Posted on

Gambling Commission Consults On Crime In Gambling

Another month brings another hefty tome from the Gambling Commission (“GC”). Its consultation on proposed amendments to the Licence Conditions and Codes of Practice (“LCCP”) in relation to the prevention of crime associated with gambling opened on 30 September, and closes on 30 December.

The consultation seeks views on a number of changes to the LCCP that it proposes to introduce in 2016, and invites debate in a number of other areas, such as digital currencies, where its thinking is clearly still at a very early stage. It also sets out a couple of fields of future work in which it is currently engaged, aimed at keeping crime out of gambling.

The GC is at pains to point out that it does not intend the LCCP to prescribe detailed rules; instead, they should describe the outcomes that the GC expects operators to achieve, leaving the operators themselves, who the GC considers to be best placed to decide how to secure those outcomes cost-effectively within their own organisations, to decide exactly what measures to put in place, and how to ensure that those measures are actually working. The consultation paper does, however, lay the responsibility for delivering on the licensing objectives under the Gambling Act firmly at the door of operators, something which will irk those who have argued in the past that that responsibility appears nowhere on the face of the legislation.

The GC is of the view that its current requirements on operators surrounding the reporting of criminal activity within and affecting their businesses are inadequate, and that they lead to under-reporting and inconsistency. Currently, the relevant licence condition confines the reporting requirement to cases where an offence specified under the Gambling Act 2005 has been committed and offences involving the holder of a Personal Management or Functional Licence. The GC has identified a wide range of circumstances in which gambling and crime can be connected, including offences committed by customers against other customers and those committed by the licensee’s employees in collusion with customers.

In order to ensure consistency as to the scale and nature of offence that must be reported, and to enable it to collect more comprehensive information about gambling-related crime, the GC proposes to introduce a clearer LCCP requirement to level the playing field and to provide it with a wide range of information to enable it to take consistent, proportionate and risk-based decisions. It proposes to add to licence condition 15.2.1 a requirement that licensees report any criminal investigation by a law enforcement agency, including the police and the National Crime Agency, in which they are involved, in circumstances where the GC could reasonably be expected to question whether the licensee had taken sufficient steps to keep crime out of gambling. The duty will extend to crimes allegedly committed by or against the licensee, by employees of the licensee, and by third parties in circumstances involving the licensee’s gambling facilities.

The GC says that it has also frequently picked up shortcomings in licensees’ procedures to prevent money laundering, particularly in cases where proceeds of crime are laundered by being spent on gambling. It is therefore seeking views on the introduction of new licence conditions requiring licensees to conduct and annually review a money laundering risk assessment, and to devise an action plan as a result, to manage and mitigate the risks. It will not ask for risk assessments and action plans to be submitted to it as a matter of course but they will need to be available on demand. In the GC’s view, operators should already be assessing and dealing with these risks in the same way as they manage commercial risks, but the need to formalise these processes will doubtless be felt, particularly by smaller operators.

The GC is also asking for comments on its proposal to add a new licence condition to improve operators’ due diligence checks on customers by requiring them to identify and monitor the gambling activity of any customer they have identified as presenting a heightened money laundering risk, and to take appropriate steps to satisfy themselves that the funds being used are legitimate.

The GC has identified failings on the part of operators in monitoring customers’ gambling activity across all outlets, platforms and products. This is despite the Social Responsibility Code provision requiring licensees to have policies and procedures in place to identify separate accounts held by the same individual. It is therefore suggesting a new Ordinary Code provision requiring operators, as a matter of best practice, to take reasonable steps to monitor customers’ activity across their entire portfolio, for the purpose of fully assessing money laundering risks. The GC acknowledges that this is a difficult area and it is not easy to see what an Ordinary Code provision will achieve, given that the GC is currently not satisfied with the degree of compliance with the existing Social Responsibility Code provision, which has the force of a licence condition.

Licensees are not currently obliged to disclose to the GC occasions when they decide to terminate a relationship with a customer, either because they believe that the customer is engaged in money laundering or they consider that continuing to transact with them would lead to a risk of commission of money laundering offences under the Proceeds of Crime Act 2002. The GC proposes a new licence condition requiring operators to declare the number of times they have discontinued a business relationship for these reasons, in order to enable it to develop a clearer understanding of money laundering threats and trends in the gambling industry. The consultation asks respondents to comment on how far such a requirement would add to the regulatory burden on operators.

