Ref. Ares(2017)5393166 - 06/11/2017
GAMBLING SECTOR: MONEY LAUNDERING RISKS
1.Introduction
The purpose of this paper is to explain the Commission’s decision to broaden the scope of the
Directive to cover the gambling sector and to provide evidence of money laundering risks. It
complements the information already included in the Commission’s Impact Assessment
accompanying the Commission’s proposal.
The Third AMLD includes "casinos" within its scope but without providing any definition.
Activities of obliged entities "performed" on the Internet (recital 14) are also covered.
However, as indicated in the Commission’s Application Report on Directive 2005/60/EC1, the
absence of a clear definition of “casino” leads to different approaches at national level, and
leaves important areas of the gambling business which may be particularly vulnerable to
AML/CFT outside the scope of the preventative framework.
Obligations upon casino operators and other gambling
Obligations only upon casino operators
operators
Bulgaria
Austria
(Casinos, bingo halls, lotteries, sport totalizators, etc.)
E s t o n i a
Belgium
("Organizers of games of chance')
Czech Republic
F i n l a n d
("Any gaming operator and supplier of gaming activities')
G r e e c e
("Casino enterprises, casinos operating on Greek ships,
Germany
companies, organizations and other entities engaged in gambling
activities as well as betting shops (agencies)").
F r a n c e
Hungary
(Casinos, clubs, groups or companies in charge of games of
chance, lotteries, betting, sport and horse race forecasts)
Ireland
Malta
(Casinos and private members' clubs)
I t a l y
Romania
(Land based and online
casinos, sport betting/forecasts and other
gambling activities)(Casinos, online sport betting/forecasts)
L a t v i a
The Netherlands
(Lotteries and gambling)
Lithuania
United-Kingdom
("Companies offering gaming")
Luxembourg
("Casinos and similar premises')
Portugal
(Casinos, betting and lottery operators)
S l o v e n i a
(Casinos, gaming halls, sport wagers, online games of chance)
1 COM(2012) 168 final
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S p a i n
(Casinos, lotteries and other games of chance)
S w e d e n
(Casinos, lotteries and other games of chance)
The above table (annex IX of the Impact Assessment2), compares the rules implementing
AML rules to casinos and the gambling sector. 8 MS have imposed obligations only on casino
operators while many others have broadened the scope to include number of different
gambling service providers.
The Commission’s proposal for a 4th AML Directive has broadened the scope to cover
“gambling services”, defined as:
“
any service which involves wagering a stake with monetary value in games of chance
including those with an element of skill such as lotteries, casino games, poker games and
betting transactions that are provided at a physical location, or by any means at a distance,
by electronic means or any other technology for facilitating communication, and at the
individual request of a recipient of services”.
There were two reasons underpinning the Commission’s decision:
1.
Level playing field concerns: there was strong support from the majority of gambling
sector representatives3 to apply a broad approach.
2.
Money laundering risks in the gambling sector are not restricted to casinos. Over the
course of consultations with the private sector, the Commission was provided with
information suggesting clear indications of risks in other areas.
The remainder of this note highlights evidence which points to money laundering risks related
to various parts of the gambling sector not currently covered under the Third AMLD’s scope.
Risks associated with casinos (including on-line casinos) are not analysed, as they are already
caught by the existing provisions of the Third AML Directive (AMLD).
To-date, while typology reports have been carried out by FATF on money laundering and
Casinos4, or by Moneyval on on-line gambling, the Commission is not aware of any such
official studies on the specific topic of money laundering and gambling beyond the casino/on-
line sectors. This should not however imply that no such evidence exists. Indeed, on the basis
of the evidence presented, supported by the fact that a number of EU Member States have
already taken steps to broaden the coverage of their legal framework, the Commission
believes that it is appropriate to broaden the scope of the rules to the entire gambling sector.
2 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=SWD:2013:0021:FIN:EN:PDF
3 The Commission was in consultation with/received contributions from the following organisations : European Casino
Association, EGBA, BETFAIR, European Gaming and Amusement Federation, European Lotteries, Finnish Slot Machine
Association, Association of British Bookmakers, Bundesverband Privaten Spielbanken, BWIN.Party, Diligent Gaming, La
Française des Jeux, Fédération française des entreprises de jeux en ligne, Lottomatica Group, Remote Gambling Association.
