Five key steps to enhance AML compliance
FINTRAC’s expectations go beyond written policies to a compliance program that is deeply embedded in the organization, regularly monitored and enforced. In response, many organizations are implementing turn-key risk and governance models. The following steps represent leading practices in this area.
1 Conduct a sound risk assessment
The key to an effective AML compliance program is a risk assessment framework uniquely tailored to the casino or casino operator’s particular business model. A sound risk assessment framework dives deep down into the operations to methodically understand how each element of the casino can create money laundering or terrorist financing risks. A thorough understanding of how criminals use the gaming sector to launder the proceeds of crime is required; however, the risk assessment also needs to identify high risk patrons.
This requires that individuals involved in compliance get close to the business at each casino site to understand how employees interact with patrons and, ultimately, how specific products can be abused by criminals to launder money or finance terrorism.
Developing a risk methodology that identifies all potential risks for the business (depending on the products offered) and its patrons is the basis for a solid risk assessment. Once all risk factors have been identified, casinos have access to a very granular risk profile for their organization that defines high-risk patrons and products, and serves as a solid foundation for the next steps in the process: mitigation, ongoing assessment and reporting.
This approach is in line with FINTRAC’s expectations. FINTRAC expects casinos to have procedures in place to identify reportable transactions occurring in slot machines. Clearly, a prerequisite to detecting such activity is an in-depth knowledge of the many ways these machines can be used to launder money. A thorough risk assessment provides casinos the invaluable insight to know what suspicious activity looks like so it can be recognized it when it occurs.
2 Develop controls to mitigate risks
An effective risk assessment ultimately provides an accurate picture of high-risk patrons and the potential ways a particular casino can be used by criminals for illegal purposes. Once all risks are identified, a casino is in the right position to design or enhance controls to either help minimize or detect instances where money laundering has occurred, and identify the various ways their business can be abused in money laundering schemes.
For instance, drug traffickers generate large amounts of small denomination bills throughout their activities, and large quantities of cash become difficult to transport without drawing attention. Therefore, money launderers seek to convert the small denomination bills into $100 dollar bills through opportunities available within the boundaries of the casino operations. In response, the casino may implement procedures that prevent patrons from exchanging small denomination bills for large denomination bills at the cash cage. Further control procedures may be implemented to ensure when players cash out, they receive the same denominations they used to purchase casino chips in the first place.
In order to design effective controls to help mitigate risk or, at the very least allow for detection and reporting of suspicious activity, casinos need to analyze the ways in which players may try to circumvent the controls. These controls must be assessed on a periodic basis to account for changes in operations, technology, and product offerings, as well as to ensure the controls are designed and operating effectively.
3 Train employees at a granular level
Customized training for employees can serve as an additional control to help detect activity indicative of refining schemes and exposure to other risks. To be effective, employees should be given the proper context. Providing a list of red flags to employees in specific functions alone will not arm them with lasting knowledge; training should explain the reasons why criminals need to refine their funds. Not surprisingly, FINTRAC often finds the lack of adequate training for casino employees as a key deficiency in AML programs.
Training should resonate with employees and the actual work they perform, especially for those involved in compliance roles, including supervisors and individuals working at tables, cash cages, security and surveillance. Training should also be developed specifically for each function, and then tracked, tested, monitored, and delivered on an ongoing basis periodic basis to help ensure the employees stay up-to-date with the changes in controls and new trends in gaming industry, money laundering and terrorism financing.
Management often notices spikes in reporting following good training because personnel are more aware and empowered. The challenge is maintaining this awareness on an ongoing basis.
Step 4: Establish an ongoing assessment process
An essential part of a sustainable AML compliance program includes establishing processes to ensure continued effectiveness. Program should be reviewed on a regular basis. As well, casinos and casino operators can implement a self-assessment process to review changes to their operations, obligations, and money laundering and terrorist financing trends, and thus assess whether their risk assessment framework continues to address all current risks. A review on a regular basis helps ensure the identification and mitigation of new risks as they arise.
Step 5: Obtain independent reviews
FINTRAC requires casinos to conduct independent reviews of their AML compliance programs to test their effectiveness. Although some casinos resort to their internal audit group to carry out this requirement, internal audit personnel often lack the depth of AML knowledge required to assess the elements of an effective program to the level expected by FINTRAC. Independent qualified individuals with specific experience in addressing money laundering and terrorism financing risks can provide valuable insights into best practices that can further strengthen and validate an AML compliance program to appropriately meet FINTRAC’s expectations.
The growing regulatory expectations require casinos to create sustainable AML compliance programs that go beyond written policies and procedures. Embedding the right controls in the business processes can help achieve effective systems that work on an ongoing basis and help avoid penalties and the reputational risk that can come with not meeting FINTRAC’s expectations.
Don’t get caught unaware—assess your compliance program and processes. Be one step ahead and ready for FINTRAC.
By Susana Johnson is a Vice President with KPMG Forensic and Head of KPMG’s Anti-Money Laundering Services; Lesley Luk, Senior Manager in KPMG’s Gaming practice; and Silvia Montefiore, National Industry Leader, Gaming for KPMG in Canada.