Criminal Ploy or Jackpot Joy?

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As there is a paucity of empirical data on money laundering and terrorist financing in the United Kingdom’s (U.K.) online gaming sector, the evidence of actual criminal use in this industry remains sparse. The following Metropolitan Police Service (MPS) analysis seeks to address this issue by comprehensively evaluating 157 suspicious activity reports (SARs) provided by the online gaming sector. The analysis will assess how susceptible the online gaming sector is to money laundering by examining the following questions:

  • What prompts the U.K. online gaming sector to disclose a SAR to the UK Financial Intelligence Unit (UKFIU)?
  • Do operators know enough about their customers to allow intervention at an early stage to prevent money laundering or problem gambling?
  • Is there evidence of criminals exploiting online gambling operators’ anti-money laundering (AML) deficiencies?
  • Does the analysis suggest the main money laundering risk is criminal lifestyle spending?
  • Does lifestyle/problem gambling draw these people into criminality?
  • Is the ease of gambling online leading to more female participants being reported?
  • Are customers using stolen cards to gamble?
  • Are Defense Against Money Laundering (DAML) SARs effective in disrupting money laundering and do they provide substantial value to law enforcement agencies (LEAs)?

The overall purpose of this MPS analysis is to develop a better understanding of the threat posed by money laundering and its predicate offenses to the online gaming sector. This analysis will also provide constructive feedback thereby enabling reporters to refine their systems, raise their level of reporting and produce better quality SARs.

The Analysis

Gambling is a legitimate popular leisure activity in Britain. According to the Gambling Commission, Britain has the largest regulated online gambling market in the world that generates 4.7 billion pounds ($6.1 billion) of gross gambling yield (GGY) per annum.1

Online gambling has grown significantly and, before COVID-19, the Gambling Commission estimated it was likely to increase from 34% to 50% of the total British market by GGY within the next few years.

Whilst recognizing that not all gambling operators are subject to money laundering regulations―which currently only apply to remote and nonremote casinos―all gambling operators that offer services in Britain must be licensed by the Gambling Commission, including operators based overseas that offer services to consumers in Britain.

Anti-money laundering and counter-terrorist financing (AML/CTF) compliance is a condition of the operating licenses issued by the Gambling Commission. Further, under the Gambling Act 2005, it is mandatory for gambling operators to comply with the licensing objectives to keep crime and its proceeds out of gambling. Finally, the Proceeds of Crime Act 2002 (POCA) places an obligation on all gambling operators to submit a SAR where operators know, are suspicious of, or have reasonable grounds for knowing or suspecting that a person is engaged in money laundering.

The SARs regime is the process by which the private sector discloses their suspicions of money laundering and terrorist financing to LEAs. In doing so, the regulated sector complies with their mandatory reporting obligations under POCA and the Terrorism Act 2000, and the information contained within the SARs provides opportunities for LEAs to intervene, disrupt and prosecute criminality.

It is important to recognize that SARs simply reflect a reporter’s suspicions and that standards differ across institutions and sectors, so there is a lack of clarity as to what a financial practitioner would consider suspicious. Therefore, filing a SAR does not mean that money laundering activity has actually taken place.

According to the U.K.’s first and second national risk assessments of money laundering and terrorist financing, the gambling sector was overall less attractive to criminals than other sectors and less likely to be used for laundering a significant volume of criminal funds. The reports concluded that the overall money laundering and terrorist financing risks in the gambling sector are low. These reports also suggest that a significant proportion of the money laundering that occurs within the industry is by criminals who spend their proceeds of crime for leisure rather than for “washing” funds.

Due to the continued lack of evidence, the sector continues to be assessed as low risk for money laundering. Therefore, this SARs analysis seeks to confirm whether these assertions are correct or may require further validation.

