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The Enhanced Due Diligence Debate Continues and now Reaches Las Vegas

I know that I have written about enhanced due diligence previously but at present it is the one topic that causes me a great deal of concern as far as the industry is concerned and I think it is essential to keep debating this matter. I am not concerned that the industry is not carrying out some form of enhanced due diligence. I am concerned that it is still not clear to the industry what the Gambling Commission will be satisfied with which always leaves the industry open to threats of investigations and reviews. There is of course an argument that the Gambling Commission should not need to tell the industry and that the industry must regulate and risk assess itself based on the Anti-Money Laundering Regulations and I understand this point. There must come a stage however when the Commission set down some basic principles on enhanced due diligence even if it is merely a “general steer” as to what is satisfactory.

Anna and I attended a very interesting and helpful morning seminar on 17 October 2016 in London which was led by Mike Rothwell and Deloittes. Mike put forward some very persuasive arguments that any form of enhanced due diligence must be “principle based” with some form of set criteria in place to implement any policy. There were many questions raised at the seminar and several different points put forward as to what would constitute enhanced due diligence and it does seem to me that it will be down to an individual venues risk assessment based on the principles that Mike referred to which will determine the extent of enhanced due diligence at the premises. The challenge the industry faces was reflected in some of the questions put forward. Is it right that the financial trigger for enhance due diligence (i.e. the amount a customer gambles before enhanced due diligence is required) is the same for a Mayfair Casino as it is in a casino in Hull. (I am from Hull so I am allowed to use Hull as an example!). Is it also right that an extremely well known and wealthy person should have enhanced due diligence done on them when you have the documents to know who they are and know exactly where their wealth is coming from? How does this compare to an unknown person walking in to a Hull casino with £3,000 in cash? There are so many different alternatives to consider that I agree entirely with Mike Rothwell when he says that it must be a principle based decision and in effect a risk assessment on a case by case matter. The difficulty of course is that unless there are clear guidelines in place and a definite policy for each unit then you are leaving that decision down to somebody at the cash desk in a casino or behind the counter in a betting office or at the reception desk of a bingo hall. Surely those people are not expected to contact the Money Laundering Officer each time somebody comes in to the premises.

Some of us are due to attend a conference organised by the Gambling Commission in Birmingham on 8 November 2016 which is being fronted by Sarah Harrison and I know Mike is also speaking at this conference. I am hoping that we may be able to discuss this point further and see what the Gambling Commission’s position is on this particular point. I have to say however that I am incredibly disappointed to note that some of my clients and in particular one person who is the Money Laundering Officer in a Mayfair Casino has not been allowed to attend this conference because it is full! There is no point in having a conference if we cannot arrange for everybody to attend.

I was interested to note on a recent newsflash from Reuters that the Nevada State Gaming Regulator is investigating the Las Vegas Sands Corporation Casinos in relation to high stake Chinese players and the allegation that they are gambling through front men who would sign the credit paperwork. On 30 September 2016 Reuters were alone in alleging that a case involving the Sands Casino showed how “Shill” players and backroom loans are often part of the game as the casino found out when they tried to collect $6.4 Million Dollars in gambling debts. Lawyers for the two women who allegedly owed the money wrote to the casino confirming that the two ladies were local housekeepers “Allegedly recruited with the cooperation of Sands Personnel to take out millions of Dollars in credit in their names and sit near the players as they gambled with the borrowed chips”. The lawyers further argued that since everybody knew the debts were a sham then those debts should be null and void. The Sands spokesman made it clear that the company had “No clear evidence” that these women were recruited by Sands employees.

As well as reporting this case Reuters also comment that the episode shows how crucial Chinese money has become to Las Vegas at a time when Macau has overtaken Las Vegas as the worlds biggest gambling centre. Vegas responded by increasing their exclusive VIP rooms featuring the décor of Macau and as a result of this baccarat winnings has doubled over the past decade. Reuters report the Asian market accounts for as much as 90% of the baccarat gambling in Las Vegas. The question of course is whether this comes at a cost and US Law Enforcement Officials have become increasingly concerned that there is “Inadequate vetting of customers” and that “Huge cash transactions could make Las Vegas a target for money launderers”.

I suppose I should complete this article by confirming exactly what the money laundering regulations state with regard to enhanced due diligence. Regulation 14 which deals with enhanced due diligence confirms the following:

Enhanced due diligence and enhanced ongoing monitoring must be carried out in the following certain circumstances

A relevant person must apply in a risk sensitive basis enhance customer due diligence measures and enhanced ongoing monitoring:

  • In accordance with paragraphs 2-4;
  • In any other situation which by its nature can present a high risk of money laundering or terrorist financing;

Regulation 14 (1) (a) requires a relevant person to apply EDD in the following circumstances:

  • Customer not physically present;
  • Relevant person is a credit institution;
  • Relevant person proposes to have a business relationship or carry out an occasional transaction with a PEP;

Regulation 14 (1) (b) places an important duty on relevant persons to assess and manage the risk of money laundering and terrorist financing by requiring the relevant person to apply on a risk sensitive basis enhanced CDD measures and enhanced ongoing monitoring…in any other situation which by its nature can present a high risk of money laundering or terrorist financing.

Regulation 14 (2) deals with a situation with a customer not present.

Regulation 14 (5) sets out a definition of a politically exposed person. This term was introduced by article 13 of the third money laundering directive. It should not be forgotten that there is a requirement not just to carry out enhanced due diligence but also enhanced ongoing monitoring of customers.

I am hoping to be able to report further after the Gambling Commission conference on 8 November 2016.