Nervous banks eye casino AML practices

Asia’s casinos may face growing pressure from their banks as efforts to combat global money laundering increase, adding another level of scrutiny, compliance experts say.

Operators in the major gaming jurisdictions in the region are already facing increased regulation, with Macau introducing new rules in 2016 and the Philippines taking steps to bring the gaming industry under AML legislation for the first time. Though now, they may see the threat of funding being withdrawn if they are not able to satisfy the needs of financial institutions, which have been under pressure from their own regulators for several years.

“I also heard that banks in Asia are starting to ask casinos for their AML compliance procedures,” Paul Havalchak, director, Financial Crimes Unit, PricewaterhouseCoopers said in an address at the International Association of Gaming Advisors’ panel at G2E Asia. “They are starting to put more pressure on casinos.”

Havalchak said over the past 12-to-18 months in the U.S. he had seen an increase in banking scrutiny and in drastic cases funding had been withdrawn if they were not happy with the casino’s procedures.

“I know of two cases of where a large U.S. bank has cut ties with casinos under construction because they did not feel comfortable with their AML policies,” he said. “This adds a new level of scrutiny casinos have to deal with.”

In Macau, he said he had also heard of a major global bank that had asked for compliance procedures from one of the casinos, without naming the parties involved.

The Financial Action Task Force (FATF) has been tasked with setting standards on effective measures to combat money laundering, terrorist financing and other financial crimes. It is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. It has issued a series of recommendations, which were last updated in 2012. However, Barron Stringfellow, owner of Stringfellow Consulting Services, said about six months ago, FATF moved laterally to come under the umbrella of the United Nations giving it more international authority.

“We didn’t take them seriously because they were just making recommendations, but they are no longer just recommendations,” he said. “This is not about the US or Macau, because FATF moved under the UN, we are all looking at some very serious issues down the pipeline, very shortly here.”

He said the kneejerk reaction in the U.S. had been for banks to begin questioning casinos about their AML procedures and specifically about “know-your-customer” and risk assessment. He said at least four of his clients received notice of potential closure from a bank, which had not been comfortable with the casinos’ KYC principles.

“The bank was literally going to call in all loans and cancel accounts,” he said.

Manhim Yu, partner, fraud investigation & dispute services, Ernst & Young said that a trend towards increased enforcement of FATF guidelines has also been seen across Asia.

“This is what we have seen very recently in the region, not only for Macau, but Hong Kong, Singapore as well as China. We were not too concerned about FATF because they are just issuing guidelines, but those guidelines are actually being enforced if not put into law by regulators.”

He pointed to the changes in know your customer requirements in banking as an example of how AML regulations are evolving. He said it used to require a 30-page form for a private client to open a bank account. Now that form can run to more than 100 pages.

Mary Wong, consulting director, Forensic Services PricewaterhouseCoopers said banks were coming under pressure from their own regulators to take action.

“From a bank’s perspective, I’m required to have a risk assessment of my client and casinos are always the highest risk. As a bank I need to prove to my regulator I have taken more stringent measures towards high risk customers. The whole risk assessment and KYC and enhanced due diligence on high risk customers has increased.

“Macau is not an exception, it’s a global trend,” she said.

Macau in 2016 brought in rules requiring operators to verify and sign any large or suspicious reports submitted by junkets. And both casinos and junkets can no longer do business with anyone using an alias. Operators also need to know the identities of ultimate beneficiaries for transactions over 500,000 patacas ($62,000).

After a scandal in 2016 in which $81 million was stolen from Bangladesh’s Central Bank and laundered through casinos in Manila, the Philippines is debating bills to bring the industry under its AML laws. However, Havalchak said there was still confusion with different versions of the bill giving different reporting thresholds. One set at $10,000 and the other $100,000.

“The good news is they are moving forward, however, there is a big query over thresholds.”

Experts at the conference agreed that casinos are going to need to invest in training of staff at all levels and in the right technology to monitor transactions. Wong says although operators may baulk at the short-term cost of the additional compliance, it may save them money in the longer term.