Casinos & AML/CFT
Casino : Meaning
- a building or large room used for meetings, entertainment, dancing, etc., especially such a place equipped with gambling devices, gambling tables, etc.
- (in Italy) a small country house or lodge.
- Also cassino. Cards. a game in which cards that are face up on the table are taken with eligible cards in the hand.
FATF on Casinos
The vulnerability of casinos for money laundering (ML) and terrorist financing (TF) was recognised in the revision of the FATF 40 Recommendations, with obligations on casinos being significantly enhanced.
This
APG/FATF report March 2009 considered casinos with a physical presence and
discusses related money laundering (ML) and terrorist financing (TF) methods,
vulnerabilities, indicators to aid detection and deterrence, international
information exchange. Online gaming and illegal gambling are beyond the scope
of this study.
According
to this report, overall, there is significant global casino activity that is
cash intensive, competitive in its growth and vulnerable to criminal
exploitation. Casino-based tourism or “junkets” are identified as a
vulnerability as they involve the cross border movement of people and funds and
often target high net-worth / VIP clients. Transparency of the movement of
funds is an issue with junkets, due to gaps in controls, and weak
implementation and supervision. The emerging issue of high-seas cruise ship
casinos and associated junkets is a challenge for regulators and law
enforcement. The question of who has jurisdiction is prominent, including where
the vessel is registered, where it operates from and where it visits. The paper
notes that few jurisdictions regulate this sector. With respect to VIP rooms
and „high roller‟ customers, vulnerabilities are noted with identifying source
of funds and movement of funds. In many casino markets high-roller clients make
up a large majority of casino turnover, yet only a very small percentage of
casino patrons. Other vulnerabilities discussed include corrupt or inadequately
trained staff, new markets opening and terrorist financing.
In October 2008, the FATF adopted Guidance on the Risk-Based
Approach (RBA) to combating Money Laundering and Terrorist Financing for
casinos. This Guidance was developed by the FATF in close consultation with representatives
from the casinos sector. This guidance supports development of a common
understanding of what the RBA involves, outlines high-levels principles
involved in applying the RBA, and indicates good practice for governments and
legal professionals in the design and implementation of an effective RBA.
This
guidance is presented in a way that is focused and relevant for casinos. The
roles and therefore risks of the different DNFBP sectors are usually separate.
However, in some business areas, there are inter-relationships between
different DNFBP sectors, and between the DNFBPs and financial institutions. For
example, some land-based casinos provide services similar to those provided by
financial institutions, and Internet casinos tend to only make/receive payments
using accounts held by financial institutions.
DNFBPs
provide a range of services and activities that vastly differ, e.g. in
their methods of delivery, and in the depth and duration of the relationships
formed with customers, and the size of the operation. This Guidance is written
at a high level to cater for the differing practices of casinos in different
countries, and the different levels and forms of supervision that may apply.
Each country and its national authorities should aim to establish a partnership
with its casinos and other DNFBP sectors that will be mutually beneficial to
combating money laundering and terrorist financing.
The
primary target audience of this guidance is the casinos themselves, when they
conduct activities that fall within the ambit of the FATF
Recommendations. All FATF references to "casinos" include
Internet casinos.
From the above discussions, it is clear that the FATF and its supporting institutions were working hand in hand to resolve ML/Ft risks posed by both online and offline casinos.
Gambling
& Indian Laws
Most of the States have passed enactments prohibiting gambling and betting (other than exceptions like horse racing, some card games etc.) but two States i.e. Goa and Sikkim have legalized many forms of gambling and betting. Goa and Sikkim permit the setting up of casinos. However, there is no act which prohibits the gambling in Air or water or even online. This creates a big opportunity for the launderers to indulge into financial crimes such as money laundering.
Money-laundering from the perspective of the casinos is to
buy chips from the casino with the cash and receive remittance in the bank.
