Proliferation Financing – Update to the UKGC guidance

As we continue the countdown to our 6th Annual Conference we hand over to Neil Tyson from Rightway Compliance.
Neil is working on the agenda for Day 2; Keeping Crime out of Gambling and will be chairing the day. Read on to hear his thoughts on the recent UKGC updated guidance for casinos and the need for them to evidence a Proliferation Financing risk assessment.

Proliferation Financing.

I have been looking at the recent UKGC updated guidance for casinos regarding the need for them to evidence a Proliferation Financing (PF) risk assessment. For many including myself having read the updated guidance I am left wondering precisely what proliferation financing risks exist within the gambling sector and specifically casinos (remote or land-based)? Some specific examples of what was in the mind of UKGC when it issued the update would therefore perhaps have been helpful!

Instead the guidance points to the HM Treasury National Risk Assessment. My searches haven’t identified any update to this since September 2021 and the world is a much different place now than it was then, particularly with regard to the war in Ukraine, the global energy issues and the cost of living crisis in the UK to name but a few. That said a review of that risk assessment does not mention the gambling sector specifically and so there does not on the face of it appear to be any direct PF risks for the gambling sector. That therefore leaves indirect PF risks.

Key risk for the gambling sector.

Those indirect risks relate in the main to the use of opaque corporate structures and ‘bad actors’ to raise funds for regimes involved with the proliferation of chemical, biological, radiological and nuclear (CBRN) weapons. The key risk for the gambling sector therefore appears to be that ‘bad actors’ may seek to exploit the flow of financial transactions with the aim of enabling funds to be transferred or disguised across international boundaries. Those bad actors could be individual players, business partners or part of the supply chain.

To identify high risk individuals the UKGC guidance suggests operators should adopt a similar approach to money laundering, sanctions and terrorist financing risks. They encourage the use of the usual pillars of risk including: customer risk, product risk, channel risk, payment method and jurisdiction. Once again the guidance is light on specific aspects of who or what should be regarded as high risk in this respect and therefore operators will need to make their own judgement call and reflect this in their policies and procedures. As identified above given that the bad actors could also be lurking within business partnerships and supply chains the risk assessment and policies and procedures will need to also cover such third-party relationships.

It should be remembered also that although the methodology may be similar to other financial crime risks the actual assessment of risk will be different. The bad actors for example may not necessarily be criminals, Politically Exposed Persons or Sanctioned individuals or entities. Jurisdictions may have a different PF risk profile than for money laundering or bribery and corruption risks. Operators will therefore need to consider whether their existing due diligence processes are sufficient to identify relationships that may pose a high PF risk.

Given all of the above it is most likely that gambling operators will identify potential PF risks through existing AML due diligence, source of funds/wealth enquiries or more complex affordability assessments. It is also vital therefore that teams dealing with these aspects are trained so that they are aware of PF scenarios and red flags that they might observe through those existing enquiries. These red flags could include: concerns about complex/opaque company structures, unusual bank account transactions or links to high risk jurisdictions. The Treasury National PF Risk Assessment for example gives an example of potential involvement of UK based North Korean students in the transfer of funds using the buying and selling of luxury goods. These types of transactions may be evidenced in bank account statements being analysed for other purposes by operators.

Finally I would add that although the UKGC updated guidance relates specifically to casinos, the legislation prohibiting organisations from supporting PF either directly or indirectly is similar to Sanctions, Terrorist Financing and Proceeds of Crime in that it applies to all operators not just Casino operators. On this basis therefore even though a specific PF risk assessment is only currently mandated for those operators caught by the anti-money laundering regulations, PF is a risk that all operators would be advised to consider and address.

If you would like to gain a better general understanding of Proliferation Financing Risks you might like to check out a new online training module developed specifically for the Gambling Sector.

KnowNow 6th Annual Conference.

We will also be discussing these issues at various points during Day 2 of the SOCIAL RESPONSIBILITY FOR GAMBLING OPERATORS AND KEEPING CRIME OUT OF GAMBLING 2023 conference in London on 13/14 September 2023.