Curiosity might save the cat

One of the management buzz-phrases that seems to be staying the course is “tone from the top”.  In the world of AML, the tone from the top has in fact originated at the bottom: first we had MLROs beating the AML drum, then boards became involved when legislation was upgraded to require business risk assessments, and now supervisors are taking their own medicine (as evidenced by the spread of risk-based supervision) and even governments are getting in on the act (with Recommendation 1 of the FATF’s Forty stating that “countries should identify, assess, and understand the money laundering and terrorist financing risks for the country [and then use that assessment to] apply a risk-based approach”).  The tone from the top for one part of the UK’s regulated sector in particular – the gambling industry – has recently become decidedly frostier.

Businesses licensed by the UK’s Gambling Commission are required to abide by its licence conditions and codes of practice (LCCP).  Enhancements to the LCCP came into force in October 2016, including a requirement that licensees report to the GC “any criminal investigation by a law enforcement agency in any jurisdiction in relation to which the licensee is involved… and the circumstances are such that the Commission might reasonably be expected to question whether the licensee’s measures to keep crime out of gambling had failed”.  In other words, if a customer is hauled off to court, the GC wants to hear about it from their licensee and not (or at least not first) from the police.  In the past, there have been several instances of criminals of all stripes – but mainly thieves and fraudsters – laundering their loot through casinos.  And in a speech to an industry conference in November 2016, GC Chief Exec Sarah Harrison made it clear that this sort of infringement would no longer be dealt with in a gentle manner, with negotiated settlements and the like: “It is important that you are and remain alive to managing the risks of money laundering and terrorist financing, consistent with the licence objective to keep crime out of gambling.  Here, I want to encourage you specifically to raise your game and be far more curious about the source of customer funds.  Our recent casework showed a lack of curiosity, and at worst, a leadership culture which puts commercial gain over compliance.  I still hear now that some businesses are adopting a strategy of ‘wait and see’ – wait until the source of funds is proven to be illegal before acting.  This is far from a risk-based strategy, nor is it credible.”  She had a stern warning about the future of the GC’s enforcement strategy: “[We have so far shown] a preference for pursuing compliance through means that stop short of a licence review, in favour of a regulatory settlement.  We propose to remove this bias in favour of settlement… In addition, we will propose changes to our statement on financial penalties with the likelihood of higher penalties going forward, in particular where we see systemic and repeated failings.”

If I were a gambling woman, I’d bet that the next UK gambling business to play fast and loose with criminal proceeds will feel that tone from the top in the form of a tone of bricks.

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