Gambling Act: briefing by Financial Intelligence Centre

Meeting report

Gambling Act: Financial Intelligence Centre comments
Mr Peter Smit, Senior Manager: Financial Intelligence Centre, noted that the main concerns of the Financial Intelligence Centre (FIC or the Centre) related to money laundering, which he defined as an attempt to change the proceeds of illegal activities into funds that appeared to emanate from a legitimate source of activities. The Centre felt that money laundering must be prevented because it undermined democracy; the integrity of the banking and financial systems, and was inextricably linked to criminal activity.
 
The Centre laid out the measures it would use to combat money laundering by way of gambling. These, it suggested, should include identifying customers who benefited from illegal activities through the constant inspection of customers and their transactions, to identify cases where the sums they deposited or received were unusual or irregular. The Centre also said that it would institute a set of internal controls to further monitor the areas vulnerable to money laundering.

The Centre highlighted an area of special concern, which was interactive online gambling. The Centre said that casinos were subject to comprehensive regulatory and supervisory controls, in that they had to be licensed to prevent criminal control, and they had to be effectively supervised for compliance with requirements to prevent money laundering. This must apply to both land based and online casinos.

The Centre said that online gambling presented money launderers with the opportunity to transfer funds from one person to another and/or from one location to another. Online casinos that were unregistered could then be used as fronts for moving and transferring illicit funds with little or no chance of detection.

The Centre recommended steps that could be taken in order to lessen the danger presented by unregistered online gaming sites, including checking that registered online sites maintained a level of compliance to gaming regulations through the monitored identification of customers, and the ability to examine compliance through the inspection by regulators of the online sites’ systems and records. The Centre proposed instituting methods that would ensure that registered sites should be subject to penalties where they defaulted on mutually agreed regulations. The Centre proposed that transaction-related information be held in South Africa, where it was accessible to South African law enforcement agencies, and that sufficient capacity to supervise compliance and prevent unlicensed gaming companies from operating be provided.

Mr Smit also highlighted areas of concern with regard to enforcement. The problem of asserting jurisdiction outside of South African borders and tracing illicit money, the inability to carry out probity checks on offshore online companies, the inability to regulate unlicensed operators, and the difficulty in instituting criminal investigations and prosecutions on offshore illegal companies were all areas which the Centre highlighted as challenges. It also cited the problem of non face-to-face interaction between interactive operators and customers as being another key area of anxiety.

Discussion
Mr A Van der Westhuizen (DA) asked whether the Centre had reviewed the proposed regulations regarding interactive gambling. He asked whether the weakness of neighbouring states’ legislation, since they did not have similar regulatory structures as South Africa, presented a challenge. He also asked whether identifying customers of online gambling was not similar to online banking monitoring, which was, for the most part, safe.

Mr Smit said that the Centre had been in discussion with the Department of Trade and Industry on regulations governing online gambling. He said that the regulations for interactive gaming allowed for tracking and tracing of money in accounts and prevented third party involvement in the transfer of illicit funds. He also said that although the regulations dealt comprehensively with that aspect, they did not deal with jurisdiction issues. He said that there was a marked difference between online banking and online casino gaming, so that tracing illicit users was difficult to do. Online banking was less developed in South Africa, and still was not the primary focus of banks, and was thus an add-on to face-to-face interaction. Interactive gaming did not involve face-to-face interaction at all, and thus it was harder to trace the user.  

Mr N Gcwabaza (ANC) sought clarity on whether spam e-mails falsely stating that e-mail users had won money were classified as online gaming fraud or laundering, and how the Centre dealt with these false emails.

Mr Smit said that unsolicited false e-mails were not representative of interactive gambling but were an attempt at fraud which involved larger criminal operations. He said that the fraudulent activity was used to finance other illicit operations.  

Mr S Marais (DA) said that interactive gambling had become an area of frustration and irritation. He asked whether there was a way of tracking flows of money in neighbouring states. He also asked whether the Centre had looked at ways of expanding regulations with the Southern African Customs Union (SACU) in respect to monitoring online gaming across borders. He asked whether online gaming advertisements on television could not be lessened or cut down, as a means of discouraging people from engaging in the practice and whether the Centre had coordinated with the Department of Communications on cutting down the number advertisements.

