January 29, 2014 -
The European Parliament will vote on proposed amendments to the fourth Anti-Money Laundering (AML) Directive over the next two months. The main topic of debate has been on whether beneficial ownership information for companies, trusts etc., will be collected in public registers that requires transparency across all EU Member States.
The issue being that anonymous shell companies and trusts play a central role in laundering money, concealing the identity of corrupt individuals and irresponsible businesses involved in activities including the trafficking of arms, drugs and people, the theft of public funds, and tax evasion.
This deprives all governments of resources that could otherwise be invested in improving public services and stimulating inclusive economic growth. However both the LIBE (Civil Liberties, Justice and Home Affairs) and ECON (Economic Monetary Affairs) committees are due to vote on February 13 and a plenary vote is tentatively scheduled for March 11, according to Transparency International.
Creating public registers of beneficial ownership (for companies, trusts and other legal structures) is not a “silver bullet” for tackling money laundering, and should not serve as an excuse for ineffective enforcement of know-your-customer (KYC) policies by the EU banks and other related due diligence measures.
As a result, for the greater transparency of beneficial ownership, governments and financial authorities will require banks and all other legal entities to go further and improve their KYC procedures. In particular, efforts are needed at EU level to improve information sharing between the EU Member States regarding politically exposed persons (PEPs), which are at high risk for money laundering and other illicit activities.
If the amendments are ratified or a compromise is reached, this will mean that the 4th AML Directive would likely come into force within the next 12-18 months. Some industry experts believe it could be much sooner and it is widely anticipated that the UK will be the first to implement it.
What this will likely mean for the online gambling industry is that far stricter KYC and AML procedures will have to be implemented by licensed operators and overseen by the regulators, including those that are licensed in remote gambling jurisdictions. The implications are far-reaching, as a tightening up of the rules and more stringent methods will need to be in place, particularly in regard to high-value transactions and withdrawals.
Therefore both gambling and sports betting operators need to be acutely aware that the 4th AML Directive’s new measures are on the horizon.
The way in which illicit money is laundered by organised criminals is by distributing their illegal proceeds into the legitimate economy. This leads to an estimated yearly volume of around US$1.6bn being laundered. Gambling per se is already prone to money laundering due to three main reasons; (1) gambling involves a huge volume of transactions and cash flows which are necessary to disguise money laundering; (2) gambling does not involve a physical product making it much more complicated to track the flow of money and proof real vs. virtual turnover; (3) gambling winnings are tax free in many jurisdictions.
The huge potential for money laundering in online gambling lies in the combination of these reasons, with complexity of virtual cash flows and multiple involved jurisdictions which are often regulatory havens, which do not share information with financial intelligence or other jurisdictions.
It is estimated that there are just over 3,000 websites offering gambling products. Hence why online gambling can be used to launder money easily. Small and medium sums of criminal proceedings can be laundered using current unregulated gambling operators to transfer the funds into the legal system.
To launder large sums an online casino in a regulatory haven can be founded and fake revenues created which can be paid out to the owners as legal business profits. All forms involve very low costs and a detection of virtually zero. Online gambling is thus a game changer to money laundering. It increases the profitability and thus the prevalence of crime, according to the United Nations Office on Drugs and Crime.
At the forthcoming International Casino Exhibition (ICE) conference at London’s Excel Centre – Barbara Friedrich of the German Ministry of Finance for AML/CFT prevention and payment systems, will chair a debate with leading industry experts talking about all the implications of the 4th AML Directive on Wednesday 5 February at 9:55am.
The proposed 4th AML Directive will require all online gambling operators to know much more about their customers. Gambling operators will be required to document their risk assessment approach and findings even more diligently, and an independent audit of the same will be required in many cases.
In one example, there will be obligations for all gambling operators to carry out client due diligence (CDD) for single transactions of €2000 or more – applying to wagers, winnings and withdrawals. This figure may change in the amendment proposals. Operators will be able to rely on third party partners to carry out CDDs but the regulatory obligations remain with the operators.
The rules set out that verification of a customer should take place before (or in some cases during, based on risk) carrying out the transaction, or should be terminated and may need to be reported to the national financial intelligence unit (FIU) why a full CDD has not been provided. This will apply to all new and existing customers, consultancy KPMG reports.
Therefore the deployment of more stringent KYC and CDD practices of their customer base is going to be necessary for operators to meet the conditions contained within the 4th AML Directive.
However the good news is that there is modern technology which is available today in the shape of using human biometrics.
Adding extra high-end KYC methods, such as the individual human characteristics of biometrics from customers, will allow all operators to adhere to the rules.
Biometric technology has really come of age in the past year as we are seeing more banks, retailers, telecoms and other ecommerce entities introduce it into their current KYC procedures. Capturing these unique characteristics can prove beyond all doubt who an individual is. Whether it is fingerprint, face or voice, or a combination of two or three will significantly reduce the risk. So how do you prove who a person really is by who they say they are?
Facebanx provides biometric verification solutions that can capture both a unique face and voice of a person in real time, using any online or mobile platform. For example, during an account creation or transaction process, our technology is able to capture, match and verify a user’s face and voice (including processing ID documents) by simply using the customer’s device such as a PC, tablet or smartphone fitted with a camera.
The process takes just a few seconds. By capturing the face and voice of a person will prove the identity with 99.8% accuracy of who they are and by checking against a database would also highlight any inconsistencies that don’t match ID documents or the same face belonging to another person. This process can also take place in a live video chat environment.
Organisations will have to take heed of what comes out of Brussels over the coming months since all ecommerce businesses will be required to carry out more vigorous due diligence of their customers.
Using biometrics such as face and voice recognition of individuals to authenticate high volume transactions and verify customers will help to minimise money laundering within the gambling sector.
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