See
: http://ec.europa.eu/internal_market/company/financial-crime/received_responses/index_en.htm
4 http://www.fatf-gafi.org/media/fatf/documents/reports/RBA%20for%20Casinos.pdf
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However the Commission also fully accepts that the degree of money laundering risk will
vary according to a number of different factors. The risk-based approach in the Commission’s
proposal will allow sufficient flexibility to recognise lower risks where they exist, and to
allow for a tailored response at national level. Furthermore, the €2,000 threshold for customer
due diligence should eliminate the need to identify a significant proportion of gambling
customers. On the other hand the Commission believes that given this evidence, any approach
which placed certain activities outside the defined scope of gambling services, without first
carrying out an assessment of those risks, would be contrary to the risk-based approach.
2. Money laundering risks in the gambling sector
2.1) Bookmakers and betting shops
Money laundering risks associated with bookmakers have long been understood. In the 1996
FATF typologies exercise: "
Casinos and other businesses associated with gambling, such as
bookmaking, continue to be associated with money laundering, since they provide a ready-
made excuse for recently acquired wealth with no apparent legitimate source".
In the UK, prior to the introduction of the
Money Laundering Regulations 2007, a paper
produced by the Centre for the Study of Financial Innovation in the UK5 claimed that “…
the
main risk may lie with more traditional betting activities. The key point is that high street
betting shops will still accept very large cash wagers without knowing the identity of the
person placing the bet”. The study went on to suggest that “
cash-based betting is a potential
loophole that ought to be examined. Bookmaking activities may need to be brought within the
legislative framework to require proper identification and record-keeping in respect of
customer identities and transactions”.
Beyond the EU, bookmakers are already covered by money laundering legislation in other
parts of the world, most notably in Australia. Austrac has put together guidance and
typologies: according to Austrac, bookmakers are particularly vulnerable to money laundering
activities, due in part to the opportunities for cash transacting. Indicators of the use of illicitly
attained funds in horse racing may include structuring bets below reporting thresholds, the use
of large amounts of physical currency, and requests for winnings to be paid to third parties.
2.2) On-course betting
Similar risks of money laundering are also present with respect to on-course betting. This
sector is also specifically covered in Australia, where AML/CTF rules provide that customers
of on-course bookmakers do not need to be identified unless they are paid out winnings of
$10,000 or more or if they open an account with the bookmaker.
However AML/CFT risks are not limited to any specific geographic area and are clearly also
present in the EU. By way of example, in 2005 Irish authorities issued warnings to
bookmakers at Cheltenham races to be on the lookout for persons trying to launder the
proceeds of Belfast's £26.5 million Northern Bank robbery.
5 Betting on the Future, On-line gambling goes mainstream financial, Centre for the Study of Financial
Innovation
: http://www.zyen.com/PDF/CSFI%20Gambling%20Publication.pdf
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2.3) Sports betting
There are a number of ways in which sports activities may be targeted for money laundering,
including betting activities (due to the lack of gambling regulation between countries and lack
of transparency).
According to the FATF report on money laundering through the football sector6: “
Sports that
could be vulnerable to money laundering problems are either big sports (worldwide like
football or on a national basis like cricket, basketball or ice hockey), sports like boxing, kick
boxing and wrestling (sports that have traditionally links with the criminal milieu because of
the relationship between crime and violence), high value sports (such as horse and car racing
where there are ample opportunities to launder big sums of money), sports using (high value)
transfer of players, sports where there is much cash around, which give criminals
opportunities to turn cash into non-cash assets or to convert small into large bills. This fact
means that virtually all sports could be targeted by criminals, although for different reasons.
The FATF report explicitly does not cover sports betting, but concedes that
“Money
laundering through legal and illegal betting, especially on the internet, is considered as a
huge and increasing problem that should be explored separately in more detail.”
