In-Depth Legal & Regulatory 25 Mar 2022
Question and Answer: How can operators respond to Russian sanctions?
Gambling Insider
The UK placed sanctions against various Russian entities and figures after Russia invaded Ukraine late February. As the conflict continues, the UK is adding names to its sanctions list. Businesses that have any contact with the region are advised to keep an eye on the situation.
Shortly after the conflict began, the Gambling Commission issued a reminder that operators must, “apply a risk-based approach in any third-party or business relationships they conduct, or customer relationships which are associated with Russia and any of the sanctioned individuals, banks or entities named.”
David Inzani, Associate Solicitor at Poppleston Allen, explains what’s expected of operators in the current environment and provides some advice on staying on the right side of both government legislation and the regulator.
What are gambling operators’ main responsibilities in terms of complying with government sanctions and how do they differ from the obligations placed on companies in other industries?
Businesses must adhere to all government laws. The most important being the Sanctions and Anti-Money Laundering Act 2018. Gambling operators have to adhere to the Gambling Commission’s Licence Conditions and Codes of Practice.
Failure to comply with this requirement could result in them being in violation of not only the legislation, but potentially also their gambling license terms. If their license is suspended for a violation, they could face enforcement actions by the Gambling Commission.
Which are the most important requirements for the LCCP?
The LCCP has placed a condition on all gambling operators that they conduct a risk analysis of the possibility of their businesses being used to money laundering or terrorist financing. They also require them to ensure they have adequate policies, procedures, and controls to stop this from happening.
The risk assessment and policies, procedures and controls have to be reviewed on an ongoing basis – they must be reviewed at least once annually, but also in the event of any change in circumstance. In general, changes in circumstances could refer to new products, new technology or new payment methods. The war in Ukraine, however, is another example of a change in circumstances.
How do you expect to respond in fast-moving situations like the one we are currently facing, when people are regularly added to sanction lists?
This government constantly updates primary legislation to include new sanctions, anti-money laundering regulations and other relevant information. Recently, additional Russian products and businesses were added to the sanction list. While it can sometimes be hard for companies to keep pace with the rapid changes in the market, they are legally obliged to.
Operators should exercise enhanced diligence prior to interacting or attempting to deal with any potential business partners or customers if there are suspicions that they may be connected with sanctioned entities. Operators should also screen their existing business and customer relationships in order to stop transactions from being made or to freeze any assets that may be sourced from sanctioned sources.
What would you expect of an operator if they were in violation of sanctions?
The licensee would need to notify the Office of Financial Sanctions Implementation. They also have the obligation to inform the Gambling Commission of the key event. It is important that they do this as soon as possible and within five days of becoming aware.
How likely are these consequences?
A violation of licence conditions can be a crime. The Gambling Commission, however, has regulatory powers and not criminal ones when it investigates violations of conditions. The Gambling Commission would examine the operating license and investigate the failure. This usually involves interviewing the operators and reviewing all policies, procedures, and management controls. It would then have the power to take action – it could give the operator a warning, it could put conditions on the operating licence, issue unlimited fines or, in the worst cases, it could revoke an operator’s licence.
There is no one-size-fits-all solution to preventing money laundering and it isn’t something operators can automate; generic risk assessments and policies just aren’t going to cut itDavid Inzani
The degree of severity of any violation of conditions would affect the Commission’s enforcement level and the actions it takes. The Commission will consider factors like the licensee’s nature and whether they knew of or should have known about the violation when deciding whether to impose a penalty. If an operator’s risk assessment and policies and procedures for money laundering and terrorist financing are strong and regularly reviewed, this reduces the risk of a breach.
If a breach does occur, if an operator can demonstrate that it has been diligent and the possibility of a breach would not have been likely, then this can help mitigate the extent of any enforcement action by the Commission. It’s worth noting that we have seen the Commission impose some pretty significant fines on gambling operators for money laundering failings in recent years.
Yes. We continue to see large operators being fined in this area. Were operators still doing things wrong?
A lot can be expected from the gambling industry. Because it is so regulated, it’s a major task for operators to comply with AML regulations. Although it can be challenging, they still have to do it. There is no one-size-fits-all solution to preventing money laundering and it isn’t something operators can automate; generic risk assessments and policies just aren’t going to cut it. Preventing money laundering requires constant diligence, as the current geopolitical environment demonstrates.
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