In-Depth Legal & Regulatory 25 March 2022
Question and Answer: How can operators respond to Russian sanctions?
Following Russia’s invasion of Ukraine in February, sanctions were imposed by the UK on certain Russian individuals and entities. 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?
Every business must comply with all applicable legislation. In this instance, it is the Sanctions and Anti-Money Laundering Act 2018 that applies. 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. The Gambling Commission could take enforcement action and they may lose their ability to continue trading if the licence is up for review.
What are the main requirements for the LCCP here?
The LCCP requires gambling operators to perform a risk assessment to determine if their business is being used for terrorist financing or money laundering.
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. A change in circumstances could refer to the introduction of a new product, technology change, or new payment methods. Although the conflict in Ukraine was extreme, it is still a possible change of circumstance.
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. It is sometimes difficult for businesses not to keep pace with the rapid changes. However, 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.
How would an operator respond if they violated any sanctions?
It would be reported to OFSI and the Gambling Commission. This should be completed as quickly as possible but at most within 5 working days after the licensee becomes aware.
How likely are these consequences?
It is illegal to operate in violation of the license conditions. However, the Gambling Commission usually exercises regulatory power rather than criminal authority when investigating a breach. 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 the breach would affect the Commission’s enforcement actions. The Commission will consider factors like the nature and degree of knowledge of licensees. 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. In this particular area, large fines continue to be handed out to operators. Why is it that some operators continue to make mistakes here?
A lot can be expected from the gambling industry. Because it is heavily regulated, it’s a major task for operators to comply with AML regulations. It is not easy, but they must 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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