Key Findings Following Analysis of the 157 SARs Submitted by the Online Gaming Sector

  • 2% of SARs concerned customers producing fraudulent documentation
  • 6% of the reported individuals were disclosed due to inquiries by LEAs
  • 6% of SARs concerned suspected mule accounts
  • 8% of SARs involved funds placed with stolen bank cards
  • 16% of the SAR subjects reported had committed a crime to fund their gambling addiction
  • 20% of the SAR subjects reported were women
  • 20% of the SAR subjects were reported for failing to engage in source of funds/source of wealth process2
  • 27% of SARs were DAML SARs
  • 52% of SAR subjects reported had been subject to previous SARs
  • 53% of SAR subjects reported had no occupation shown
  • 56% of SAR subjects reported had been previously arrested

Analysis of SARs Submitted by the Online Gaming Sector

This analysis focused on 157 SARs provided by 26 gaming operators between January 1, 2019, and July 14, 2019. The SARs identified 158 individuals that are residents throughout the U.K. with the largest groups located in London (29), Yorkshire (14), Kent (11), Lancashire (eight) and Essex (seven). Dates of birth ranged from 1949 to 2000 (with those born in 2000 all being women). The majority of SAR subjects (63) were born in the 1980s, the most popular year being 1989. Occupations provided included manager (10), company director (nine), unemployed (six), nurses/caregivers and gym workers (five).

Eight individuals did not list their address and 84 individuals did not list their occupation. This missing data is significant as it diminishes an operators’ ability to conduct affordability assessments, identify problem gambling and consider changed financial circumstances.

The reports concluded that the overall money laundering and terrorist financing risks in the gambling sector are low

Seventy-seven of these individuals were the subject of just one SAR. Eighty-one individuals were subject to a further 370 SARs collectively, and one individual had previous convictions for money laundering and had been reported 19 times. Information provided supported money laundering activity as stakes and withdrawals made were of a similar value. Analysis of the SARs identified differences in recorded personal details and several mentioned that documentation requested for customer due diligence (CDD) purposes was never provided. There appeared to be minimal cooperation between reporters.

So, what prompts the online gaming sector to disclose a SAR to the UKFIU?

  • Adverse media: Forty-three of the 157 SARs were submitted following identification of media reports indicating that the subject was involved in criminality.
  • Losses: Thirty-three of the SARs were submitted following a threshold amount being triggered over a specific time period ranging from 24 hours, seven days or 14 days, and one, three, eight or 12 months.
  • Documentation refused or none provided: Thirty-two subjects were reported for failing to provide CDD and enhanced due diligence documentation. This was usually in addition to one of the above reasons.
  • Stolen to fund a gambling habit: Twenty-five of the SARs disclosed a person who had stolen funds from an employer to fund a gambling habit. However, the figures provided did not necessarily corroborate this. In total, the SARs suggested that employees stole approximately 1.9 million pounds ($2.5 million) of which 379,000 pounds ($495,258) was gambled online. Nine further SARs suggested suspicion that the subject may be stealing funds from their employer to fund their online gambling.
  • Stolen cards: Twelve of the SARs were related to gambled funds that originated from stolen bank cards or deposits made with third-party cards.
  • Mule accounts and third parties: Nine of the SARs referenced accounts funded by third parties purely for online gambling purposes. There was no other account activity―such as bill payments, personal spending, and salary or benefit payments―suggesting the accounts were controlled by persons unknown.
  • Linked devices: Nine reports mentioned subjects who gambled from linked devices associated with subjects previously reported for suspected money laundering offenses, suggesting these accounts might be controlled by unknown persons.
  • LEA inquiries: Nine reports were submitted following LEA inquiries indicating the person was subject to a criminal investigation. This is in effect the SARs system working in reverse and these SARs are of little if any value to LEAs.
  • Nurses/caregivers: Six SARs reported subjects in the nursing profession who stole from vulnerable victims in their care and used the funds for online gambling. These ranged from defrauding a victim of 101,000 pounds ($131,982) that was all gambled online to another stealing 13,000 pounds ($16,988) from an elderly patient who gambled only 160 pounds ($209) of this amount.
  • Fraudulent documents: Three reports were made because of the receipt of suspected or confirmed fraudulent documentation.

