,” the Commission explained.

“The Commission has also collaborated closely with external stakeholders, such as the UK’s counter terrorism teams, when arriving at its risk rating to assist our understanding of the terrorist financing typologies and vulnerabilities that are applicable to the gambling industry.”

The assessments

In cases of terrorist financing, the UKGC’s assessment is that ‘overall risks’ are medium, evaluating the threat on the parameters of payment methods, products, customers and operator controls.

All three payment methods evaluated – cash, prepaid cards and crypto assets – are deemed to have a ‘low risk’ of TL occurring, although the impact of such occurrences would be high risk, leading to an overall low-risk assessment.

This means that operators need to remain vigilant. The UKGC highlighted eight ‘red-flag’ indicators operators should look out for: 

  • Inconsistent customer spending in line with occupation
  • Unusual or suspicious religious quotes, single phrases or numerical associations connected with terrorist ideology in transactions
  • Use of multiple foreign bank accounts
  • Unexpected large withdrawals and sudden account closures
  • Structured accounts to avoid internal threshold or Suspicious Activity Report (SAR)
  • MSB usage – including multiple overseas geographical destinations for transfers, use of third parties in transactions and open loops for foreign exchange transactions.
  • Accounts linked to pre-paid cards
  • Customer IP address being used by other customers.

Meanwhile, of the 11 different gambling segments identified by the UGKC, five are low risk – Family Entertainment Centres (FECs), Society lotteries and external lottery managers (remote and non-remote), the National Lottery (remote and non-remote), gambling software (remote and non-remote), and gaming machine technical (remote and non-remote).

In contrast, online betting and casino, bricks-and-mortar casinos, high-street bookmakers and online bingo are classed as high-risk, whilst on-course bookmaking and Adult Gaming Centres (AGCs) are classed as medium risk.

Out of five means of payment for online betting, four considered high risk with just e-wallets considered medium risk. The high-risk methods are multiple methods of payment, lack of a ‘closed loop’ system, prepaid cards and crypto assets. E-wallets also remain medium-risk for online casino.

For retail bookmakers, dyed notes are low-risk and Scottish notes in non-Scottish facilities are medium risk, whilst multiple payment methods, no ‘closed loop’ systems and both cash and cashless transactions are high-risk.

In the case of Scottish notes, the UKGC elaborated: “A customer attempted to exchange a large amount of Scottish notes for English notes at the cash desk but was unable to explain the origin of the funds when asked.”

A similar assessment has been made of bricks-and-mortar casinos, with the addition of high-risk methods of transferring funds between operators and use of crypto assets. 

For online casino, e-wallets are medium risk and prepaid cards, crypto asset and multi methods are high-risk, as with online bookies, with the addition of casinos acting as Money Service Businesses (MSBs) being categorised as a high-risk activity.

Lastly, for online bingo crypto assets, prepaid cards and multiple methods are high-risk and e-wallets are also medium, whilst for retail bingo the ticket-in-ticket-out (TITO) function is medium risk and cashless payments and Scottish notes are both low risk.

The UKGC concluded that it is “imperative for all gambling operators (regardless of gambling sector) to ensure they have effective risk assessments identifying ML and TF risks, and robust policies, procedures and controls in place to prevent money laundering and terrorist financing, and to continue to raise standards in these areas.”