Casinos聽are coming under renewed scrutiny by global regulators seeking to crack down on money聽laundering聽and misconduct within the gaming industry worldwide
Money聽laundering聽and misconduct at聽casinos聽has renewed the global scrutiny of anti-money聽laundering聽and counter-terrorism financing (AML/CTF) compliance in the gaming industry.聽Recent regulatory reforms are targeting conduct and compliance culture at government agencies and the private sector alike.
Meanwhile, enforcement activities are also taking a more aggressive turn, with regulators in one jurisdiction going so far as to classify聽casino聽money-laundering聽misconduct as a threat to financial stability and security.
Canada: Public inquiry elicits calls for reform
Findings from a regulatory inquiry into聽money聽laundering聽in the Canadian province of British Columbia (BC) are increasing scrutiny on the gaming industry across that country and beyond. Earlier this month, the Cullen Commission, a public inquiry led by BC Supreme Court judge Austin Cullen, submitted a report to the federal government that looks at whether acts or omissions by regulators and individuals contributed to聽money聽laundering聽in the province. The report covered 133 hearings, including testimony from gaming officials, police officers, and financial crime experts, which were held as a part of the inquiry.
The commission found serious culture failings in the聽gambling聽industry. Findings from the inquiry support the possibility that compensation incentives at the British Columbia Lottery Corp., a government agency responsible for oversight of聽gambling聽in the province, pressured gaming officials to prioritize聽gambling聽revenue over compliance with provincial federal anti-money聽laundering聽laws.
The Commission noted that “staggering amounts” of illicit funds are being聽laundered聽provincially. Although the inquiry did not quantify the exact figures, the report provided evidence to support the assumption that the amounts run into the billions of Canadian dollars per year, in British Columbia alone, and are increasing over time.
The 1,800-page report was recently made public and has elicited calls for stronger enforcement and regulatory reform of anti-money聽laundering聽requirements applicable to the Canadian gaming industry. Appointing a dedicated anti-money聽laundering聽commissioner and lowering the threshold for requiring proof of funds for聽casino聽transactions conducted in cash are among some of the recommendations that have been made by the Cullen Commission to address聽money聽laundering聽risks in the gaming industry.
Australia: Reforms & tighter supervision underway
Misconduct and聽money-laundering聽scandals at two major聽casino聽operators, Star Entertainment Group and Crown Resorts, have spurred wholesale regulatory reform of聽gambling聽regulations in Australia. A series of inquiries into Australian gaming operators found serious compliance failings at聽casinos聽that were operated by the two groups as well as shortcomings at state-level聽casino聽regulators that allowed聽money聽laundering聽to continue unabated for years.
An inquiry in the Australian state of New South Whales found that The Star and its management facilitated more than AU$900 million in聽money聽laundering聽for junket operators. Regulators in Victoria, another state, found that Crown had processed AU$164 million in China UnionPay card payments in violation of anti-money聽laundering聽laws which prohibit聽gambling聽funds to be withdrawn using credit or debit cards. Crown鈥檚聽casino聽license was recently reinstated with conditions after being suspended in 2020 for anti-money聽laundering聽compliance failures.
Regulatory reforms currently underway include proposals to expand cooperation and enforcement between the Australian Transactions and Reports Analysis Centre (AUSTRAC) and state-level regulators. Further, AUSTRAC has filed a lawsuit against Crown Resorts, citing 鈥渟erious and systemic noncompliance鈥� with Australian anti-money聽laundering聽laws that has left the country鈥檚 financial system 鈥渧ulnerable to criminal exploitation.鈥�
The states of Victoria and Queensland have introduced legislation to provide increased oversight and enforcement powers to their respective state聽casino聽regulators. Queensland聽casino聽operators will be subjected to stricter compliance requirements and tougher penalties for regulatory violations; meanwhile,聽casino聽operators in Victoria will have to comply with expanded regulatory reporting requirements. Overall, the reforms suggest that the gaming industry in Australia will be subject to a much higher degree of oversight and accountability going forward.
Macau: Risks on the rise for operators
Macau recently greenlighted a new聽gambling聽bill that gives its chief executive the authority to revoke gaming concessions granted to聽casinos聽on national security grounds or for failure to pay taxes on time. Operators could be forced to give up concessions such as gaming tables or asked to pay additional taxes if they fail to generate sufficient revenue to meet new minimum gaming tax requirements, a development that could have unintended consequences for conduct risk.
Higher tax requirements have prompted concern in the industry which continues to suffer financial losses from limited visitors to the city. Macau鈥檚 borders have been mostly closed since the onset of the pandemic in 2020; and, as of June 20, the聽gambling聽hub shut most schools and businesses following the discovery of dozens of locally transmitted cases of coronavirus. Although聽casinos聽have been permitted to remain open, residents have been asked to stay home, and analysts estimate that revenue for聽casinos聽in the coming weeks will be close to zero.
Pressure to generate revenue amid challenging operational conditions could raise conduct and regulatory risk for聽casino聽operators in the聽gambling聽hub. While Macau has not scrutinized聽money-laundering聽risks in the gaming industry with as much rigor as聽casino聽regulators in other jurisdictions, law enforcement has acted in cases where cross-border activity and enforcement in other jurisdictions are involved.
Long flagged as high risk for聽money聽laundering聽and organized crime, these operators bring in high rollers to play at聽casinos, extend credit, and collect debts.
In 2021, local law enforcement arrested 21 individuals, including the chief executive officer of Macau聽casino聽junket Suncity, Alvin Chau, for organized crime and聽money聽laundering. Suncity was also implicated in a separate investigation by Australian regulators into claims that Star Entertainment Group allowed聽money聽laundering聽to take place inside secret rooms operated by the junket inside Star casinos.
Takeaways
Casino聽operators in global聽gambling聽hubs are facing heightened scrutiny amid a broader crackdown on organized crime and聽money聽laundering. Conduct and compliance culture have emerged as two main areas where regulatory reforms are taking aim. As seen in recent enforcement actions in Canada and Australia, culture and conduct at regulatory agencies is as much of an issue as it is in the private sector.
Financial institutions dealing with聽casino聽operators and the gaming industry should take note of the current environment of heightened scrutiny and apply enhanced due diligence measures where necessary.
