Money Laundering by Gambling: Regulatory Gap or Green Light?

News of Barangaroo Crown Casino’s alleged non-compliance with AML/CTF laws late last year raises the perennial question of how to best regulate the gambling industry. 

This article examines the attempts – both past and present – to amend the AML/CTF Act and Rules in relation to the provision of gambling services against the inherent challenge posed by the industry.

Gambling and its regulatory blind spots

Australia’s financial crime law and policy, in many areas, is nauseatingly comprehensive. For example, suppose a criminal were to traffic an emu as part of a money laundering scheme.  Such an improbable (it is suggested) method would not only be caught by legislation, it is also the subject of specific AUSTRAC policy (AUSTRAC, Financial crime guide – Stopping the illegal trafficking of Australian wildlife (2020))

Other more probable (it is suggested) laundering methods lack this level of regulatory coverage. Gambling is one such area.  If a criminal were to use poker machines at their local pub, club or casino to launder money, then those criminals may enjoy a curious lacuna in the application of the law.

How easy is it?

There is no doubt poker machines and other forms of gambling provide a relatively easy vehicle by which to launder money.   Indeed, the Australian Parliament is aware of such.  In the Explanatory Memorandum to the Anti-Money Laundering Amendment (Gaming Machine Venues) Bill 2012, it was noted that poker machines provide at least two money laundering options. 

First, criminals can simply load up thousands of dollars into a machine, play a few games (usually losing a few dollars) and then cash out their credits. Secondly, “launderers can buy cheques or dockets for winnings from other players, and then cash those cheques or dockets themselves. The other side of this practice is that it circumvents the protections put in place in relation to problem gambling; namely, the requirement that winnings over a certain amount be paid in cheque, which help to prevent problem gamblers from ‘chasing their losses’ and provides a cooling-off period while the cheque is cashed.”

In casinos, we trust (to manage risk)

Of course, the provision of gambling services are designated services for the purposes of the AML/CTF Act. Reporting entities who provides gambling designated services are required to manage the risk of money laundering and terrorism financing via their Part A AML/CTF programs

Part A includes processes and procedures to help the reporting entity mitigate and manage money laundering and terrorism financing risks.

There is an inherent conflict of interest, however, in self AML-regulation of gambling. As Former AUSTRAC senior executive Gavin Durbin told ABC ‘s The World Today, casinos are not only an inherently high-risk business for money laundering but:

“I personally worry about their lack of due diligence…There’s always been a problem around their high rollers and almost a willful blindness…They don’t want to ask because the goose that lays the golden egg, you don’t want to kill it.”

The more of a ‘high roller’ a gambler is, the more of a golden goose they are but in turn they are also a higher money laundering risk. Mr Durbin’s opinion is consistent with evidence adduced at the Independent Liquor and Gaming Authority’s 2020 inquiry.  AUSTRAC has since announced that it is investigating Crown Sydney and its associates for potential AML/CTF breaches. This investigation is ongoing.

Rollercoaster of regulatory developments

Following the introduction of the AML/CTF Act and its application to the gambling sector, attempts have and are being made to improve the regulation of gambling entities. To date however these legislative responses have been without success. 

The Anti-Money Laundering Amendment (Gaming Machine Venues) Bill 2012 is one example. It was to provide that poker machine payouts of more than $1000 and the cashing of transferred cheques are threshold transactions which are reportable.  It was also to require gaming machine venues to issue cheques for payouts of winnings or gaming machine credits over $1000 with an indication that they have been issued for that purpose.  The Bill is not proceeding.

The $1,000 transaction limit may have been set too low resulting in AUSTRAC being inundated with too much transaction data, which doesn’t help anyone. The concept of mandatory (often automatic) threshold reporting itself however is sound and would prevent reporting omissions resulting from “willful blindness”.

Late last year, the Anti-Money Laundering and Counter-Terrorism Financing Amendment (Making Gambling Businesses Accountable) Bill 2020 (Cth) was introduced. This proposal will put a positive obligation on gambling companies to report to AUSTRAC if they have reason to suspect a person is paying for a gambling service with money they have obtained illegally. 

“Where a bettor has paid for a gambling service using funds they obtained illegally, the bill also enables the Federal Court to order the gambling company to compensate the injured party for damage or loss suffered. This is supposed to prevent gambling companies from profiting off the misfortune of others.”

– Dr Mathew Leighton-Daly, Legal Book Author, Thomson Reuters

The concept of a ‘suspicion’ has historically been used by (theoretically) objective investigators to crystalise their investigative powers (e.g. search and arrest).  Where an employee of a gambling entity is balancing their other employment duties, with their AML regulatory duties, it is suggested that it may be difficult in all but the most obvious cases to discharge their AML duty effectively. 

The proposed amendment to the AML/CTF Act then does not deal with the inherent conflict of interest that arises in the gambling sector and in particular the so called “willful blindness” by gambling entity staff.  It is suggested that appropriately set threshold reporting in combination with existing – compliant – Part A obligations would be a more effective way to reduce the scope for using gambling services to launder money.

Dr Mathew Leighton-Daly is the commissioned author of our Financial Crime Control and Anti-Money Laundering on-line publication. Dr Leighton-Daly is an internationally recognised specialist in financial crime control.

The new work incorporates completely revised annotations to the principle Act, together with the Rules and regulatory material previously appearing in the earlier work. This material is complimented with the addition of commentary and legislative excerpts addressing criminal money laundering and civil proceeds of crime legislation.

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