EU raises online gaming's money laundering threat to its highest level

The European Commission has upgraded the threat level for money laundering in online gaming to its highest possible level and demanded lower thresholds for due diligence procedures to tackle criminal elements.

Periodically, the European Commission conducts supranational risk assessments to determine the danger of money laundering and terrorist funding in various sectors of the European Union. The 2022 edition is the third such risk assessment, following 2017 and 2019 editions.

“As with the previous reports, this third edition analyses the present ML/TF risks and proposes comprehensive action to address them,” the European Commission said. “It also assesses the degree to which the Commission’s recommendations for mitigating measures in the 2019 report have been implemented and evaluates the remaining risks.”

The report places special emphasis on gaming, with each gambling vertical receiving its own risk evaluation.

It was determined that online gambling is highly susceptible to money laundering and terrorist financing, and this risk was categorised as "extremely high," the highest conceivable risk rating.

“Despite several risk-based measures already being implemented by many EU online operators (for example anti-money laundering training sessions for employees, customer due diligence and ‘know your customer’ processes), the exposure to money laundering risks in online gambling is still rather high as it encompasses significant factors such as the non-face-to face element, huge and complex volumes of transactions and financial flows,” the European Commission said.

The European Commission added that digital currencies are one characteristic that makes online gambling particularly susceptible to money laundering.

“Although not based on cash, it is closely connected to the use of e-money, and digital and virtual currencies which, for example, also increases the degree of anonymity for customers,” it said.

Self-regulation

In several areas, operators have self-regulated with a decent degree of success, according to the Commission, but authorities have failed to provide the industry with clarity.

“In many member states online gambling operators have developed a good level of self-regulation and risk assessment, although their cooperation with competent authorities and financial intelligence units could be improved,” it said. “Operators believe that they do not get clear guidance on how to properly address the risks considering, in particular, the lack of feedback from financial intelligence units on suspicious transaction reports.”

In addition, the European Commission had several proposals for EU member states.

This included "marketing a lower winnings threshold subject to customer due diligence" than the present threshold of €2,000.

Other recommendations included that "member states should ensure that online gambling operators organise regular training sessions of the staff and compliance officers on a regular basis" and that " and meticulously tend to the fact that players cannot more than one account with the same Operator.

Land-based casinos and money laundering

In contrast, land-based casinos was a sector where the Commission observed a significant improvement. In 2019, the threat was assessed as "very high," but in 2022, the rating was lowered to "medium."

According to the report, the greatest dangers for money laundering at a casino entail "infiltration": i.e. employees who are involved in money laundering operations. However, it was noted that fitness-for-duty checks have helped to mitigate the risk.

“Casinos are considered to be exposed to infiltration risks, although for casinos owned by the state or public companies, this level of risk is lower,” the Commission said. “Hence, the risk of casinos being exploited to money laundering appears high, and the level of the threat posed by money laundering to casinos is considered as moderately significant.

“Despite an overall good picture, law enforcement agencies are still identifying some weaknesses, which suggests that the current legal framework is not correctly applied. The number of money laundering cases investigated by law enforcement agencies seems to show that there is still room for improvement.”

The inclusion of casinos in the EU-wide AML/CFT framework has reduced the danger of money laundering at these venues, according to the Commission.

“The inclusion of casinos in the list of obliged entities in the 4th Anti-Money Laundering Directive, as well as in earlier EU AML legislation, has undoubtedly played a role in the quality of the checks in place,” it said. “It appears that, overall, casinos manage to address the need to put in place several layers of checks, knowing that most of the time several gaming activities may be played in a casino.”

Elsewhere, the danger of money laundering was deemed "high" for poker and retail betting, while it was branded as "mid" for lotteries and gaming machines outside of casinos. For bingo, the danger was deemed to be minimal. These ratings were identical as those in 2019.

FATF measures

The latest rating comes after the Financial Action Task Force, a global anti-money laundering organisation, pushed down on gaming operators hubs. Malta was added to the "grey list" of nations subject to increased monitoring in 2021.

While Malta was removed from the list earlier this year, Gibraltar was simultaneously added, with the organisation noting a lack of effective punishments against the gaming industry for failures, as a primary basis for its grey designation.

The Task Force disclosed earlier this month that Gibraltar had delayed its FATF filing and stated that it still believed the territory will levy additional penalties.

By fLEXI tEAM