In-Depth Legal & Regulatory 25 March 2022
Question and Answer: How can operators respond to Russian sanctions?
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.
This could lead to them not only being in contravention of the law but possibly also of their gambling licence. 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 most significant requirements for the LCCP here?
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. A change of circumstance could be a new product or technology, or even a different payment method. Although the conflict in Ukraine was extreme, it is still a possible change of circumstance.
Is there a way to anticipate fast-moving events such as this current situation, in which people are constantly added to the sanctions list?
Every day, the government amends primary legislation to include new sanctions or anti-money laundering regulations relating to Russia. Recent additions of Russian exports, businesses and products to the list by the government are a recent example. Businesses may find it difficult to keep pace with the rapid changes. However, they are legally obliged to.
We recommend that operators do enhanced due diligence when interacting with potential customers and business partners. 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.
What are the probable consequences of such a move?
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. It would inspect the operating licence and conduct an investigation into the matter. This could include interviewing operators, reviewing policies and procedures, as well as reviewing 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 condition would affect the Commission’s enforcement level and action. When determining whether a penalty should be imposed, the Commission will take into consideration certain factors. These include the nature of the licensee as well as whether or not the licensee was aware. 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?
The gambling industry is expected to do a lot and is heavily regulated. It is therefore a huge task for operators keeping up 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. The current geopolitical context shows that preventing money laundering takes a constant effort and requires high levels of diligence.
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