The news broke, oddly enough, while I was on my way to an anti-money laundering conference in Las Vegas in the autumn of 2017. “Have you seen the news?” a colleague back in Ontario asked me over the phone. “All hell is breaking loose in British Columbia.”

The morning of September 22, 2017, B.C.’s attorney general David Eby issued a news release outlining details of an anti-money laundering compliance review that had been commissioned by the province’s gaming regulator. At the time, I downplayed it and told my colleague that these stories tended to be cyclical: every few years, for whatever reason, the press turns its attention to casinos. I recalled the CBC reports from almost ten years ago, where reporters went undercover into casinos to investigate whether they could launder money. Then there were the Freedom of Information requests a few years later, where the media acquired some Suspicious Transaction Reports and proceeded to report the blindingly obvious fact that, well, casinos are required to report suspicious activity. At the end of the day, nothing had really happened as a result of those media reports, other than Canada’s gaming industry perhaps getting a bit of a bloody nose.

“If history is any indication,” I told my colleague, “there will be a few more headlines and the story will fade.”

I couldn’t have been more wrong.

Only days after the attorney general’s press release, Minister Eby appointed former RCMP deputy commissioner Peter German to conduct an independent review into alleged money laundering in British Columbia casinos. The review culminated in a 250-page report entitled “Dirty Money” that was released to the attorney general in March 2018 and the public at large in June 2018. “Dirty Money” can be summarized in four words: everybody dropped the ball.

Peter German identified a “collective system failure,” citing infighting between the provincial crown corporation and gaming regulator, an inadequate response from law enforcement and an ineffective regulatory regime as contributing factors leading to certain Lower Mainland casinos unwittingly serving as “laundromats for the proceeds of organized crime.” The report went on to provide sweeping recommendations to reform B.C.’s gaming industry, with a view to combatting money laundering more effectively.

The attorney general then tasked German with reviewing B.C.’s horse racing industry, luxury car dealers and real estate market. A second report, creatively titled “Dirty Money Part Two,” was delivered in March 2019 and released to the public in its entirety in May 2019. Turning the volume up to eleven, German’s second review took place concurrently with two other studies into B.C.’s real estate market that had been commissioned by the Ministry of Finance.

Neither of the “Dirty Money” reports, in the words of Minister Eby, were intended to be “finger-pointing exercises.” But between the government’s determination to tackle money laundering and the hundreds of news stories that dominated print and broadcast media over the past two years, members of the public — and certainly some elected officials — were looking for answers. Thus, on May 15, 2019, Premier John Horgan announced that the provincial government will hold a public inquiry. Retired B.C. Supreme Court justice Austin Cullen was appointed to head the commission of inquiry into Money Laundering in British Columbia (dubbed the “Cullen Commission”).

The Cullen Commission has a broad mandate, including the authority to compel witnesses and order disclosure of documents. According to its website, the Commission’s mandate is to make findings of fact with respect to the extent, growth, evolution and methods of money laundering in British Columbia, with regard to specific economic sectors; the acts or omissions of responsible regulatory agencies and individuals, and whether those have contributed to money laundering in the province or amount to corruption; the scope and effectiveness of the anti-money laundering powers, duties and functions of these regulatory agencies and individuals; and the barriers to effective law enforcement in relation to money laundering. The Commission’s work has already begun and it’s tasked with delivering an interim report within 18 months and a final report by May 2021.

What can we expect? It’s safe to say a lot of the focus will be on B.C.’s real estate and luxury car markets. But given the first “Dirty Money” report’s account of the apparent dysfunction within the government agencies tasked with managing and regulating the province’s gaming industry, we should also expect plenty of fireworks when it comes to casinos.