Criminal Exploitation of the Online Gaming Sector

The 157 SARs identified 89 individuals known to the Police National Computer (PNC), a law enforcement database that contains the details of all persons arrested, convicted, cautioned or charged with a criminal offense. From this pool of 89 individuals:

  • Seventy-six were men, while 13 were women.
  • Ten were career criminals with approximately 250 criminal convictions between them. Most were known for violence and supplying controlled drugs. Two had previous convictions for money laundering, one of whom was reported for depositing 245,000 pounds ($320,152) and withdrawing 201,000 pounds ($262,656). Another with no money laundering convictions deposited 299,000 pounds ($390,718) and withdrew 288,000 pounds ($376,344), suggesting clear involvement in the laundering of criminal funds. Three were reported for triggering loss thresholds. The remainder were reported for providing suspected fraudulent documentation, LEA inquiries or adverse media. Only two had more than one SAR filed against their name with one having 13 and the other five.
  • Only two of these 10 prolific offenders had an occupation shown, all except for one were men and the majority reside in the Yorkshire area.
  • In total, those known to the PNC with criminal convictions deposited approximately 3.2 million pounds ($4.2 million), losing 620,000 pounds ($810,185) and withdrawing just under 1.7 million pounds ($2.2 million). (Compare that to those with no criminal record who deposited approximately 1.5 million pounds [$1.9 million], lost 945,000 pounds [$1.2 million] and withdrew 235,000 pounds [$307,086].)
  • Those with a criminal record resided in 27 English counties, the majority coming from London (14), Essex and Yorkshire (nine), Kent (six), no address shown (five), and Hertfordshire and Staffordshire (three).
  • Dates of birth ranged from 1949 to 1998 with the majority (35) born in the 1980s of which 14 were born in 1988 or 1989.

These figures must be interpreted with caution as not all SARs provided indications of deposits, losses incurred or withdrawals made.

Women Reported

Thirty-one women were reported who resided in Scotland, Wales and 13 different English Home Counties. The majority came from London followed by Cambridgeshire, Essex and Kent.

Their dates of birth ranged from 1954 to 2000. The majority were born in the 1970s and 1980s with the most frequent year being 1979.

Occupations included analyst, cleaner, consultant, director, sales and telecommunications. Six were listed as caregivers, all of whom were indicated to have stolen from vulnerable persons in their care by adverse media. Three were unemployed and two were students. Ten had no occupation shown. Thirteen of these women were known to the PNC, with the majority known for employee theft and fraud to fund their gambling addictions.

They were reported for the following:

  • Adverse media: Stole from their employer or vulnerable victim in their care to fund gambling addiction.
  • LEA inquiries: The subject was a suspect in a police investigation.
  • Losses: Amounts lost ranged from 25,000 pounds ($32,669) to 659,000 pounds ($861,148).
  • Mule accounts: The account used purely for gambling was funded by third parties.
  • Shared Internet Protocol (IP) address: An IP address was shared with others previously reported for suspicion of money laundering.

DAML SARs

Forty-three of the 157 SARs were DAML SARs, previously known as consent SARs. This is a process whereby a reporter who suspects that they are dealing with the proceeds of crime seeks authority from the UKFIU to complete a transaction. If provided, it would negate any potential future prosecution for committing a prohibited money laundering offense. In most cases, a DAML should only be refused when positive police action in relation to the suspected illicit funds is likely to follow or is already under way.

Thirty-two subjects were reported for failing to provide CDD and enhanced due diligence documentation

Accordingly, DAML requests should trigger more money laundering investigations. Consequently, LEAs expend significant resources in responding to these disclosures.

If a defense is granted, the UKFIU makes it clear to reporters that this does not imply UKFIU approval of the proposed act; that it should not be taken as a statement that the property in question does or does not represent criminal property; and that it does not absolve them of their professional duties of conduct or regulatory requirements.

The 43 DAMLs were disseminated to 17 LEAs, based on the subject’s postcode, to assess and make recommendations.