Casinos remit the money when you return the chips. Sometimes you also get the
cheque for returning the chips. These cheques can be used for any purchase of
goods after they have been deposited in the bank.
Though partially banned in India, there are many other
countries which permit gambling as official activity. Goa, is the only state in
India which has more than 15 casinos and are housed on ships in Mandovi river.
The fact that gambling provides significant income to governments and
employment to community groups is one of the main reasons for the spread of
legal gambling.
There are various types of gambling
crimes such as theft, illegal tampering of slot machines, and cheating at
gaming tables. However, one of the most common casino crimes is replacing
casino chips with coating or loading.
On the other hand, Casinos perform
many financial transactions such as opening credit, safe leasing service, fund
transfer, or checks’ endorsement. Money launderers place huge amounts of cash
in the casino and can withdraw or transfer the money with casino checks
whenever they want, without generating any reports.
Online casinos is a important aspect
of the spectrum of casinos. In the case of Beijing T Power, Chinese nationals
operating in India took advantage of the loopholes in online casinos
regulations.
They floated multiple gambling
websites. Most of them hosted through content delivery network (CDN) Cloudflare
in the United States. These supposedly ‘e-commerce’ websites attracted gullible
people to become members and place bets in online games of chance. Agents were
attracting new customers and members to develop a well-knit network. These
agents created closed Telegram and WhatsApp based groups and attracted
countless Indian customers. New members joined these groups using the Referral
codes only. This also earned the sponsoring member a commission. Again, Paytm
and Cashfree were providing services of collecting money and paying commission
to all agent members.
The government has decided to bring casinos, credit cards and money changers under the ambit of the money laundering law by June 2008.
Casinos
& AML/CFT in India
The Prevention of Money Laundering Act (PMLA) of 2002 applies to casinos and other entities that offer games of chance for cash or its equivalent
Section 12 of the Act
requires "reporting entities", as defined in Section 2(1)(wa) to
include "a person carrying on activities for playing games of chance for
cash or kind, and includes such activities associated with casino" to maintain
records of transactions and documents showing the identity of their clients in
accordance with the 2005 Rules. These rules prescribe the nature as well as
value of the transactions for which such records are to be maintained.
After the Prevention of
Money Laundering (Amendment) Act, 2013 Section 2(1)(sa) reads that "a
person carrying on designated business or profession" shall include
"a person carrying on activities for playing games of chance for cash or
kind, and includes such activities associated with casino". Thus, offering
games of chance or activities associated with casino, after the amendment of
2013 constitute a "designated business or profession" under the Act.
The Ministry of
Finance in its recent notification dated March 7th 2023 decided
to classify the entities that engage in activities related to the aspect of
Virtual Digital Assets (VDA(s). A new definition pertaining to “Reporting
Entities has been introduced under the Prevention of Money Laundering Act, 2002
and the rules of the same have updated accordingly. Reporting Entities include
any persons that carry out any designated or stipulated profession or business
that comes under the arena of Virtual Digital Assests.
VDAs can be
defined as a token or code that is generated through the means of cryptography.
These VDAs are not considered to be currency. VDAs further offer many more
benefits such as digital representation of value exchanged and can also serve
as stores of value or any unit of account that can be transferred and these
include NFTs, (Non-Fungible Tokens), several
digital assets or also involved.
The main and purpose of bringing out this notification is to expand the already existing regime to online money gaming platforms. In some Online Money Gaming Platforms, there exists an option of trading, accumulating the value that has been won through the game, the same must be kept at check.
Red Flags
- Frequent deposits of cash, cheques, wire transfers into casino account.
- Withdrawing the money immediately after deposit.
- Account activity with little or no gambling activity.
- Casino account transactions conducted by persons other than account holder.
- Large amounts of cash deposited from unexplained sources.
Happy Reading,
Those who read this, also read:
1. Virtual Digital Assets & Service Providers
2. Financial Intelligence Unit(FIU-Ind)
3. Reports to submitted to FIU-Ind by REs
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