financial intelligence centre
REPUBLIC OF SOUTH AFRICA
Presentation to the Portfolio Committee on Trade
and Industry on Online Gambling
2 March 2012
Presentation by: Pieter Smit
DISCUSSION POINTS
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Indicate South Africa’s international obligations in respect of
online gambling from a money laundering / terror financing
perspective
Indicate vulnerabilities associated with online gambling from
money laundering / terror financing perspective
Indicate regulatory challenges in enforcing compliance in
respect of online activities
INTERNATIONAL OBLIGATION
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Money Laundering: Objective is to hide the fact that crime
has taken place - proceeds from crime are no longer
associated with that activity, illegitimately acquired proceeds
appear to be legitimate income
Terrorist Financing: Objective is to hide the fact that terrorist
activity will take place or is being facilitated
INTERNATIONAL OBLIGATION
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Financial Action Task Force (FATF) – South Africa is a member
of the intergovernmental standard setting body on combating
money laundering and terrorist financing (AML/CFT)
FATF Recommendations set out the essential measures that
countries should have in place to pursue money
laundering/terrorist financing
FATF Recommendations apply to financial and non-financial
institutions including casinos – casinos include online, land
and ship based casinos
INTERNATIONAL OBLIGATIONS
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Casinos should be subject to a comprehensive regulatory and
supervisory regime that ensures that casinos have effectively
implemented the necessary AML/CFT measures
There should be legal and regulatory measures to prevent
criminals or their associates from holding or being the
beneficial owner of or a significant or controlling interest in or
being an operator, of a casino
Casinos should be effectively supervised for compliance with
AML/CFT requirements
INTERNATIONAL OBLIGATIONS
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Regulators for casinos should have adequate powers to
perform their functions including adequate powers to monitor
and sanction – ensure that they have human, financial and
technological resources to carry out their regulatory functions
effectively
Online gambling carry specific risks as it is non-face-to-face
business – unable to verify customers physical appearance
against photographic identification documents - need to rely
on new technologies to verify identities of players
VULNERABILITIES
Transfer from one account to another
Person transfers
funds into
his on-line
gambling account
from a bank
account
Person conducts
minimal or
no gambling
Person instructs
on-line casino
to transfer
funds from
gambling account
to different
bank account
Funds have moved from one account
and possibly from one person
and/or one location to another with a
break in the transaction trail
in the on-line casino’s records
VULNERABILITIES
Opposing losing and winning bets
Two persons play
on-line poker in
a game where the
bets are not large
Funds have moved from one
person and/or location to
another with a break in
the transaction trail
in the casino’s records
They place large
enough bets
to scare off
the other players
One person then
deliberately loses
to the other
The “winner” has the funds
paid into the bank
account of his choice
VULNERABILITIES
Use by operator as a front
Person acquires
domain and sets
up “on-line
casino” for
registered punters
only
Funds have moved from one
person and/or location to
another with a break in
the transaction trail
in the casinos’ records
Person opens
bank account for
on-line casino
Criminal
associates register
as “gamblers”
“Gamblers” lose to the casino
and transfer funds from bank
accounts to casino account
VULNERABILITIES
On-line gambling
institutions providing
services illegally in US
US Banks
processed financial
transactions to
online gambling
institutions
Defrauded by setting
up front corporations
& websites to disguise
payments to online
gambling institutions
Online flower shop, pet supply store etc.
VULNERABILITIES
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Use of gaming facilities by on-line punters to transfer funds
from one person to another and/or from one location to
another
Use of on-line casino by operator as a front to receive funds
from and to persons and/or locations
VULNERABILITIES
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Increased money laundering risk because of possibility of
collusion for the movement of funds
Traceability of individual transactions and access to records
is difficult.
Alternative methods to establish and verify players’ identities
in instances of non-face-to-face interaction
Absence of human intervention means less or no possibility
to detect suspicious activity through interactive casino
facilities
REGULATORY CHALLENGES
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Proper implementation of customer identification and
verification measures and record keeping is essential as it
provides an audit trail for law enforcement and regulators in
the event that a financial investigation is necessary preservation of an audit trail of transactions for regulatory and
law enforcement authorities is often the biggest part that an
operator can play within an AML/CFT regime
Investigations and supervision are hampered if records of
financial transactions with South African link are located in
foreign jurisdictions
REGULATORY CHALLENGES (CONT)
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Supervisors must have powers and capability to access
punter and transaction information held by an operator
Criminal investigators must have powers and capability to
access punter and transaction information
Essential that all documentation and transaction records are
located
in
South
Africa/readily
accessible without
jurisdictional
issues
and
international
cooperation
arrangements etc.
REGULATORY CHALLENGES (CONT)
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Challenges in respect of monitoring gambling websites based
in foreign countries that will target South African customers
but will avoid any regulatory accountability – customers may
not even realise that a particular website is foreign and illegal
Regulators must have the recourses to not only supervise
licensed operators but also to identify unlicensed/illegal
operators and deny them access to South African market
REGULATORY CHALLENGES (CONT)
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Need to be measures in place to identify and curb South
African players from participating in online gambling activities
of operators outside of South Africa jurisdiction/ unlicensed
operators – role of Financial Surveillance?
Monitoring of financial transactions to identify illegal
operators or to interrupt financial flows to illegal operators is
necessary, but can be circumvented through fraudulent
activity of operators
CONCLUSION
Criteria for evaluating whether a form of gambling should be
included in the legislative framework or not
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Potential abuse of online gambling must be considered in
developing criteria for evaluating whether a new form of
gambling should be included in the legislative framework or
not
Measures that preclude criminal involvement in the gambling
industry generally and more specifically in the new forms of
gambling must always be part of the equation
CONCLUSION (CONT)
Criteria for evaluating whether a form of gambling should be
included in the legislative framework or not
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Propose that betting exchanges and online poker not be
allowed, but if so operators would have to be subject to all the
regulatory measures against money laundering and terrorist
financing as required by FIC Act
Regulatory action should be possible against Internet Service
Providers that host unlicensed/illegal casinos (consider
inclusion of ISPs in licensing framework)
DISUSSION
General Information: www.fic.gov.za
Telephone: 012 641 6000