June 2017’s introduction of EU Directive 2015/849, better known as the 4th Anti-Money Laundering Directive (AML4D), brought about a sea of change in the way iGaming companies treat risk – and it’s vital that compliance professionals bring themselves up to speed.
While all of the items on the AML4D list are important, here’s a list of the 4 biggest risk factors that compliance teams have to watch out for and deal with:
1. PEPs as owners, beneficial owners, or people of significant control
One of AML4D’s risk guidelines warns that when compliance professionals are contemplating getting involved with a company, they should be on the lookout for any possible associations that the proposed client or business partner might have with politically exposed persons (PEPs). Finding out if the company itself, its owners, directors, or persons of significant control (PSCs) are PEPs is crucial.
There are a number of third-party databases that allows subscribers to access updated data on PEPs. This helps identify any possible connections to companies owned by, or which have ties to, individuals who could be compromised by their positions of, or proximity, to power.
2. Cash-rich industries
Under the AML4D guidelines, companies should avoid becoming involved with businesses that “have links to sectors that involve significant amounts of cash,” and/or their beneficial owners.
To understand why, it is important to understand that cash is hard to trace and is therefore favored by money launderers. Cash transactions are one of the simplest methods to launder dirty money or transform ill-gotten gains into money that appears above-board or “clean”. It is for this reason that criminals tend to work with or through firms that have a high turnover in hard currency and/or their beneficial owners.
3. Business interests or dealings in certain high-risk sectors
The AML4D guidelines stratify corruption risk levels according to certain economic sectors. Insofar as the assessment and avoidance of risk is concerned, under the AML4D guidelines not all industries are equal.
Of particularly high risk is business involvement with companies or beneficial owners who have links to sectors that are associated with higher corruption risk such as construction, pharmaceuticals and healthcare, arms trade and defense, extractive industries, and public procurement.” Extra caution is advised when dealing with these industries.
iGaming companies are advised to ensure that they have solid due diligence procedures in place to ensure they are well aware of the sectors in which any potential partners or customers operate.
4. Adverse media reports from credible news outlets
The AML4D guidelines suggest keeping an eye out for negative stories about potential business partners or customers in the press, in particular news items which include allegations of criminality or terrorism, whether proven or not. Likewise, if any company, or its beneficial owner, or anyone significantly associated with the company is reported to have been subject to an asset freeze due to criminal proceedings or allegations of terrorism or terrorist financing, this should set alarm bells ringing for compliance professionals.
However, while such stories can be a clear warning that a potential customer or business partner might be a compliance risk, the EU guidelines also recommend that you “determine the credibility of allegations on the basis of the quality and independence of the source data and the persistence of reporting of these allegations…”. Fake news is a very real problem today and news sources should be evaluated before given credence to. Keeping up-to-date with reputable news media reports can provide you with the timely, high-quality information that you need in order to make the most well-informed and risk-averse decisions possible.
AML compliance is vitally important
The importance of compliance professionals being up-to-speed on the new AML4D regulations cannot be understated. There is no room for error. Failure to adequately comply with AML regulations could result in regulatory penalties, bad press, and a massive loss of consumer trust. No iGaming company can expect to withstand the fallout of failing to comply with AML4D.