Sanctions Compliance in the Gaming Industry

With global tensions heightened due to events like Russia’s war in Ukraine, sanctions compliance has become more critical than ever for the gaming industry. The U.S. Treasury Department currently manages 38 active sanctions programs, with more than 16 of them receiving new additions this year alone. Over 2,400 Russian individuals and entities, including high-net-worth individuals connected to the Russian state, have been added to the U.S. sanctions list. This global complexity places significant pressure on gaming compliance officers who must ensure their operations are not in breach of any sanctions or AML regulations.

For gaming operators, the consequences of violations are severe, ranging from financial penalties to criminal charges with potential prison sentences of up to 10 years. Therefore, it is imperative for compliance officers to remain vigilant, especially given the global nature of the gaming industry and its extensive use of international financial systems.

Casinos and other gaming establishments often deal with large amounts of cash, making them a potential target for money laundering. The movement of large sums of cash can be difficult to track, making it easier for individuals to conceal the source of their funds. They can provide a degree of anonymity and privacy for their customers, which makes it easier for individuals to launder money without being detected. These rules require gaming establishments to implement measures to identify and report suspicious activity, maintain records of customer transactions, and conduct due diligence on their customers. 

Let’s take a closer look at sanctions and financial crime compliance in the industry. 

Sanctions Screening 

Sanction screening is one aspect of internal control that is invaluable to maintaining good legal and ethical standing. By vetting parties involved in transactions for red flags and cross-referencing them with international sanctions lists, organisations can avoid inadvertently transacting with shady actors. Therefore, sanction screening is imperative to keep a company off the radar of regulatory entities and avoid reputational damage.

Sanctions have increasingly become the preferred tool for countries seeking to exert economic pressure on targeted actors without resorting to military action. This has led to a substantial increase in the number of sanctions over the past two decades. As financial hubs like New York and London play a central role in international transactions, gaming operators are at heightened risk of inadvertently facilitating business with sanctioned entities.

Compliance in the gaming sector must address this global reach, especially as casinos and gaming platforms handle large sums of money and often involve players from multiple countries. This not only increases the chance of sanction breaches but also invites scrutiny from regulators, who are focusing more on how gaming establishments manage financial crime risks.

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The Impact on Gaming Compliance Officers

Gaming compliance officers face unique challenges when implementing sanctions programs. Unlike anti-money laundering (AML) programs, sanctions compliance is not risk-based—gaming operators cannot conduct any business with sanctioned individuals or entities, regardless of perceived risk levels. This creates a zero-tolerance environment where mistakes can lead to significant penalties.

For compliance officers, initial screening and continuous monitoring of employees, players, and third parties become essential. The U.S. Treasury’s 50% rule complicates matters further by mandating that any entity owned 50% or more by sanctioned actors, whether directly or indirectly, is also considered sanctioned. This requires gaming operators to look beyond government-issued sanctions lists and dig deeper into ownership structures.

Components of a Comprehensive Sanctions Compliance Program

In 2019, the U.S. Treasury issued a framework for sanctions compliance, advising organisations to incorporate the following five elements into their programs:

1. Management Commitment
2. Risk Assessment
3. Internal Controls
4. Testing and Auditing
5. Training

For gaming operators, adhering to this framework means not only focusing on players but also conducting due diligence on vendors, partners, and any third parties involved in the business. The Treasury’s framework emphasises that even minor oversights can result in significant penalties, making it crucial for gaming operators to adopt a proactive approach.

For example, a casino located in a small U.S. town might consider itself low-risk for sanctions violations because its clientele is primarily local. However, the Treasury Department’s guidelines stress that even in such cases, compliance programs must be robust enough to mitigate the risk of any transaction involving a sanctioned actor.

Operationalising Sanctions Compliance in the Gaming Industry

To successfully manage sanctions compliance, gaming companies must integrate key operational components into their daily processes, including:

• Watchlist Screening at account opening
• Ongoing Monitoring of active players
• Enhanced Due Diligence (EDD) for high-risk individuals
• Staff Training to recognize suspicious activities

An often-overlooked aspect of sanctions compliance is the role of senior leadership in enforcing policies and procedures. Companies must ensure they are not only screening players and vendors but also regularly testing the effectiveness of their sanctions compliance programs.

Key Components of Effective AML Compliance Programs in the Gaming Industry

The key components of AML compliance programs include risk management, internal control, and due diligence procedures. Each of these elements plays a crucial role in identifying potential risks, implementing appropriate policies and procedures, and ensuring ongoing compliance. By enhancing these components, gaming companies can significantly mitigate the risk of non-compliance and contribute to a safer and more transparent gaming environment.

To ensure top-tier Anti-Money Laundering (AML) compliance within the gaming industry, risk assessment and management play an integral role. Here, we look at two significant steps:

• Identify the Risk Profile: Every organisation should have a clear grasp of its risk exposure. It's crucial to consider aspects such as the number of high-risk customers, geographical risks, as well as products and services that are more susceptible to money laundering.
• Implement a Mitigation Plan: Once the risk profile is clear, the next key step is to put in place a strategy to mitigate the identified risks. This may include improving internal controls, implementing a stringent sanction screening process, and using transaction monitoring systems.

The primary aim of risk assessment and management in AML compliance programs is to limit exposure to threats, thereby minimising the financial and reputational damage that can occur from sanction breaches. It also ensures that the gaming industry remains a safe, fair, and transparent field for all stakeholders.
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Final Thoughts on Navigating Sanctions Compliance in the Gaming Industry

Navigating sanctions compliance in the gaming industry is no easy feat. With geopolitical tensions rising and sanctions lists expanding, gaming operators must remain vigilant to avoid costly breaches. By implementing comprehensive compliance programs that go beyond simple sanctions list screening, companies can protect themselves from reputational and financial damage.

The consequences of non-compliance can be severe, impacting not only the financial health of gaming companies but also their reputation and standing in the gaming sector.

The future of sanctions compliance in the gaming industry will likely be shaped by emerging trends and technological advancements. These could potentially enhance the effectiveness of sanctions compliance programs and help gaming companies better manage and mitigate their sanction risks.

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