Mr Smit said that the services provided by neighbouring countries with regard to regulation and monitoring was of particular worry for the Centre, as not all the neighbouring countries had the strong regulation and monitoring structures that were in place in South Africa. He said that the Gauteng Gambling Board had taken legal action against advertisers for online gambling sites but had been unsuccessful in its endeavours, due to problems in establishing jurisdiction. He said that online gambling sites had advertising that was linked to major banks and the Centre was engaged with the Registrar of Banks on trying to stop the use of banks in online casino sites as a means of deterring participation. The Centre had been in discussions with the Gauteng Communications Board on stopping advertising but once again its endeavours had not been successful.

He also said that money flows were traced by the Centre, but usually the money gained through illicit gambling sites did not leave South African shores. Many foreign gambling sites operated illegally and were usually front businesses actually operating in South Africa, so the money was just moved around in the country. He also said that SACU was in discussions with the National Gambling Board and not the Centre. The Gambling Board faced difficulties in that it did not have counterparts in neighbouring nations due to the lack of development in that area in such neighbouring nations.
Ms P Lebenya (IFP) asked how it would be possible to stop illegal online gaming outside of South African borders, if access could be unchecked in foreign nations. She also asked if the Centre was aware of fraudulent e-mails claiming email users as winners of money and whether the Centre was doing anything to stop the fraud and what the dangers of entertaining such invitations were.  

Mr Smit said that the operation of illegal casinos was a big problem which needed special attention. He said that more needed to be done by the National Gambling Board through licensing and controls in order to stop illicit operators. He also said that more in-depth examination into the infrastructure would help to give a better indication of how money was being moved in the online industry and where it was being moved to. He said that it was difficult to monitor the movement of unlicensed operators due to their non-fixed position.

The Chairperson asked whether there was a possibility of land casinos transferring funds to an online location that was difficult to trace. She asked whether banks had weaknesses, because illicit funds wound up in bank accounts which were supposed to be strictly monitored. She also asked if the Centre was concerned about the amount of illicit online gambling that happened outside South Africa, but with the funds eventually being deposited in South African banks and whether the Centre was doing anything to stop this.      

Mr Smit said that the Centre was hesitant to align illicit users with banks directly due to the fact that the correlation between a user and a bank did not necessarily mean that the bank was aware of what the user had been doing, and whether this was legal or illicit. Banks did not apply the same criteria as the Centre when vetting potential customers. He said that it was possible for a land based casino to move money to an online casino, and this had been done and was not unusual. He said that the identification of bank accounts used by gamers who were paid out as dictated by the National Gambling Act helped stop this practice.

The Chairperson expressed her concerns about banks and their checking of clients. They were supposed to do this once a year, and report suspicious transactions to the Financial Intelligence Centre and the Reserve Bank. She asked Mr Smit what aspects of compliance and supervision might be causing concern to the Centre.

Mr Smit said that banks could only monitor their clients and could not check whether illegal casinos were operating using accounts registered with them. He said that where there was evidence of illicit operation, with the knowledge of a bank, through the use of a registered casino, there would be action taken against the bank. He also said that the supervision of land based casinos was the responsibility of Provincial Gambling Boards and that the supervision had been good thus far. He said that the Centre had successfully engaged with these Gambling Boards and had initiated investigations at casinos who were thought to be defaulting on laws and regulations. He also said that land based casinos were generally compliant and cooperative with regulators and the same would be expected of interactive gambling sites.

The Chairperson requested that the Centre provide the Committee with areas which it felt were vulnerable to money laundering, both locally and internationally, and to indicate what the role of SACU was with regard to South African laws on gambling, including what neighbouring countries were doing to stop interactive online illicit gambling in writing. She asked that this information be provided within the next eight days.

Adoption of Minutes
The minutes of the Committee meeting on 2 February were tabled.

Mr S Marais suggested some amendments to the wording, to better express the Committee’s frustrations in regard to the presentation given by the Department of Trade and Industry in Atlantis.

The Minutes, as amended, were adopted.

The Committee also adopted the minutes of the meetings on 16 and 17 February 2010.

The Committee then deliberated on a Department of Trade and Industry Executive Summit report presented on 23 February, but not that the document was not available for release as it was still being deliberated.

The meeting was adjourned.