Another study on “Sports betting and corruption - How to preserve the integrity of sport”
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describes
several major examples of corruption in sport linked to sports betting (e.g. the
Hansie Cronje Affair (2000) and the Bochum trial (ongoing)). Although such examples focus
primarily on the
corruption element, there are inevitable overlaps with money laundering and
attempts to conceal illicit proceeds. The study also describes the role that professional
gamblers and money launders play, and the extent to which they are able to manage the risks
when betting on sports matches:
“
One section of the betting public consists of professional gamblers, who act on the betting
market as they would on a financial market, who perform statistical calculations to
understand the ways in which odds change and take advantage of these variations to place
“sure bets”.
A gambler who spreads his risk in this way is assured of winning, irrespective of the issue of
the match. Professional gamblers (and money-launderers) spot these opportunities and can
place extremely large sums and obtain maximum profit without taking the slightest risk. As in
the less well-regulated financial markets, these players scrutinise the movements of the odds,
and by substantial and repeated bets, can in fact themselves swing the odds accordingly. This
group of gamblers also pays great attention to information about sports matches. If for
example a person learns that two key players in a team will not take to the pitch, they might
then decide to bet heavily against the team, even before the operators receive the information
and adjust their odds against this team. That being the case, a more or less irrational
variation in the odds may make other professional bidders think that the score of that match
has been determined in advance and that the drop in odds is the result of corruptors who are
6 http://www.fatf-gafi.org/media/fatf/documents/reports/ML%20through%20the%20Football%20Sector.pdf
7 By IRIS, University of Salford, Cabinet PRAXES-Avocats, and CCLS (Université de Pékin):
http://www.sportaccord.com/multimedia/docs/2012/02/2012_-_IRIS_-_Etude_Paris_sportifs_et_corruption_-_ENG.pdf
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betting massively on one side in the match. They will then also leap into the breach and bid
massively, before the odds drop too low, which will push the operator - alarmed in the face of
so many bets on one team – to continue to increase the odds against the team.”
2.4) Slot machines and gambling halls
There are diverging views on the level of risk regarding this gaming sector. Some operators in
the gaming industry argue that this is a low area of risk, and not a viable means for ML. They
also argue that gambling halls involve lower amounts and are not in the same league as
casinos. According to Euromat8, “
Gaming arcades are simply not in the same league as
casinos in terms of monies wagered and monies paid out …. The machines available in
gaming arcades, unlike those available in casinos, entail only low stakes and low payouts and
thereby represent only very minimum or no AML/CTF risks”.
There is on the other hand anecdotal evidence of money laundering using slot machines9,
especially machines which accept bank notes or credit cards and which take high initial
stakes. Technological solutions which replace coins with vouchers make laundering of higher
amounts easier10. There have been instances where money launderers feed the machine with
credit, play for small amount and then claim back the remaining credit as legitimate winnings.
Given the absence of European legislation in this field, Member States have adopted different
approaches in respect of controls on gambling activities outside regulated casinos – the types
of machines, the gambling limits, and hence the potential associated ML risk are understood
to differ significantly, making it difficult to make generalized assessments about the level of
risk.
2.5) Lottery games
The level of risk in lottery games has been largely assessed as low by the industry and
supervisory authorities because it is very difficult to launder money through lotteries.
Nevertheless, according to the European lotteries submission to the Commission’s public
consultation, it is important to monitor the identity of winning ticket holders. There are indeed
concerns that money laundering risks arise with respect to the purchase of winning tickets by
criminals who are willing to pay a surcharge on the winning ticket amount.
8 Euromat’s submission to the Commission’s public consultation http://ec.europa.eu/internal_market/company/financial-
crime/received_responses/responses-to-the-consultation/euromat_en.pdf
9 See for example the following news report
: http://www.casino.org/news/chinese-laundry-through-the-slots-money-
laundering-alleged-for-med-tech-firm
10 See FINTRAC report on “Money Laundering and Terrorist Financing Typologies and Trends in Canadian Casinos”:
http://www.fintrac-canafe.gc.ca/publications/typologies/2009-11-01-eng.asp
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