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Casinos Should Bet Big on Enhanced AML Surveillance

By Bryan

Contributing authors: Paul Havalchak,

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Anti-money laundering (AML) and financial crime as a whole, has been a growing concern within the gaming industry as casinos continue to navigate how best to control the flow of illicit funds through their gaming operations. Casinos are facing greater regulatory pressure to prevent money laundering and increasingly have been spending time and resources on enhancing their AML compliance programs in order to align with this heightened regulatory scrutiny.

Regulatory regimes around the world have been focusing more and more on casinos’ obligations to develop effective systems for preventing and detecting money laundering. Many countries and jurisdictions have seemingly ever-expanding laws in place requiring financial institutions and casinos to assist in the fight against money laundering and other financial crimes. Macau recently updated its AML laws to impose regulations for junket operators and included more comprehensive internal control requirements for both casinos and junket operators. These enhanced requirements for casinos include identifying “bad actors” and potentially suspicious transactions and reporting these to the proper authorities. Similarly, the EU’s Fourth AML Directive also expands requirements on both land-based and online casinos. Casinos are constantly challenged with balancing the need for operational transparency with law enforcement and the needs and discretion of their patrons. The increase in regulatory scrutiny is forcing casinos to rethink how they identify and monitor suspicious activity, and how to effectively enhance their AML compliance programs to mitigate these risks.

With greater scrutiny usually comes increased enforcement. The consequences for failing to implement robust AML, anti-bribery and corruption, and other financial crime-related controls can be quite staggering, and this trend is expected to continue. Recent enforcement actions have not only resulted in massive fines for gaming companies, but also consistently reveal the failures of casino operators to implement and maintain effective AML surveillance programs (i.e., identifying, investigating and reporting potentially suspicious levels of gaming activity). This regulatory pressure only amplifies the need for casinos to implement more holistic and automated AML transaction monitoring.

Responding to Increased Scrutiny
Continued regulatory actions and fines against casinos, card clubs and race/sports book operators alike, have driven the gaming industry to prioritize and invest in AML compliance by establishing risk-based compliance programs to prevent potential money laundering. Specifically, casinos have made efforts to improve the foundational elements of their AML compliance programs, including implementing comprehensive risk assessments, enhancing policies and procedures, investing in employee training and performing greater patron due diligence. The efforts to improve AML compliance in the gaming industry was also recognized by the Financial Action Task Force (FATF) during its 2016 mutual evaluation of the U.S.

FATF’s report acknowledged the significant investment casinos have made to prevent money laundering, including an increased focus on raising awareness and improving AML compliance.

While casinos have made great strides in enhancing their AML compliance programs, there is still room for improvement

While casinos have made great strides in enhancing their AML compliance programs, there is still room for improvement. As money laundering continues to become more complex, the tools used to mitigate these risks must also evolve. Casinos can further enhance their compliance efforts by mining their data more effectively and incorporating automated tools to better monitor gaming activity for unusual or potentially suspicious levels of play. The use of data is most effective when it can be compiled and viewed across the entire organization, facilitating a single view of each patron and their corresponding activity.

Benefits of Automation
By using an enterprise-wide technological solution, casinos are able to enhance their analysis of existing internal data, better monitor their patrons’ activities, and automate processes, such as required regulatory filings. Doing so will enable casinos to focus on identifying and monitoring true risks.

Like other financial institutions, casino operators are increasingly using technology to better analyze the large amounts of collected patron data and leveraging this information in order to meet their know your customer (KYC), currency transaction reporting and suspicious activity reporting obligations.

Specifically, technology can be used to:

Dynamically risk rate new and prospective patrons;
Synthesize the results of sanctions and watchlist screening and adverse media searches;
Drive a consistent application of KYC requirements by automatically prompting or triggering the appropriate level of patron due diligence measures to be conducted;
Monitor transactional activity against known red flags (e.g., minimal play, chip walking, bill stuffing) or against baseline of expected activity within a particular peer group of players;
Conduct and document investigations on alerted activity;
Efficiently produce and file currency transaction reports (CTRs) and suspicious activity reports (SARs);
Holistically view a patron’s profile, including their gambling activity and relevant “AML history” (e.g., prior CTRs, SARs, date of last KYC review), across properties; and
Proactively identify patterns of transactions, allowing for more robust due diligence reviews, better identification of discrepancies in patron activity, and more informed decision making.
Even more importantly, an enterprise-wide case management module can collect, aggregate and analyze patron data; thereby, allowing for consolidation of alerts and/or cases at the patron level, which leads to more comprehensive and productive investigations. In addition, a case management tool provides enhanced metrics and reporting capabilities to AML compliance departments, as well as a robust audit trail to evidence and support the conclusions reached on investigations.

Technology solutions can also provide a way for casinos to centrally manage their regulatory reporting. For instance, a technological solution can allow a casino to automatically generate requisite regulatory filings (e.g., SARs and CTRs) and management reports across the entire organization and facilitate the identification of joint filings, when appropriate. This enhances a casino’s ability to share information at the enterprise level, as well as with regulatory authorities.

Implementing an Enterprise-Wide Technology-Based Solution
Over the past year, casinos have begun to realize the potential and importance of technology and analytics in combating money laundering and financial crimes. Implementing these types of solutions can help casinos produce more efficient AML reporting and better analyze and manage money laundering risk. However, challenges also exist when trying to implement an enterprise-wide solution. Automating manual processes not only exposes antiquated processes and business functions, but requires business teams to be more flexible, adaptable to change and available to receive additional training.

Gaming entities are often made up of separate properties that are different legal entities, each with its own gaming license from its applicable state gaming control board. Due to this structure, each property often has its own compliance function that has separate and distinct requirements, making consolidation, standardization and centralization of requirements challenging.

Implementing new technological solutions into existing systems often requires dedicated time and resources to deploy the solutions across the organization. For example, data mapping requests associated with new software implementations often expose missing, inconsistent and/or poor quality data, which require additional support to remediate. However, the amount of time and resources dedicated to a successful implementation is actually an investment that leads to a reduction in total resources in the long run.

Although implementing an enterprise-wide solution has it challenges, casinos can widely benefit from these technological advances.

Technology can help casinos better understand and deal with the risks present throughout their organization

Technology can help casinos better understand and deal with the risks present throughout their organization, allowing them to better monitor transactions, conduct more thorough investigations and produce accurate and timely regulatory reporting.

As regulators have continued to stress the importance of maintaining an effective AML compliance program, automation can help casinos continue to improve their efforts in mitigating money laundering and other financial crime risks.