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You are here >   The Constantly Evolving AML Environment
  
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The Constantly Evolving AML Environment
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We've come a long way since the very first time FINTRAC (Financial Transactions Reports Analysis Centre of Canada) visited gaming properties to conduct so-called compliance examinations. At that time, visits by Canada’s Financial Intelligence Unit (FIU) were perceived by many as a 'walk in the park', since they primarily consisted of a brief meeting and a high level discussion concerning the organization’s anti-money laundering (“AML”) compliance regime. Hands were shaken at the beginning and at the end of this informal meeting and, for the most part, that was the end of it.

It's important to keep in mind that back in 2004 and 2005, FINTRAC was just beginning its onsite compliance monitoring activities. We must also remember the approach of Canada’s FIU was a cooperative one at that time. Times have since changed, and what was true way back then is not so anymore. By now, most in the industry know that this federal agency is more law enforcement oriented than it was in the past, and it has been conducting its activities this way for almost four years (the Administrative Monetary Penalty system came into force on December 30, 2008). As such, some uncertainty remains as to what Canadian casinos can expect in the next few years and what it is they need to do to ensure they are compliant despite the constantly evolving AML environment both in Canada and internationally.

 

 

 


This fall, a new director was appointed to FINTRAC, leaving organizations to wonder if this new nomination will bring significant changes to the way the agency fulfills his role as one of the main actors of Canada’s AML Regime. Last time a new director was appointed at FINTRAC (a change I personally experienced while working from the inside with the agency at the time) drastic changes occurred both internally and externally. It was the beginning of a new era for 'reporting entities (1)' nationwide, and the message spread out not long after was that it was time for all regulated organizations under the Proceeds of Crime (Money laundering) and Terrorist Financing Act (PCMLTFA) to do their 'homework' and achieve compliance. Furthermore, it had been almost ten years since the agency had been created and had been doing outreach to inform regulated organizations. One should also remember that FATF’s (2) review of our Canadian AML Regime revealed important issues that our federal government needed to remedy in a short period of time. 
 

Bill C-25 corrected many of these issues, but not all of them. That lead the Minister of Finances to draft two consultation paper in November and December 2011. Time was given to Canadian casinos, as well as other regulated sectors, to comment on these proposed changes and inform the Minister of Finances of potential issues or challenges they would most likely face when and if these proposed changes come into force. Now, one year later, we are waiting for these new regulations to be finalized and put into effect, and one would be justified in wondering what the global impacts on their organization will be. If there are some grey areas concerning the burden casino properties will have to deal with, one thing is for sure: This burden will not decrease.

PCMLTFA and associated proposed regulations changes 

Many facts may explain at least partly why Canadian casinos should (and need to) expect more work to be done in terms of AML compliance. On top of extended CDD (3) and record keeping requirements, the proposed changes to the PCMLTFA and its associated regulations will most likely require more monitoring—or, should we say, more ongoing monitoring. The 'business relationship' concept will certainly impose an increased burden on gaming properties to know more about their customers and their activities. As a casino organization, you should be ready for changes that will have a significant impact on the resources required to achieve AML compliance. Depending on the number of customers, slots machines, and table games available on the gaming floor, there will be differences in the resources needed to comply. That said, one aspect will remain the same for all gaming venues: The fact that more staff, more money, and more time will need to be dedicated to the AML compliance regime in order to adhere to the new rules.

What is not known at this time is how much more work will be required to stay on top of AML compliance. As such, different approaches may be taken right now. One may decide to stay passive and wait until there is more guidance from the Minister of Finances and FINTRAC. Although it may appear legitimate to 'wait and see', this might not be the best approach. Being proactive is certainly a safer way to prepare for future legislative changes and the additional challenges Canadian casinos will most likely encounter.

