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When Does A Bad Debt Equal Non Compliance

It may be stating the obvious but the last thing any gambling operator I have ever been involved in would want on their books is bad debts. Nobody sets out to create a bad debt and it would never be part of any operation nor policy to incur bad debts. One accountant who I know very well would in fact take issue with me describing “outstanding monies” as “bed debts” but it seems generally accepted that a cheque which has been dishonoured is defined as a bad debt until full recovery is made. My accountant friend would say that it is ‘ monies due’ not a ‘ bad debt’!

Is a bad debt a breach of the Money Laundering Regulations 2007 and in particular the requirements set out in Regulation 7 which require operators to undertake customer due diligence measures as defined in Regulation 5. These regulations broadly speaking require an operator to identify and verify customers identity on the basis of documents, data or information obtained from reliable sources on a risk sensitive basis when establishing a business relationship with the customer. Regulation 8 requires operators to conduct ongoing monitoring of their business relationships with customers which in practice means that compliance with Regulations 5 & 7 are not one off events but should be checks which are continually undertaken. Regulation 14 requires operators to look closely at transactions undertaken by customers (including the source of funds) in circumstances which present a risk of money laundering.

This is all a risk based approach and there will be a different attitude and approach to a customer in a betting shop placing a five pound bet on a horse to win a race and a “high roller” customer in a casino who is signing cheques for several million pounds.

There has been a great deal of publicity recently with regard to these regulations and “customer due diligence” checks and “enhanced due diligence” checks and I think that gambling industry as a whole is coming to terms with the additional requirements now expected within the industry. I will be looking closely at these requirements in later articles and at our seminar on the 6th of June 2016 but I do think the issue of the so called “bad debt” is an interesting one and one that needs resolving. If you are satisfied that a customer has the means to pay and you can evidence the fact that the customer has the means to pay and you have carried out all anti money laundering checks then is the fact that the customer fails to pay a breach of the regulations? To put this another way “if you carry out customer due diligence and enhanced due diligence properly would you incur debts that are not paid?”

All clients and land based operators should ensure that CDD and EDD are properly undertaken and regularly undertaken in respect of those customers who present a higher risk but I am still not convinced that there is an argument that you are not complying with the regulations (subject to all of the above being complied with) just because some debts/cheques are not paid.

There have of course been a number of high profile cases recently with regard to whether or not a casino operator owes a duty of care to a customer (whether or not there is compliance with the regulations). In the case of “The Ritz Hotel Casino v Gaebury” Mr Al Gaebury lost two million pounds at The Ritz and a cheque he had given to The Ritz for that amount was dishonoured. The Ritz sued him and the issue of “duty of care” was raised but Mr Al Gaebury lost. This was similar to an earlier Ritz Hotel Casino case involving Noora Al Daher.

There was a complicated background to the Gaebury case which involved Mr Gaebury self excluding himself from the casino and then trying to get those self exclusions revoked. The Ritz ultimately let Mr Al Gaebury back in as a customer subject to him signing a waiver with regard to the “end of self exclusion” and Mr Gaebury returned to gamble at The Ritz and subsequently wrote the cheques which were not honoured. The Judge in this case agreed that there was no general duty of care owed by The Ritz to Mr Al Gaebury. The Judge repeated the words of the Judge in the Al Daher case “ gambling is an activity which has been legalised by parliament… the choice of parliament has been to commit casino’s to be licensed and gamblers to gamble in them as a matter of their own autonomy”.

Gambling operators will have to be aware that whilst the courts may be very reluctant to move away from an individuals right to gamble, the Gambling Commission may be more open to the argument that incurring bad debts/unpaid cheques can mean non compliance with Anti Money Laundering Regulations.