EU ups money laundering risk from online gambling to highest level

The threat level of money laundering in online gambling has officially been raised to its highest level by the European Commission. The EC has also called for a lower threshold for due diligence checks in order to prevent these types of criminal activity.

The decision comes from the European Commission’s third supra-national risk assessment conducted in 2022, which found that online gambling, including online sportsbetting, is specifically vulnerable to crimes like terrorist financing and money laundering.

The main reason why online gambling is found to be especially vulnerable to crimes like money laundering is because of its links with the use of digital currencies and online transactions. In response to this finding, some EU online gambling operators have started implementing measures to guard against money laundering.

In 2019, land-based casinos were rated as highly-vulnerable; however, the rating has since dropped to medium, and lotteries, bingo, and other gaming not classified under casino gambling have a low risk.

The most significant risk of money laundering identified at online gambling operators is staff members connected to criminal activity and money-laundering operations. Some weak points in the current legal framework may also cause increasing criminal activities, and law enforcement is working to identify these weaknesses.

The FATF is now taking decisive action on gambling hubs in Europe, and Malta is one of the jurisdictions that now fall under its grey list with this increased monitoring, while Gibraltar was removed from the grey list earlier in 2022.

Self-regulation and industry clarity

The Commission also said that, in many markets, online gambling operators have self-regulated with a fair amount of success; however, there is an apparent lack of clarity in the industry from authorities.

“In many member states online gambling operators have developed a good level of self-regulation and risk assessment, although their cooperation with competent authorities and financial intelligence units could be improved,” according to the EU. “Operators believe that they do not get clear guidance on how to properly address the risks considering, in particular, the lack of feedback from financial intelligence units on suspicious transaction reports.”

New measures come from several recommendations made by the European Commission for EU states. The most notable recommendations include the following:

• Promoting a lower winnings threshold due to customer diligence (the current threshold is €2,000).
• Regular training sessions for compliance officers and staff at online gambling companies.
• Implementing a rule that customers can only have one account at one online gambling brand.

Money laundering and land-based casinos

As land-based casinos moved out of the grey list in 2019, the Commission noted a significant improvement in this area. To reduce the risk of money laundering linked to current land-based and online casino staff, the European Commission recommends fit-and-proper person tests for staff and recruitment.

The European Commission added that “casinos are considered to be exposed to infiltration risks, although for casinos owned by the state or public companies, this level of risk is lower. Hence, the risk of being exploited for money laundering appears high, and the threat posed by money laundering to casinos is considered moderately significant.

“Despite an overall good picture, law enforcement agencies are still identifying some weaknesses, which suggests that the current legal framework is not correctly applied. The number of money laundering cases investigated by law enforcement agencies seems to show that there is still room for improvement.”

The Commission added that including these operators on the EU-wide AML/CFT framework indicated a “mitigating effect” on the risk of money laundering at these operators.

“The inclusion of casinos in the list of obliged entities in the Fourth Anti-Money Laundering Directive, as well as in earlier EU AML legislation, has undoubtedly played a role in the quality of the checks in place,” the Commission said. “It appears that, overall, casinos manage to address the need to put in place several layers of checks, knowing that most of the time several gaming activities may be played in a casino.”

The risk of money laundering in retail betting and poker and retail betting was considered “high,” while for lotteries and gaming machines outside of gambling operators, it was “medium.” For bingo, the risk was classed as “low.” These ratings have not changed since 2019.

With these recommendations, the European Commission hopes to reduce criminal activities at existing and new online sportsbooks and other online gambling sites. These criminal activities include money laundering and terrorist financing.