In-Depth Legal & Regulatory 25 Mar 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?
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 must also comply with 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 has placed a condition on all gambling operators that they conduct a risk analysis of the possibility that their businesses could be used to launder money or terrorist finance and ensure they have adequate policies, procedures, and controls to stop this.
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?
The government continues to amend primary legislation, adding new sanctions and anti money laundering regulations to Russia. This applies to all businesses and even gambling operators. Recently, additional Russian products and businesses were added to the sanction list. 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.
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?
A violation by an operator of licence conditions is considered a crime. The Gambling Commission, however, has regulatory powers and not criminal ones when it investigates violations of conditions. 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 review of 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 severity of any condition would determine the level of enforcement or actions that the Commission takes. 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. Do you believe some operators still do things wrong in this area?
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. The current geopolitical context shows that preventing money laundering takes a constant effort and requires high levels of diligence.
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The UK placed sanctions against various Russian entities and figures after Russia invaded Ukraine late February. However, as war continues to escalate, there are more names being added.