The Supreme Court’s decision could lead to the proliferation of sports betting activity throughout the U.S. in the coming months, if not globally, as those in other jurisdictions work to enter the market, too. The resulting influx of cash, check, wire and web transaction activity will increase money laundering risks for sportsbook operators, as well as those who bank them.
Commercial casinos, which have gross annual gaming revenues (GAGR) in excess of $1 million, have been defined as “financial institutions” under the Bank Secrecy Act (BSA) provisions of Title 31. New and existing sports book operators will be required to develop and maintain risk-based compliance programs designed to detect and deter money laundering. Failure to comply with anti-money laundering (AML) rules comes with the risks that could result in a sportsbook operator facing severe fines and penalties, reputational damage and revocation of gaming license, as well as possible prison time for bad actors.
Sportsbook operators sprinting to get in compliance with the BSA and mitigate money-laundering risks associated with sports betting should take steps including:
Develop and maintain a robust know-your-customer (KYC) program—While it may sound simple to know your customer, the effort could be entirely new to sportsbook operators just entering the space. Further, with an expected influx of new sports betting money, many previously unknown customers will arrive as well—both from inside and outside of the U.S. Collecting KYC information, where appropriate, is essential for establishing a customer gaming activity profile.
For patrons transacting in high frequency and/or high dollar amounts, customer gaming activity profiles will need to be updated frequently to help sportsbook operators assess the legitimacy of the activity. In some instances, discerning the legitimacy of money used will need to include conducting background checks into employment status and history, occupation and industry, and criminal and civil litigation activity. It is also wise to conduct public database searches for negative news coverage related to such frequent high volume and/or high dollar bettors.
- Monitor transactions—Transaction monitoring will be crucial for identifying, aggregating and assessing gaming patterns indicative of potentially suspicious gaming activity. As such, sportsbook operators should establish automated transaction monitoring systems that aggregate cash, wire and check activity to identify and report unusual or suspicious activity. Existing software solutions may not have the necessary rules and thresholds in place to identify, aggregate and assess the above-identified activity.
- Report to regulators as required—Policies and procedures should be established to ensure regulatory reporting requirements—including suspicious activity reports (SARs) and currency transaction reports (CTRs)—have been met. Compliance with reporting requirements should especially be considered when related to sports betting on behalf of third parties, for example, “messenger betting,” which FinCEN has already identified as a key risk in sports betting.
Educate your employees early and often—While sportsbook operator employees may be familiar with some FinCEN rules and American Gaming Association (AGA) guidelines, most are unlikely to know much about the BSA. Compliance with the BSA, demands creation of risk-based written policies and procedures. However, handing employees those written documents will not be nearly as effective as early and frequent training to help them understand the risks and telltale signs of money laundering, as well as related regulatory reporting obligations.
It is an exciting new time for the casino and gaming industry. Nevertheless, with any such massive industry disruption, putting time and resources into building a strong regulatory, compliance and risk management foundation can support long-term success.