Eighteen went to the MPS; three to Essex and Cambridgeshire; two to West Yorkshire, West Mercia, West Midlands, Hampshire and Sussex; and one to Avon and Somerset, Cumbria, Devon and Cornwall, Durham, Dyfed-Powys, Hertfordshire, Norfolk, Nottinghamshire and Thames Valley.

The DAMLs identified 43 individuals (35 men, eight women), 20 of which (18 men, two women) had a criminal record. Twenty were subject of no other SAR, while 23 were subject to a further 115 SARs collectively.

Two of the DAMLs (made by the same operator) were incorrectly reported as the operator was not requesting a defense to carry out a prohibited money laundering offense. It is inconclusive whether this demonstrates an error in reporting or misunderstanding the DAML process.

Online gaming operators submitted DAMLs for the following reasons:

  • Concern that the subject named in the DAML was not in charge or in control of the account
  • Customer profile failed to align with recent account activity
  • Customer failed to engage in the source of funds/source of wealth process
  • Adverse media reports concerning winners and losers (Interestedly, one DAML was to pay back the stake only and did not include the winning amount!)

The total amount of suspected illicit funds frozen in the accounts pending a UKFIU decision was 636,000 pounds ($831,093). Initially, 2.5 million pounds ($3.3 million) were deposited into these accounts. These DAML amounts varied from 1.60 pence ($2.10) to 203,116 pounds ($265,422).

Ten DAML SARs were for 55 pounds ($72) or less and totaled 189 pounds ($247). Initially, 292,304 pounds ($381,968) were deposited into these online accounts. It is unlikely LEAs will deploy resources to recover such low sums as this would be both wasteful and disproportionate.

Three of the 43 DAML SARs had consent refused and just one generated the seizure of illicit funds (11,200 pounds [$14,636], under 2% of the reported amount).

Forty-three of the 157 SARs were DAML SARs, previously known as consent SARs

The evaluation indicated that non-DAML SARs might appear more worthy of LEA investigation. Most notably, SARs were filed suggesting that a subject might be misappropriating company funds to gamble. Those reported are usually working in positions of trust and sums deposited are considerable and not commensurate with their salaries. Therefore, LEAs are denied the opportunity to restrain, freeze and seize potential illicit assets.

This illustrates that the DAML process is not providing gold standard information of criminality and might be misunderstood by many online reporters.

Conclusion

The analysis clearly illustrates the depth of criminal use of the U.K.’s online gaming industry. It confirms that online gambling appears to offer a low-cost opportunity to launder criminal funds. It also questions previous reports suggesting that a significant proportion of the money laundering that occurs within the industry is by criminals spending the proceeds of crime for leisure rather than “washing” criminal funds.

The analysis suggests that U.K. online gambling operators have insufficient knowledge of their customers reducing their ability to conduct affordability assessments. This prohibits early intervention to identify problem gamblers, prevent them from being drawn into criminality to fund their gambling lifestyle, and allow them to gamble well in excess of what their profile would have suggested was affordable. Consequently, operators are less likely to prevent harm from gambling and deter, prevent and detect criminal activity.

This lack of customer knowledge suggests that that operators are failing to understand their risks and questions whether operators are doing enough to prevent money laundering and other financial crime. Thus, this information might require institutions to re-evaluate their AML/CTF programs, risk appetite and customer acceptance policy. 

Graham Edwards, CAMS, accredited financial investigator, Metropolitan Police Service, London, U.K., Graham.edwards3@met.police.uk

  1. Gross gambling yield is the amount retained by operators after the payment of winnings but before the deduction of the costs of the operation.
  2. Source of funds concerns the provenance of the funds of the customer and how the funds being deposited with the operator were generated. Source of wealth concerns the origins of the customer’s entire wealth.These terms are mentioned as preventive measures in the Financial Action Task Force’s Recommendations 10 and 12 as clarity concerning the legitimacy of a customer’s source of funds/source of wealth significantly reduces the risk of money laundering.

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