Casino AML risks & reforms under spotlight in global gambling hubs

Casinos are coming under renewed scrutiny by global regulators seeking to crack down on money laundering and misconduct within the gaming industry worldwide

Money laundering and misconduct at casinos has renewed the global scrutiny of anti-money laundering and counter-terrorism financing (AML/CTF) compliance in the gaming industry. Recent regulatory reforms are targeting conduct and compliance culture at government agencies and the private sector alike.

Meanwhile, enforcement activities are also taking a more aggressive turn, with regulators in one jurisdiction going so far as to classify casino money-laundering misconduct as a threat to financial stability and security.

Canada: Public inquiry elicits calls for reform

Findings from a regulatory inquiry into money laundering in the Canadian province of British Columbia (BC) are increasing scrutiny on the gaming industry across that country and beyond. Earlier this month, the Cullen Commission, a public inquiry led by BC Supreme Court judge Austin Cullen, submitted a report to the federal government that looks at whether acts or omissions by regulators and individuals contributed to money laundering in the province. The report covered 133 hearings, including testimony from gaming officials, police officers, and financial crime experts, which were held as a part of the inquiry.

The commission found serious culture failings in the gambling industry. Findings from the inquiry support the possibility that compensation incentives at the British Columbia Lottery Corp., a government agency responsible for oversight of gambling in the province, pressured gaming officials to prioritize gambling revenue over compliance with provincial federal anti-money laundering laws.

The Commission noted that “staggering amounts” of illicit funds are being laundered provincially. Although the inquiry did not quantify the exact figures, the report provided evidence to support the assumption that the amounts run into the billions of Canadian dollars per year, in British Columbia alone, and are increasing over time.

The 1,800-page report was recently made public and has elicited calls for stronger enforcement and regulatory reform of anti-money laundering requirements applicable to the Canadian gaming industry. Appointing a dedicated anti-money laundering commissioner and lowering the threshold for requiring proof of funds for casino transactions conducted in cash are among some of the recommendations that have been made by the Cullen Commission to address money laundering risks in the gaming industry.

Australia: Reforms & tighter supervision underway

Misconduct and money-laundering scandals at two major casino operators, Star Entertainment Group and Crown Resorts, have spurred wholesale regulatory reform of gambling regulations in Australia. A series of inquiries into Australian gaming operators found serious compliance failings at casinos that were operated by the two groups as well as shortcomings at state-level casino regulators that allowed money laundering to continue unabated for years.

An inquiry in the Australian state of New South Whales found that The Star and its management facilitated more than AU$900 million in money laundering for junket operators. Regulators in Victoria, another state, found that Crown had processed AU$164 million in China UnionPay card payments in violation of anti-money laundering laws which prohibit gambling funds to be withdrawn using credit or debit cards. Crown’s casino license was recently reinstated with conditions after being suspended in 2020 for anti-money laundering compliance failures.

Regulatory reforms currently underway include proposals to expand cooperation and enforcement between the Australian Transactions and Reports Analysis Centre (AUSTRAC) and state-level regulators. Further, AUSTRAC has filed a lawsuit against Crown Resorts, citing “serious and systemic noncompliance” with Australian anti-money laundering laws that has left the country’s financial system “vulnerable to criminal exploitation.”

The states of Victoria and Queensland have introduced legislation to provide increased oversight and enforcement powers to their respective state casino regulators. Queensland casino operators will be subjected to stricter compliance requirements and tougher penalties for regulatory violations; meanwhile, casino operators in Victoria will have to comply with expanded regulatory reporting requirements. Overall, the reforms suggest that the gaming industry in Australia will be subject to a much higher degree of oversight and accountability going forward.

Macau: Risks on the rise for operators

Macau recently greenlighted a new gambling bill that gives its chief executive the authority to revoke gaming concessions granted to casinos on national security grounds or for failure to pay taxes on time. Operators could be forced to give up concessions such as gaming tables or asked to pay additional taxes if they fail to generate sufficient revenue to meet new minimum gaming tax requirements, a development that could have unintended consequences for conduct risk.

Higher tax requirements have prompted concern in the industry which continues to suffer financial losses from limited visitors to the city. Macau’s borders have been mostly closed since the onset of the pandemic in 2020; and, as of June 20, the gambling hub shut most schools and businesses following the discovery of dozens of locally transmitted cases of coronavirus. Although casinos have been permitted to remain open, residents have been asked to stay home, and analysts estimate that revenue for casinos in the coming weeks will be close to zero.

Pressure to generate revenue amid challenging operational conditions could raise conduct and regulatory risk for casino operators in the gambling hub. While Macau has not scrutinized money-laundering risks in the gaming industry with as much rigor as casino regulators in other jurisdictions, law enforcement has acted in cases where cross-border activity and enforcement in other jurisdictions are involved.

Long flagged as high risk for money laundering and organized crime, these operators bring in high rollers to play at casinos, extend credit, and collect debts.

In 2021, local law enforcement arrested 21 individuals, including the chief executive officer of Macau casino junket Suncity, Alvin Chau, for organized crime and money laundering. Suncity was also implicated in a separate investigation by Australian regulators into claims that Star Entertainment Group allowed money laundering to take place inside secret rooms operated by the junket inside Star casinos.

Takeaways

Casino operators in global gambling hubs are facing heightened scrutiny amid a broader crackdown on organized crime and money laundering. Conduct and compliance culture have emerged as two main areas where regulatory reforms are taking aim. As seen in recent enforcement actions in Canada and Australia, culture and conduct at regulatory agencies is as much of an issue as it is in the private sector.

Financial institutions dealing with casino operators and the gaming industry should take note of the current environment of heightened scrutiny and apply enhanced due diligence measures where necessary.

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