Whilst everyone was still recovering from the implementation of the 4th Anti-Money Laundering Directive (4AMLD) into UK law (in the pithily named Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017) (the “4AMLD Regulations”), the 5th Anti-Money Laundering Directive (5AMLD) (the “Directive”) was adopted by the European Parliament on 19 June 2018.
EU members have until 20 January 2020 to transpose the Directive into national law. Of course, the UK intends to have left the EU before that time runs out, but the Government has nevertheless confirmed that it will be implementing the Directive with new regulations (“5AMLD Regulations”).
5AMLD makes some amendments to 4AMLD and adds some additional provisions, with a particular focus on preventing terrorist financing. Of relevance to gambling operators, the changes will regulate the use of virtual currencies and increase the level of scrutiny required for transactions from high risk countries. The owners of gambling operators may also want to be aware of new requirements to publish details of the beneficial owners of EU companies.
Of particular interest is the inclusion within the scope of the Directive of those who provide exchange services between virtual currencies and fiat currencies and those who provide “custodian wallet” services (holding, storing and transferring virtual currencies). The companies providing these services will become subject to the same regulations as financial institutions.
This is a helpful change because it means that, when accepting virtual currencies as deposits, gambling operators will have the reassurance that the party who handled the original fiat payment for that currency, and the parties that have held and transferred the virtual currency along its way to being deposited with the gambling operator, were (provided they are within the EU) subject to the Money Laundering Regulations. The change will reduce the AML risk associated with the source of virtual currency funds. Under the current requirements an operator might be unsure whether sufficient AML checks were carried out on the virtual currency being deposited, but from January 2020 they will have a similar level of reassurance to when they deal with funds transferred from financial institutions such as banks. We will have to wait and see to whether the Gambling Commission will consider it acceptable for gambling operators to treat deposits from EU virtual currency exchanges in the same way as they do fiat currency deposits from EU bank accounts.
At present in Great Britain, only casino operators have to comply with the 4AMLD Regulations, but the 5AMLD potentially also has the effect of bringing additional gambling operators within the scope of the regulations. Betting, bingo and lottery operators, if they either convert cryptocurrencies to fiat currency for use on their platform or provide a wallet service to hold, store and transfer cryptocurrency, may become subject to the 5AMLD Regulations. Any gambling operators who wish to create their own virtual currency may also fall within the scope of the 5AMLD Regulations, although coins/tokens that are used in very limited networks and among a small number of users will not be considered to be virtual currencies.
Casino operators will also want to be aware of the addition of strict requirements for enhanced due diligence on customers from high risk jurisdictions. Casinos will need to obtain detailed information on these customers’ source of wealth and funds and a senior manager will need to give their approval. Rather than having to implement these checks, online casinos might choose instead to add countries to their list of those from which customers will not be accepted, on the basis that those countries have significant weaknesses in their AML/CFT regimes.