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Governance Associates Ltd
No. 2015-00176

Ostriches, wilful blindness, and AML/CTF


Background
Following my piece titled Gambling in Australia in the age of AUSTRAC, dated 2015-05-27
(https://www.linkedin.com/pulse/gambling-australia-age-austrac-alan-pedley), which was intended to alert Australian
operators of the seriousness of anti-money laundering and counter-terrorism financing (AML/CTF)
regulations, I have received several e-mails from Australian gambling operators. This feedback
has some common themes: They take the view that We are OK because were registered with AUSTRAC
were in compliance of our duties
...were not in the same league as Tabcorp
The common theme is complacency.
Wheres the AML/CTF policy coming from?
It is helpful to remind ourselves of the context in which the Anti-Money Laundering and CounterTerrorism Financing Act 2006 (Cth) and AUSTRAC exist. The global AML/CTF oversight body is
the Financial Actions Task Force (FATF). The FATF was founded in 1989 by the G7 to deal with
money laundering and expanded to deal with terrorism financing following the 9/11 attacks in the
USA. There are 36 member jurisdictions including Australia but every country in the world except
North Korea and Iran subscribe to FATF requirements.
Countries which do not comply with FATF specifications are named and shamed and face the
prospect of appearing on lists of non-compliance and face consequences such as limits on
investment, which can impact economies. FATFs interest in gambling was increased in Oct-2003
with the release of the FATF 40 Recommendations.
More recently the EUs 4th anti-money laundering directive is shaking up gambling in Europe, with
legislative and regulatory changes impacting operators, where High Street bookies need to
conduct customer due diligence on transactions of about 1,420!
Standard of regulation
The FATF, and through its subsidiary-type organisations, is undergoing a peer review of all
jurisdictions worldwide (save North Korea and Iran). The peer review has AML/CFT experts from
About the author:
Alan Pedley was a gambling regulator in the Northern Territory of Australia from Apr-1990 to Dec-1998 overseeing
technical regulation of the worlds first regulated online betting operations at Centrebet; and all aspects on the
Territorys gaming machine industry.
Since Dec-1998 Alan has been consulting to government regulators worldwide in the fields of gambling regulation
(including online, telephone, wagering, and AML/CTF). He has developed dozens of standards in use by regulators
worldwide; conducts specially commissioned audits and examinations for regulators; and provides compliance and
AML/CFT consulting, independent reviews, and external auditor services to operators.
He is on the Editorial Board of Gaming Law Review and Economics; is a Member of the International Association of
Gaming Lawyers; Member International Association of Gaming Advisors; and approved by AUSTRAC as an external
auditor pursuant to the Anti-Money Laundering and Counter-Terrorism Financing Act.
Editorial assistance: Tony Clark (Governance Associates, Principal Consultant).
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PO Box 219, Toorak Vic 3142, Australia
No. 2015-00176

regional jurisdictions evaluating the AML/CFT compliance of other jurisdictions, known as mutual
evaluations. Australias compliance is subject to evaluation by a team of external experts.
Enhanced AML/CFT regulation has been a while in the coming
Success breeds complacency. Complacency breeds failure. Only the paranoid survive,
Andy Grover.
Nobody wants to read (or write) articles which at first glance appear to suggest non-compliance or
a downturn in revenue.
For a number of years I have been warning the gambling industry that a crack-down by AML/CFT
regulators is on the way. In October 2013 I wrote an article in the Asia Gambling Brief cautioning
that a crack-down was pending for Macaos casinos, only to be met by howls of derision from
barrackers and ostriches. In hind sight my projections came true and the crack down on dirty
money to Macao has led to substantial downturn in revenues there.

This is consistent with increasing AML/CFT fines on non-compliant gambling operators worldwide.
Just in the last few months the Tinian Dynasty Hotel and Casino has been fined US$ 75M and the
Trump Taj Mahal US$ 10M.
The Ostrich defences
Complacency is a state of mind that exists only in retrospective: it has to be shattered
before being ascertained, Vladimir Nabokov.
The ostrich defence #1, were registered with AUSTRAC can be dismissed as a prime
instance of complacency.

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Governance Associates

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Governance Associates Ltd


PO Box 219, Toorak Vic 3142, Australia
No. 2015-00176

George Thomas Hotels, Canberra Southern Cross Club, and Tabcorp were all registered with
AUSTRAC. Yet AUSTRAC formed a view that these entities were not entirely compliant.
Classicbet was fined $A 10,200 for failing to enrol onto AUSTRACs Reporting Entities Roll.
The ostrich defence #2, we are in compliance of our duties
Most likely all of the above gambling operators believed or asserted they were in compliance of
their AML obligations. The absence of an AUSTRAC allegation of non-compliance does not
equate to compliance. More importantly, these operators fail to appreciate that under the
Australian risk-based approach to regulation, the onus is on them to continuously monitor,
assess and respond to changed risk profiles especially to changes to customer risk-profiles.
This is not a lazy tick-the-box assessment. It has to happen every working day, every week,
every month, every year. The biggest challenges? What is this persons source of funds? Is this
pattern of transactions suspicious?
The ostrich defence #3, not in the same league as Tabcorp
I shake my head - money-laundering can occur at pubs, clubs, small operators, casinos,
bookmakers, totalizators, and large integrated businesses. ML and TF activity will try to be
camouflaged by small scale activity at a local agency. Often smaller operators will be targeted
because their systems are not as sophisticated as larger entities.
Ostriches be warned.
When a great team loses through complacency, it will constantly search for new and more
intricate explanations to explain away defeat., Pat Riley.
Almost certainly, all of the gambling operators challenged by AUSTRAC have had AML/CTF
program in place, probably believing they were compliant in the absence of prior sanction.
Having an AML/CTF program and having not yet been cited by AUSTRAC does not equate to
compliance.
A regular independent review of Part A of the AML/CTF programme is mandatory. Without expert
analysis and review of AML/CFT programmes and a detailed examination of effectiveness, then
operators are being ostriches. They are exposed to fines and reputational damage to their
companies, their Boards, and executive.
Compliance is like the brakes on a Formula-1 car; if you are confident in your compliance, the
business can drive harder.

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Governance Associates

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