So how can we be proactive? What should we do to get ready in advance? Where are the risks and what are they? These are all worthy questions, and they are a good start for any Canadian casino organization that wants to prevent potential issues (or at least most of them) before they occur. Our Canadian FIU would call these 'mitigation measures', and they are definitely worth it. Concretely, these questions should be discussed at the higher levels of the organization. The impacts of the proposed legislative changes should be discussed and all aspects should be taken into account. Will we need more AML staff to achieve compliance with the new rules? Will we need to hire new people in order to do so? Will we require new software, automated processes, or manual processes to ensure the organization is compliant with these new requirements?

Again, if we don’t know how cumbersome the new burden imposed on casinos and other 'reporting entities' nationwide will be, there are a few things one should take for granted. Certainly, the first is that more time, staff, and money will have to be dedicated to the organization’s AML compliance regime. Secondly, it's possible FINTRAC will continue monitoring the level of compliance within Canadian casinos. And with everything that happened over the last few years in Canada from a penalty perspective, and everything that keeps happening these days, if one were to bet on how FINTRAC will handle the monitoring of activities at Canadian gaming venues in the future, the safe bet would be that these activities will be reinforced. One could argue they are already asking a lot from casinos right now, and that would not be false. However, I would not take this as meaning they can’t ask even more from your organization, since they will most likely do ask more in the near future. That is true for land-based casinos.

Online Gaming

Online Gaming is a hot topic. A few jurisdictions are already involved in this field, with more expected to join in the near future. iGaming is a huge market and is certainly attractive considering the always growing popularity of internet gaming and the significant amount of money being spent by players online. When it comes to discussing the impacts of the PCMLTFA on online gaming, it can be a tricky topic for many reasons. In short: The online activities of the Canadian casinos would not fall under 

the actual definition of a casino in the PCMLTFA. If the Minister of Finances is to bring some clarification on that aspect, and if the casino industry is justified to expect more guidance from FINTRAC at some point along the road when this clarification has been shared and explained to the industry, it is probably also safer to expect online gaming to be covered when the definition of a casino changes in the law. This will certainly create important challenges for any jurisdiction involved in online gaming. Indeed, under the actual regulations and the actual business models utilized to offer internet gaming, it appears close to impossible to comply with all these rules.

Many reasons may explain this situation, but one of them is definitely that the internet world has not been taken into consideration when these regulations were enacted; at least, not for internet gaming purposes. Furthermore, they were most likely written using the financial sector context and business models. It appears to be possible for banks and other financial institutions to comply with the PCMLTFA rules for internet banking activities with their actual business models, however the case may be quite different as far as online gaming activities are concerned. And while much more could be said on this matter, for now it is important to keep in mind that sooner than later, the AML compliance resources needed to comply with the new rules for land-based casinos will continue to grow... and sometime along the road the online gaming activities will certainly add to this burden.

Preparing for What's Next

The idea here is not to be alarmist, but rather safeguard organizations from bad and unnecessary surprises. I always smile when I hear NHL players say they can only focus on what they can control and forget about the things that are beyond their control. The rationale behind their reasoning makes sense, though, and could be used for the purposes of this article. Canadian casinos can’t control everything on the AML compliance side. However, they can definitely be proactive, discuss challenges and risks beforehand, and give the organization some assurance that no matter what the future changes are, they will be ready to quickly comply with all these new requirements. This is the safer way to approach things, and this is what FINTRAC will most likely expect from all gaming venues. One would do well not to rely too much on the federal agency to

allow a long grace period to implement new policies, processes, and controls to ensure compliance with the new regulations when they come into force.

Jean-François Lefebvre is an Anti-Money laundering expert and has been advising clients in the gaming industry for over 8 years now. Mr. Lefebvre has worked with small, medium- size and large Canadian casinos and has gained an extended knowledge of the AML compliance and best practices within the industry. His in-depth expertise allows him to give highly valuable practical advice. Mr. Lefebvre can be reached at (514) 608-0684 or jeanfrancoislefebvre9@gmail.com.

1. All persons and entities to which the PCMLTFA applies 
2. The Financial Action Task Force (http://www.fatf-gafi.org/) 
3. Customer Due Diligence 

 

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