David Clifton – Licensing Expert -The Gambling Commission’s consultation on crime associated with gambling


David Clifton

Last year, when conducting its detailed review of the social responsibility elements of the Licence Conditions & Code of Practice (LCCP).

The Gambling Commission announced that it would be consulting separately on crime provisions in the LCCP that would build on its experience gained through its growing body of casework on money laundering and criminal spend.

That consultation has now been launched and runs until 30 December 2015. It focuses on improving practices to best support the first of the three licensing objectives set out in the Gambling Act 2005: “to keep gambling free from crime and from being associated with crime”.  

In its consultation document, the Commission is:

  • proposing changes to the LCCP during 2016 to improve its regulatory tools to support good practices by licensees and tackle poor practice more effectively,
  • seeking views and opinion on some emerging areas in order to inform its thinking, commenting that it may need to consult again on certain topics before finalizing its approach, and
  • using the opportunity to consult on an update to its guidance for remote and non-remote casinos The Prevention of Money Laundering and Combating the Financing of Terrorism (third edition).

The following aspects of the consultation are worthy of particular comment.

1  Provision of information to the Commission about gambling-related crime

The consultation document cites a recent case where a customer of a major gambling operator was prosecuted for offences under the Proceeds of Crime Act 2002, maintaining that the Commission only became aware of the case due to a referral from the police. This led the Commission to make its own enquiries of the operator, which led to an investigation that “revealed serious shortcomings in the operator’s money laundering controls”.

Although it does not doubt that the operator concerned offered valuable assistance to the police, the Commission believes that having clearer reporting requirements relating to information about crime would enable it to deliver its duties in this area more effectively and consistently. It therefore asks for views on the introduction of an additional key event obliging licensed operators to provide information to the Commission about investigation of crimes committed against them, crimes committed by their staff or crimes committed using its gambling facilities (for example spending or laundering the proceeds of crime).

2  Anti-money laundering

Consistent with the above, the Commission refers to cases of crime involving gambling often highlighting shortcomings in licensees’ AML procedures (as evidenced for example by public statements over the last couple of years in relation to bet365, Aspers, Coral Racing and, most recently, the Rank Group).

As a matter of principle, the Commission suggests that in order to manage regulatory risks, including money-laundering risks, licensees should have in place policies and procedures, and measure the effectiveness of these, just as they would for commercial risks. It proposes to introduce new licence conditions requiring licensees to:

  • conduct and regularly review assessments of money laundering risks and to devise action plans to manage the identified risks,
  • take measures to identify and monitor customers who present a higher risk of money laundering and
  • report on the number of cases where they discontinue a customer relationship, having decided that there is a risk that the customer will commit money laundering offences.

It also proposes to:

  • introduce a new ordinary code provision that will provide that operators monitor customers and their accounts across all outlets, platforms (both remote and non-remote) and gambling products and
  • update licence condition 5.1.1 in a manner designed to better enable the Commission to prove a breach of licence condition in circumstances where a licensee has failed to implement and monitor effectively its policies and procedures for handling cash and cash equivalents.

The Commission also:

  • proposes a formal licence condition for remote casino licensees with remote gambling equipment located outside Great Britain to put in place the AML measures required by the Money Laundering Regulations 2007 (although such a requirement has been attached as an individual condition to the operating licences of all such licensees since the new remote gambling licensing regime came into force),
  • asks for opinions on a new licence condition that would link the payout of winnings with the means by which a customer pays for gambling transactions and
  • seeks views on whether to upgrade to the status of licence conditions what are currently ordinary code provisions that licensees should act in accordance with its AML guidance for remote and non-remote casinos and take account of the Commission’s advice on the Proceeds of Crime Act 2002.

3  Responsible placing of digital adverts

Citing the increased threat from the piracy of copyrighted works online, the Commission makes it clear that it is expecting licensees to take more responsibility for ensuring that adverts placed by themselves or others do not appear on illegal websites. It suggests that this could be achieved by licensees using commercial content verification software and requiring their affiliates or other commercial contractors to do the same. It asks for views on the introduction of a new social responsibility code provision requiring licensees to take all reasonable measures to ensure that their digital adverts do not appear on copyright infringing websites.

4  Misuse of insider information by industry personnel

Coinciding with the fast developing concerns rocking the U.S. daily fantasy sports industry arising from an employee of DraftKings, allegedly armed with insider information (although this has been denied by DraftKings), playing and winning DFS contests on the rival site FanDuel, the Gambling Commission raises its own concern that a conflict of interest may arise if an employee of a British licensed operator sees an emerging suspicious trend in betting markets and uses this insider information to place bets in his or her own interests.

The Commission accordingly seeks views on the introduction of new ordinary code provisions advising betting operators that they should:

  • put in place new employment terms and conditions to require employees to report indicators of suspicious betting and impose restrictions prohibiting them from using such information for the purpose of placing their own wagers, either with their employer or with other operators and
  • include a clause to state that breaches of sports or other rules will also constitute a breach of the operator’s customer betting terms and conditions.

5  Digital currencies (ie virtual currencies or cryptocurrencies, eg Bitcoin)

My own company has received a growing number of requests for advice concerning use of Bitcoin as a means of payment in the last two years. It is not surprising then that the Commission has itself commented on the strong interest in using digital currencies within the gambling industry, confirming its view that this would constitute “real money” gambling.

This is consistent with letters that the Commission wrote in June to Bitcoin gambling operators targeting British customers, offering prizes of money or money’s worth, informing them that they needed to be licensed.

Although an existing licence condition requires licensees to inform the Commission of any use of digital currencies, after listing the challenges around the use of digital currencies, it comments in the consultation document that, since achieving adequate AML processes and procedures with digital currencies is likely to be more challenging than with a conventional currency, “it begs the question why a licensee would wish to allow their use”.

The Commission also appears to be suggesting that an operator would need to satisfy itself that the Bitcoins it receives from the Bitcoin exchange that operates as its payment intermediary/services provider have themselves come from a legitimate source rather than, for example, being proceeds of crime. Although previous transactions will have been recorded so that the historical flow of Bitcoins could theoretically at least be followed, the use of pseudonyms and other tools to conceal a holder’s identity could present insuperable operational difficulties for operators. This may be why the Commission expresses concern about how well licensees will be able to implement effective AML controls to manage risks associated with digital currencies. Nevertheless it seeks views on the benefits and challenges in relation to the use of such currencies within the British gambling industry.

The Commission would prefer those wishing to respond to the consultation to do so by completing a response template provided on its website and sending it to [email protected]


Article by David Clifton – Director of Clifton Davies Consultancy


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