While the Commission’s work is important, one overarching challenge is that the federal government holds most of the cards when it comes to money laundering compliance and enforcement. First, there’s the Criminal Code itself, which designates the offences for money laundering. Then there’s the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, which governs anti-money laundering compliance and reporting in the casino and real estate sectors. Even if British Columbia, or other provinces, were to adopt new anti-money laundering measures in response to the Commission’s findings, they would still have to line up with federal requirements (although B.C. deserves a big round of applause for being the first Canadian province to introduce a public land ownership registry).

Ultimately, anyone involved in gaming or the anti-money laundering field needs to be paying close attention to the Cullen Commission. The reality is that Canada’s gaming industry is a large, vital and mature business that makes substantial contributions to the broader Canadian economy. It is a significant driver of investment, employment, development and innovation, generating billions of dollars of economic activity that benefits public priorities like social welfare, education and health. Much like the “Dirty Money” reports, it’s almost certain that the findings of the Commission will reverberate beyond B.C.’s provincial borders. I believe it’s critically important that Canada’s gaming industry stakeholders provide the Commission with reasoned, evidence-based information on approaches and best practices to combat money laundering. (I mention this because, having been involved in financial crime prevention for over 20 years, I’m concerned with the recent trend in the gaming industry to adopt strict rules-based anti-money laundering compliance requirements.)

Globally, financial regulators have been moving to a risk-based approach to compliance for several years. In fact, the Government of Canada released new anti-money laundering regulations this past summer that will allow for more flexibility in customer due diligence and risk assessment. Ontario’s gaming regulator (AGCO) rolled out a well-reasoned standards-based approach to regulation several years ago.

Of course, what is broken must be fixed. We’ve already seen a number of knee-jerk reactions to the events in B.C. in various parts of the country through the imposition of overly-prescriptive obligations. Such a “tick-the-box” approach to compliance is rife with risk and often creates unnecessary operational challenges without yielding better outcomes.

The Financial Action Task Force (FATF) — the inter-governmental organization that sets global standards for combatting money laundering and terrorist financing — addressed this very issue over ten years ago in its guidance to casinos:

By adopting a risk-based approach, it is possible to ensure that measures to prevent or mitigate money laundering and terrorist financing are commensurate with the risks identified. This will allow resources to be allocated in the most efficient ways. The principle is that resources should be directed in accordance with priorities so that the greatest risks receive the highest attention.
The alternative approaches are that resources are either applied evenly, or that resources are targeted, but on the basis of factors other than risk. This can inadvertently lead to a “tick box” approach with the focus on meeting regulatory requirements rather than on combating money laundering or terrorist financing efficiently and effectively.

A wise police sergeant I once worked with said it best: “Good anti-money laundering policy should be designed to catch bad guys, not drive business away.”

Whatever the findings of the Commission may be, it is vitally important that those involved in the fight against money laundering embrace practical, well-thought solutions that ensure regulatory policies, priorities and government objectives are properly aligned to present-day risks.

Here’s also hoping the Cullen Commission will be able to answer a few burning questions that I’ve had over the course of my career: Is the current Canadian legislative framework for gaming adequate, or does it inherently create insurmountable conflicts between government agencies? Are sufficient resources deployed to combat money laundering in British Columbia, and indeed, in Canada? Are some of the barriers to effective law enforcement in relation to money laundering self-imposed? Are the roles, functions and accountabilities of the gaming industry’s various stakeholders properly aligned to optimize the coordination and expertise of those stakeholders?

Regardless, the next two years will unquestionably be an interesting time for Canada’s gaming industry. To misquote the legendary Bette Davis: “Fasten your seatbelts, it’s going to be a bumpy ride.”

Derek Ramm is Vice President of MT>Play, a global gaming advisory firm. Prior to joining MT>Play, he held senior roles at the Alcohol and Gaming Commission of Ontario (AGCO), Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and the Ontario Lottery and Gaming Corporation (OLG). He also served as a Commissioner on the Bermuda Casino Gaming Commission.

Any opinions expressed in this article are those of the author and do not necessarily represent those of his current or former employers.