U.K. VIP business struggles on stringent AML

The UK’s gambling regulator has turned up the heat on casinos where money laundering is concerned, requiring rigorous background checks on wealthy international clients, including those from Mainland China, which is having an a detrimental effect on VIP business.

Mainland Chinese high rollers’ insatiable appetite for action means these gamblers continue to be coveted by casinos the world over. This includes London, where the capital’s most select casinos compete to attract their business. Yet casinos across the UK are treading much more carefully these days when it comes to high-stakes players after a number of heavy fines and settlements with the UK regulator, the Gambling Commission (GC), over shortcomings in anti-money laundering procedures. A noticeably higher degree of scrutiny over AML, and regulations being more strictly enforced, means casinos that cater to international VIPs, including those from Asia and Mainland China, can’t afford to pay lip service to AML and KYC checks.

In November last year, GC Chair Sarah Harrison told industry to pick up its game.

“Our recent casework showed a lack of curiosity, and at worst, a leadership culture which puts commercial gain over compliance,” she said, referring to source of funds. “I still hear now that some businesses are adopting a strategy of ‘wait and see’ - wait until the source of funds is proven to be illegal before acting. This is far from a risk-based strategy, nor is it credible.”

For instance, if a customer exchanges GBP1,500 ($1,944), or the equivalent in foreign currency for chips, over a 24-hour period then the casino is obliged to carry out Customer Due Diligence (CCD) and ask for government-issued ID and personal details. At a certain point, and different casinos have different thresholds – usually either transactions of GBP5,000 or GBP10,000 – management needs to establish the source of those funds. This so-called Enhanced Due Diligence requires more than just a cursory verbal inquiry and an explanation taken at face value; answers need corroborating. For instance, a patron who owns a string of expensive properties could wish to gamble with GBP50,000 but if these homes don’t generate any income then where did this stake money originate? Furthermore, casinos have to investigate whether a high-stakes player is a Politically Exposed Person (PEP).

“Anyone playing with large stakes is arguably a risk,” says UK-based gambling industry consultant Steve Donoughue. “With Western players, there are databases and internet searches that can be done so a profile is built up [but] there is far less available data about the Chinese. Plus, would you know a Chinese bank statement if you saw one and would you know if it was fake?” Some casinos have had to hire additional staff and deploy the services of a third-party to screen players. Casinos are also expected to undertake risk assessments and ensure they have proper procedures and policies to prevent money laundering though their properties. It’s no cakewalk, especially when trying to establish the origin of funds for those well-heeled foreign players with complicated, opaque financial affairs.

Indeed, the CEO of an exclusive London casino, who wishes to remain anonymous and who says the GBP1,500 threshold is “very, very low” for his establishment, says customer and AML checks continue to be particularly costly and onerous. “We have had to spend a lot more money on this because it is quite hard to do and it takes a lot longer to verify a customer,” he explains. “This is not because there is anything wrong with the customer but because we must be absolutely satisfied to within an inch of our lives, so to speak, that there is no suggestion the funds are the proceeds of crime or related to terrorism.”

Yet in certain cultures it is considered a taboo or invasive to discuss or enquire about an individual’s wealth and source of income. “You still have to ask, however culturally taboo,” Donoughue acknowledges. Understandably, some players take umbrage with casino bosses prying into their private lives. “It’s like the old saying: you don’t talk about sex and politics,” our anonymous source explains. “But you have to sit down with someone who is often a billionaire or a very rich individual and say, ‘OK, how do you get your money? Where is this from’? These questions can feel quite intrusive and are not dissimilar, as a Middle Eastern customer said to me, to opening a bank account.” He adds: “The mainland Chinese players are a category of player that are more difficult for us to verify because they don’t have the equivalent of Companies House [UK body that oversees company compliance].”

Meanwhile, Donoughue says: “There may be issues about just simply being able to read a Chinese passport and whether it has address details and how to verify them.” The upshot of all this scrutiny and probing into customers’ financial affairs is that wealthy overseas players are increasingly turning their backs on London and gambling in other parts of the world where KYC and AML checks are less stringent – or non-existent. The casino boss says: “We are already losing players, and other high-end casinos are having to turn away customers, including established players who have been playing for 20 years without ever having any problems with AML. Because we can’t get an independent view on someone, they just say they are going to go somewhere else like Cyprus.”

Rank Group, the UK’s largest casino operator with 56 venues, recently highlighted CCD as having a knock-on effect on its business – and the sector as a whole. CEO Henry Birch said in January that the industry had been “impacted by a more stringent application of customer due diligence to address money laundering, proceeds of crime and problem gambling, which in part has led to lower visits.” In 2015, Rank Group itself was required to divest GBP950,000 in profits in a voluntary settlement for two incidents involving money laundering. One of which included failing to identify and verify a high-stakes gambler and the source of his funds. The player lost a hefty six-figure sum over three years yet the casino accepted the explanation that he owned a chain of Chinese restaurants. He was jailed for four years for money laundering offences.

With the plunge in the value of sterling since the Brexit vote last summer, increasing numbers of foreign visitors have been flocking to the UK on trips. For example, the number of flight bookings from China to the UK was up 81 percent in January 2017 compared with 12 months previously. However, the Chinese authorities do not take too kindly to gambling companies marketing to Mainland citizens as was demonstrated when 18 employees of Crown Resorts were arrested in China during a police sting for the alleged illegal marketing of gambling junkets. Besides the Crown arrests, the fear of landing in hot water with the GC for not properly vetting VIP players from Mainland China and whether their funds are legitimate means some UK casinos may deem courting this type of clientele more hassle than it’s worth.

“If you’re a London casino,” Donoughue says, “you know that the UK Gambling Commission is after scalps for breaches of AML, and you know that the Chinese will put you in prison for marketing to Chinese customers in China, you might decide it’s just too much trouble, and go for the Russians and Arabs instead.” But regardless of the nationality, those UK casinos whose international VIP business is their bread and butter face ongoing headaches where AML and KYC are concerned. Our source, who argues that casinos are still “very low risk” when it comes to money laundering compared with banks and currency changers, says: “It’s not the cost to the business [AML and KYC], but the fact that the fun has come out of the [UK] casino leisure industry.”