Remote casino operators whose remote gambling equipment is located outside Great Britain but who transact with customers here have, since November 2014, been required to be licensed by the GC and the GC has secured their compliance with the Money Laundering Regulations 2007 by placing an individual condition on their licences. The GC is seeking to tidy up this situation by introducing a new general licence condition, in the interests of transparency and consistency.

It is also proposed to tidy up the rules relating to cash handling procedures to ensure that, not only do they extend to cash equivalents, but also that licensees’ procedures are effective and appropriate to minimise risks associated with money laundering and the giving of illicit credit to customers. It has also identified that linking the payout of winnings with the means by which the customer has paid for the gambling transaction as a means of mitigating, although not eliminating, money laundering risks and is seeking views on whether this should be introduced as a licence condition.

The GC is also proposing elevating the status of the requirement to comply with its Guidance on Combating the Financing of Terrorism and Advice on the Proceeds of Crime Act 2002 from an Ordinary Code provision to a Social Responsibility Code provision with the force of a licence condition. The consultation incorporates a revised edition of the former document and asks for comments upon the amendments to it that are proposed, which take account of lessons the GC has learnt in the field and provide updated advice on matters such as the definition of money laundering and operators’ obligations under the Proceeds of Crime Act. It is intending that a further revised edition of the Guidance will be produced in mid 2017, when the EU 4th Money Laundering Directive will be transposed into UK law.

The GC is committed to supporting Operation Creative, a multi-agency initiative designed to disrupt and prevent websites from providing unauthorised access to copyrighted content. It expresses its concern in the consultation paper at the fact that advertisements for mainstream licensed gambling operators are still appearing on offending websites, saying that this remains significant, despite a 36% decrease over the period from March to June 2015. It points to the significant reputational damage to both operators and itself that this might cause. It is seeking views on whether to introduce a new Social Responsibility Code provision to compel operators to take all reasonable measures to ensure that digital advertisements placed by themselves or third parties do not appear on copyright infringing websites, and on what other measures might be implemented.

The betting integrity regulatory system currently relies on operators reporting suspicious activity to the GC, but the regulator believes that employees are not sufficiently tied in to this process. It fears that the system is being undermined by the possibility that employees of betting operators might use information concerning suspicious trends in betting markets to place bets in their own interest. Accordingly, it is proposing a new Ordinary Code provision requiring betting operators to put in place, within their terms and conditions of employment, obligations upon employees to report any indications of suspicious betting to their employer and prohibiting them from using information about suspicious betting to their own advantage by placing bets, whether with their employer or other operators.

Digital currencies such as Bitcoin have grown in popularity in recent times and have been subject to increasing public, industry and government scrutiny over the last twelve months. The GC takes the opportunity, as part of this consultation process, to underline its view that digital currencies are considered as “money or money’s worth” for the purposes of the Gambling Act, and hence that their use in gambling does constitute real money gambling and require to be appropriately licensed. The current edition of the LCCP requires operators to notify the GC of any use of digital currencies as a key event, but it is proposing to add a new licence condition obliging operators to include new methods of payments by customers in their money laundering risk assessment. The consultation paper highlights the challenges associated with the use of digital currencies, including the degree of anonymity that they bring, and acknowledges that KYC is likely to be more challenging where they are involved. However it also acknowledges the benefits of using digital currencies, such as reduced payment costs.

It is clear that the GC’s thinking on digital currencies is at a relatively early stage. The consultation paper seeks views surrounding the topic generally, including the benefits and challenges associated with them and ways of mitigating the risks they present.

Finally, the GC takes the opportunity in the consultation paper to set out a couple of areas of future work which it is currently in the process of developing. It is gathering evidence on whether the current controls on peer to peer poker in the Remote Gambling and Software Technical Standards are sufficient to provide the required level of information to customers and deter would-be cheaters and expects to complete that exercise by the end of this year. In the next six months it is planning to assess the current regulatory framework for gambling in Great Britain against the Council of Europe Convention on the Manipulation of Sports Competitions, which the UK has still to ratify, with a view to introducing any necessary amendments or improvements.
This is a wide-ranging consultation, covering a whole host of issues relating to crime in gambling and the first licensing objective under the Gambling Act. You can have your say by the end of the day on 30 December at