An introduction to compliance risks of casinos.

B.O. (Björn) Schuitemaker is studying Safety & Security Science at the University of Antwerp, with the emphasis on compliance risks of casinos. The interests in these topics are motivated by an internship at Holland Casino and Dutch Compliance Institute.

bjorn schuitmaker

On the one hand, casinos characterize themselves as hospitable organisations where visitors can responsibly take part in gambling. On the other hand, casinos characterise themselves as cash-intensive companies that due to the many, and often complicated, game dealings are susceptible to fraud and criminality. A few visitors and employees will after all, organised or not, try to win money in unlawful ways from the casino or use it to launder money. In this guest blog, I will shortly state a few compliance risks[1]. For further explanation, I would like to refer you to the article of the same name in the Yearbook Compliance 2014 that will be published by the Dutch Compliance Institute[2].

Inherent to the provision of gambling games is the provision of several financial services. Within this framework, you could think of attracting callable funds, performing transactions with bitcoints (or performing foreign exchange operations in land-based casinos). By offering such services, casinos run the risk of facilitating money laundry processes. After all, criminals will try to buy (virtual) chips with capital obtained by criminal activities. These chips are then (often without engaging in any or very few gaming activities) unlawfully considered as profit, which causes the criminal capital to receive a seemingly legal origin. Furthermore, criminals will try to keep casino accounts in order to repeatedly convert money of accounts into circulating currency or vice versa and transfer these. With as their goal to disrupt the paper trail so the origin of the criminal capital is hidden (money laundering) or to prevent the beneficial owner of the money and the target from becoming known (terrorist financing).

The previous paragraph outlined how some visitors can damage the trust in the casino and the financial market. To overcome this risk, on the basis of the Anti-Money Laundering and Anti-Terrorist Financing Act, casinos should report performed or intended unusual transactions immediately to the Financial Intelligence Unit. Furthermore, on the basis of the same act and the Act on Financial Supervision, casinos should implement customer due diligence measures and procedures. In essence, these measures and procedures supervise: establishing a client acceptance policy; identifying and verifying visitors; monitoring and reviewing visitors and transactions; and imbedding risk management in the company structure and culture of the organisation.

By establishing such measures and procedures, the first step will have been made towards incorruptible operational management. However, to be able to talk of an incorruptible management, casinos should also oppose conflicts of interest and involvement in criminal acts and prevent social improper acts, also on the basis of the Act on Financial Supervision. Pursuing incorruptible management is thus a much broader task than solely barring visitors who damage trust. Keeping in mind the objective of this guest blog, it is not opportune to respond to varying controlling measures, but as an example, you could think of: making a well-founded judgement of the reliability of people that are appointed integrity-sensitive positions or setting up an organisation department that practices the compliance position independently.

[1] The expression “compliance risk” is in the publication of the paper ‘Compliance and the compliance function in banks’ published by the Basel Committee on Banking Supervision defined as ‘the risk of legal or regulatory sanctions, material financial loss, or loss to reputation a bank may suffer as a result of its failure to comply with laws, regulations, rules, related self-regulatory organization standards, and codes of conduct applicable to its [casinos] activities.’ (p. 7)

[2] The Dutch Compliance Institute (NCI) is a Dutch knowledge centre that specialises in treating compliance problems and offering compliance education for mainly financial institutions and enterprises quoted on the stock exchange.