Canada’s AML experts push for major overhaul of outdated system
Over the last four months, Nevada regulators have stepped up enforcement actions against major casinos across the Las Vegas Strip. MGM Resorts, Wynn and Resorts World Las Vegas swallowed steep fines for lax anti-money laundering controls.
The deficiencies stem from a comprehensive sports betting scandal. Several illegal bookmakers admitted to using casinos as an avenue for laundering millions of dollars in ill-gotten funds.
North of the border in Canada, which adopted single-event sports betting in 2021, leading provinces such as Ontario have done an admirable job in convincing grey market operators to transition to the regulated market. However, the issue in many respects remains a major concern.
In response, the gaming industry is pushing for an overhaul of the nation’s AML standards, many of which it describes as outdated, as technological advances available to nefarious actors progress more rapidly than monitoring capabilities.
At last week’s Canadian Gaming Summit in Toronto, the issue represented one of the most popular subjects of the two-day event. The summit hosted multiple panels in Toronto on methods that need to be employed to modernise the nation’s AML framework. Improvements have been made in strengthening AML controls throughout the nation’s land-based casinos, but panellists emphasised more work needs to be done on the online gaming side.
“We need to understand that in a modern, digital economy, we need to develop policies and regulations that are appropriate to fit the risk profile,” Canadian Gaming Association President Paul Burns told iGB last week on the sidelines of the conference.
Forthcoming FATF review
The summit took place several months before Canada will host the Financial Action Task Force in November for an in-depth review. Headquartered in Paris, the FATF is one of the world’s foremost global money laundering and terrorist financing watchdogs.
The initiative is the first collaboration between the FATF and Canada in nearly a decade, since a 2016 mutual evaluation report issued by the task force.
In the 216-page report, the FATF noted that businesses that handle large volumes of cash are “highly vulnerable” to money laundering and terrorist financing operations as the activities are attractive to those who launder drug proceeds.
The FATF identified brick-and-mortar casinos as among the businesses which exhibited vulnerabilities to laundering activity. Indeed, the 2022 Cullen Commission report highlighted significant evidence of money laundering in British Columbia, with money flowing from China through underground banks and into real estate via casinos.
Two key recommendations, namely establishing a special AML investigation unit and creating an independent commissioner, have not yet been adopted, the Vancouver Sun noted in May.
Although the FATF gave the retail casino industry high marks for understanding the risks involved, the watchdog identified online casino operations as an area with an emerging risk profile.
A panel on 19 June featured Kevin de Bruyckere, an official who serves as director of AML and investigations for the British Columbia Lottery Corporation. During his onstage remarks, the director cited a January study from FINTRAC, the nation’s financial intelligence unit on AML matters.
Are fentanyl traffickers using iGaming to launder money?
De Bruyckere called attention to findings which indicate that online gaming platforms and payment providers are possibly being used in laundering proceeds from fentanyl trafficking and production. In addition, the director has urged the Canadian government to provide federal financing in preparation for the FATF review.
FINTRAC referenced a litany of suspicious transaction reports which showed that known fentanyl traffickers “frequently” sent funds from money transfer sites to online gambling operators. In turn, the individuals received payouts from associated payment processors in Canada, Malta and the UK, according to the report.
Moreover, FINTRAC suspects the individuals withdrew winnings from the online gambling sites after using the platforms to disguise funds from opioid trafficking. In some cases, various transactions appear as an e-transfer from a processor, instead of an online gaming transaction. The scheme enables traffickers to bypass certain reporting obligations had they transacted with a financial institution.
De Bruyckere has largely been pleased with information-sharing initiatives in British Columbia which enable law enforcement to receive alerts in real time. Nationwide, however, there are signs that Canada lags behind other G20 countries with info-sharing cooperatives on money laundering.
Among the deficiencies identified by the FATF nine years ago, the task force detected weaknesses in Canada’s info-sharing apparatus for policing money laundering.
Since then, the weaknesses have also been spotted in a 2018 Parliamentary review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and a subsequent analysis of the nation’s AML framework two years later.
The ‘biggest’ haystack possible
As the opioid crisis continues to proliferate, Canada has proposed sweeping changes to its AML regime. Under Bill C-2, penalties for non-compliance could be increased considerably on individuals to a cap of $4 million.
For corporations, the penalties would also rise significantly to a ceiling of $20 million. While the Canadian parliament tabled the bill earlier this month, aspects of the proposed legislation could be implemented before year’s end.
FINTRAC is still reeling from a pernicious cyber breach last March that took its systems offline for nearly a year. Over that period, there are indications that Ontario gaming operators had to submit approximately 70,000 AML reports on a manual basis. For its part, FINTRAC claimed it maintained the integrity and security of its systems during the monthslong breach.
Nevertheless, the cyber hack raises critical questions of whether the nation’s AML apparatus needs to be modernised. Burns, the president of the CGA, notes that Canadian operators report on overall transactions, while counterparts in the US and the UK report narrowly on suspicious activities.
By one measure, the Canadian Bankers Association determined that nationwide entities submit roughly 96 times more reports associated with money laundering in comparison with banks in the UK. As Burns puts it, Canada builds the “biggest haystack possible” in addressing the issues.
Canada’s AML laws: Stuck in the past?
There are other areas for potential improvement. Derek Ramm, global head of advisory services at Kinectify, wrote a lengthy article ahead of the summit articulating why he believes that some of Canada’s AML laws are stuck in the past. At present, Canadian law contains a narrow definition of casinos, he explains.
As a result, he told iGB that some wagers on a sports betting kiosk may not trigger an AML requirement. In many cases, the same bet placed online must be reported to conform with AML obligations.
“These gaps create confusion, compliance challenges and, worst of all, vulnerabilities that could be exploited by bad actors,” Ramm wrote in the piece.
Ramm appeared on a panel on 18 June that discussed the necessity of overhauling the operational effectiveness of Canada’s AML regime.
Ahead of the FATF review, none of the panelists have a crystal ball. Still, many of them are losing patience. Consider the description of Ramm’s panel in the summit agenda:
“The industry requires improvements in information sharing and performance metrics that prioritise outcomes rather than outputs in combating money laundering, as the current system is inadequate. Or to put it plainly: what we have now isn’t working.”