Mixed record in Asia for AML, but noose to tighten

The Financial Action Task Force has included casinos as money laundering risks since 2003, allowing more than 12 years for countries to implement effective controls in accordance with its recommendations. However, there have been mixed results across Asia.

The FATF evaluates compliance through FATF Style Regional Bodies (FSRBs), the regional FSRB being the Asia Pacific Group on Money Laundering (APG), which undertakes periodic mutual evaluations (a peer review between member jurisdictions). It takes some time to get around all participating countries and the current APG schedule will take several more years to conclude.

The recent revelations that Manila casinos have been used to launder money reportedly shocked Philippine politicians and were met with disbelief by The Philippine Amusement and Gaming Corp (PAGCOR). When allegations first emerged that Manila casinos had been targeted to launder up to $100 million, PAGCOR’s chair and CEO Cristino Naguiat is reported to have said, “… (a casino is the) riskiest place to launder dirty money and investigators should look elsewhere.”

However, the July 2009 Mutual Evaluation Report for the Philippines found, “There is currently no effective regulation and supervision of casinos for AML/CFT purposes, which causes significant concerns given the yearly business volume recorded by the industry. However, the draft bill currently before Congress – if enacted – would include DNFBPs in the list of covered institutions under the AMLA (Anti-Money Laundering Act.)”

Hence, more than six years ago the Philippines was on notice that casinos needed to be included in its AML laws.

The APG stated in its 2009 evaluation that the Philippines had draft legislation to include casinos under its AML laws – money laundering in casinos seemed to be coming under control. However, that didn’t happen.

Pagcor lobby

The Philippines has an interesting hierarchy in that regulation of casinos is the responsibility of the operator, with a three-pronged mandate: (1) regulate, operate and licence games of chance… particularly casino gaming in the Philippines; (2) generate revenues for the Philippine government’s… programs; and (3) help promote the Philippine tourism industry. Freedom of crime and AML/CFT are not mandates of PAGCOR.

It is now accepted that there was an attempt to launder approximately $80 million, stolen from accounts of the Government of Bangladesh, through Manila casinos. During the media bombardment over the last couple of months we have learned that the Government of the Philippines has not included casinos in its anti-money laundering and counter financing of terrorism. Furthermore, the omission of gambling was not an oversight but an exclusion following PAGCOR lobbying.

Elsewhere in Asia, the clamp down on money laundering at Macau casinos has been widely publicized and analysts attribute this clampdown to the profit decreases among Macau operators over the last few years, while evidence from Singapore indicates that it takes AML/CFT in its casino sector very seriously.

But Australia’s Tabcorp Ltd is before the Federal Court, with the Australian Financial Transactions and Reports Analysis Centre (AUSTRAC) alleging breaches of Australia’s AML/CFT laws. Tabcorp faces up to $12.5 million in fines. Tabcorp has been publicly listed since 1994, so self-regulation cannot be the reason for any breaches – if proven.

While in the Commonwealth of Northern Marinana Islands, the Tinian Dynasty Hotel & Casino was fined $75 million by the US Treasury’s Financial Crimes Enforcement Network (FinCEN).

Some countries are motivated to comply with FATF recommendations because of the threat of being named and shamed through mutual evaluation reports, watch lists, black lists etc. “The Bark is the Bite: International Organizations and Blacklisting” argues that “blacklisting by international organizations can be an effective means of bringing about compliance in otherwise recalcitrant states.” This is widely accepted as the motivation for jurisdictional compliance. Non-compliance can lead to increased cost to business and investment, flight of capital, and general harmful impact on economies.

The Asia Pacific Group on Money Laundering (APG) advises that the Philippines is scheduled for an on-site mutual evaluation in 2018, so there is time to act before the FATF and the international community are likely to take action.

This might provide the industry with a few years of casino profiteering without AML/CFT laws.

Banking partnerships

However, there appears to be other forces at play. In August 2014, Reuters reported: Large global banks are facing increased pressure from U.S. regulators to clamp down on casino money-laundering as the government pushes the industry to police not only its own transactions but customers’ as well…

… the U.S. crackdown has resulted in unprecedented scrutiny and collaboration between the two industries, including banks vetting casino customers’ anti-money laundering systems, checking to make sure casinos don’t accept anonymous wire transfers, and offering databases and other information to help the gaming industry identify risky transactions.

… In light of the enforcement actions and tough public statements by federal authorities, banks have begun taking further steps to ensure their casinos customers’ accounts are legitimate. As opposed to merely asking whether a casino has anti-money laundering programs, banks are now reviewing them and conducting onsite work to test their efficacy.

This is borne out by my personal experiences with banking and casinos in non G20 countries. Jurisdictions which have not acted against money laundering in their gambling sectors are slowly being exposed and AML/CFT laws encroach more and more into gambling industries.  The timing is uncertain, but it seems unlikely the Philippines will continue to tolerate its casinos to be exempt from money laundering laws for much longer. Overtime other countries are expected to follow suit. 

* Alan Pedley is a principal consultant at regulatory consulting firm, Governance Associates. Since leaving the Northern Territory regulatory authority, Alan has specialised in consulting to gambling regulatory authorities worldwide. In addition to gambling regulation, Alan is accredited by the Australian Transactions Reports and Analysis Centre (AUSTRAC) as an external auditor pursuant to the Anti-Money Laundering and Counter-Terrorism Financing Act. and is a member of the International Masters of Gaming Law (IMGL).