What can we learn about improving AML from the Gala Coral settlement?

The Gambling Commission is calling on gambling operators to learn lessons from its investigations into failings at the Gala Coral Group Ltd. The Gambling Commission began an investigation following information received from the police regarding the conviction for theft of a customer of Gala Coral Group who had been sentenced to several years’ imprisonment after pleading guilty to stealing £800,000 from a vulnerable adult. The police had examined the customer’s bank accounts and concluded that the thefts had been used to fund the customer’s gambling.

Gambling businesses must undertake it activities in compliance with the Gambling Act 2005 and in accordance with the licensing objectives:

  • To keep crime out of gambling.
  • To ensure that gambling is conducted fairly and openly.
  • To protect children and other vulnerable people from being harmed or exploited through gambling.

The Gambling Commission investigated Gala Coral and identified that the potential money laundering and problem gambling activity in relation to a customer had been missed by the company and were indicative of wider systemic faults in the company’s approach to anti-money laundering  (AML) and social responsibility (SR). The Commission recognises the risk that gambling can lead to individuals turning to crime in order to fund an addiction. The extent to which the regulator will require gaming companies to put  SR procedures in place to prevent individuals gambling with money they do not have, and so turning to crime, will no doubt be examined in the future.

The company accepted that the processes and procedures used to manage the risk of money laundering and problem gambling at that time were not adequate and did not sufficiently satisfy the duty to comply with the licensing objectives to keep crime out of gambling and to protect vulnerable people from being harmed or exploited by gambling. Gambling operators should have a risk sensitive approach to the money laundering threat posed by a customer.

Specifically the Gambling Commission noted these failings:

  • Failure to appropriately assess customer risk.
  • Failure to obtain adequate information with regard to customers’ source of funds or source of wealth.
  • Failure to utilise open source internet resources effectively.
  • Failure to effectively use account information to identify potential problem gamblers.

The company had overly relied upon the fact that the relevant payments were all made through one UK clearing bank account and did not seek further corroborative evidence.

The company avoided the more serious consequence of a licence review by acknowledging  serious shortcomings at an early stage of the enquiry and proposing a voluntary settlement.

The full settlement was agreed in accordance with the Statement of Principles for Licensing and Regulation. The company agreed to:

  • Pay the customer’s gross gambling yield in the sum of £846,664 to the victim.
  • An agreement to the publication of a public statement outlining failings by Gala Coral Group for industry and wider learning.
  • Revise the company AML and SR policies.
  • Provide enhanced online and eLearning training for retail and online staff.
  • Introduce a periodic audit of Gala Coral Group’s AML and proceeds of crime polices.
  • Pay £30,000 towards the Gambling Commission’s investigation costs.

The purpose of the public statement is to prompt gambling operators to take note of the identified issues and consider them in light on their own operating procedures and processes. This is a more successful way to encourage compliance than deterrence. It is the perception of risk of identification and the damage to corporate reputation that are effective drivers.

The gambling industry should be on notice that the issues identified in the statement issued by the Commission are likely to form the basis for future compliance activity. All businesses reviewing their customer due diligence could benefit from the questions raised by the commission as they apply more broadly. Perhaps moving away from a “tick box” approach to regulation to a risk sensitive approach will ensure that the onus is on the business to achieve regulatory targets rather than administrative ones. The commission asked:

  • Are you effectively using customer profile and account activity information to identify customers displaying indicators of money laundering ?
  • Is this monitoring ongoing and across all platforms?
  • When you identify customers of concern do you have effective policies and procedures to ensure these concerns are acted upon?
  • Do you act with sufficient speed when collating information which might result in a SAR?
  •  Do you record the collection of information which could potentially result in a SAR?
  •  Do you record the decision-making process when collating information which may result in a SAR? See Note for the Board on when to make a disclosure on money laundering.
  • Can you provide evidence of this?

For more, see Practice note, Reporting suspicious activities: overview.

In October 2015, HM Treasury and the Home Office published the UK national risk assessment of money laundering and terrorist financing. The report stated that money laundering is also a key enabler of serious and organised crime, the social and economic costs of which are estimated to be £24 billion a year.

One of the problems with the statistics on SARs is that basing any analysis on the total number made, consent or otherwise, is that they do not reflect the number of reports that should have been made, or the number deemed not to be suspicious after referral to a nominated officer. See Legal update, National Crime Agency SARs Annual Report 2015.

Practical Law Morag Rea

Leave a Reply

Your email address will not be published. Required fields are marked *