Irregular regulation? Policing anti-money laundering in the bookmaking industry

The imposition on bookmakers of a regulatory role in relation to money laundering and the source of punters’ funds is looking increasingly problematic.

In the last year or so this firm has been contacted by numerous punters who have reached a dead end in their attempts to release funds from online betting accounts with bookmakers simply citing ‘regulatory concerns’ as the basis for the refusal to pay out. Although in some cases the bookmaker in question is acting with appropriate caution, in the majority of cases brought to our attention it would appear that either the bookmaker does not understand its regulatory duties or is seeking to manipulate them for commercial purposes.

In our experience the number of punters who are asked by bookmakers to provide evidence as to the source of their deposits before those deposits are made is effectively zero while the practice of asking punters where their money came from only after they try to withdraw it, or after a significant win, seems increasingly common. It is perhaps not surprising that bookmakers are very keen to allow funds to be deposited with them yet less keen to pay out and it is this simple reality which in our view causes a structural problem in the current regulatory framework as applied to the bookmaking industry.

Bookmakers are of course not the only organisations who have a regulatory role in taking steps to minimise the risk of their being used by criminals for the purposes of laundering money (or financing terrorism). Lawyers, Accountants and Stockbrokers for example are all under similar duties and face harsh penalties if they fail to discharge those duties properly. However there is a fundamental difference in the relationship between these professions and their clients on the one hand and that between bookmakers and their customers on the other which essentially comes down to this: the contract between a bookmaker and a punter is a purely adversarial ‘zero sum’ game.

The bookmaker’s ultimate aim when accepting funds into a gambling account is (perfectly legitimately) to relieve the customer of those funds altogether. When a Solicitor advises a client on buying a house his aim is for his client to get the house and when he advises him in relation to litigation he wants him to win that litigation. Similarly when a Stockbroker buys shares for his client he wants the value of the shares to go up and for his client to make a profit. These are therefore not adversarial contracts – the client and the professional want the same end i.e. the house or equities to be purchased or the litigation to be won. Generally speaking the professional’s fee is not tied to the success of the underlying service provided and certainly not based on the client somehow losing out.The opposite is true of the service provided by bookmakers – the more the customer loses, the more the bookmaker gains (and vice versa of course). Another way of putting it is that an Accountant’s relationship with his client is, in theory at least, ‘win/win’ whereas a bookmaker’s relationship with his customer is ‘lose/win’ or that the former is a ‘cooperative’ contract whereas the latter is ‘competitive’.

None of this is to criticise the nature of a gambling contract which is ‘adversarial’, ‘lose/win’ or ‘competitive’ by its very nature. To remove this feature of the contract would be to turn it into something other than a gambling contract. However what it does in our view mean is that the parties have diametrically opposite interests and in that circumstance it seems to us inappropriate for one of the parties to have a right outside of the terms of the wager to refuse to pay out.  Imagine a situation around a poker table where a player accepts that he has lost his chips pursuant to the rules of the game but is then allowed to refuse to hand them over because he decides he can’t be sure his opponent is sitting at the table with honestly acquired money. Giving a bookmaker the role of deciding when it can ‘safely’ pay out winnings to a punter in our view suffers from precisely the same inherent problem – it is unfair.

As mentioned in previous articles this does not mean that a bookmaker’s interest in a customer’s source of funds is always artificial. The duty to prevent money laundering is expressly an ongoing one and if a customer’s behaviour in relation to his account becomes suspicious then of course the bookmaker must carry out further investigations. But winning a bet and trying to withdraw funds do not in themselves amount, we would suggest, to suspicious behaviour. Yet in the majority of the cases we see, these are the points at which bookmakers suddenly decide they are concerned about where the punter obtained his money from in the first place.

The most obvious point at which bookmakers ought to consider the legitimacy of the source of a customer’s funds is when they are deposited. If for example someone under the age of 21 deposits tens of thousands of pounds then clearly the time to investigate that is when the deposit is made, not after numerous bets are placed and accepted and withdrawals attempted. In this situation if the bookmaker does not raise concerns until the customer tries to make a withdrawal then the likelihood is that it has failed for some time in its regulatory duties. That failure to identify concerns when they should have been identified (i.e. when funds were deposited) could well have serious consequences for the bookmaker.

First it means that if losing bets are placed using funds in relation to which the bookmaker has not obtained ‘comfort’, the bookmaker will transfer funds (in the form of losing bets) into its own bank account in a manner that could well amount to a criminal offence. Secondly imagine the not uncommon scenario where a punter loses all of the sums he has deposited – not only has the bookmaker potentially benefitted from a criminal enterprise but there is no incentive at that stage for the customer to provide any source of funds information demanded by the bookmaker. The bookmaker may well be under a regulatory requirement to obtain that information, but the punter is under no such obligation to provide it.

Increasingly this firm is seeing situations where the conduct of the bookmaker in the exercise of its regulatory would appear to be motivated by commercial self-interest. It is well known that it is not uncommon for some bookmakers to demand to see a customer’s bank statements when the customer tries to withdraw funds from his account. Increasingly however we are seeing bookmakers demanding the provision of personal information relating to third parties whose names appear on the customer’s bank statements. Quite how these bookmakers expect their customers to provide information that they do not have and cannot force third parties to disclose to a bookmaker is never explained. When the customer explains that the third party (unsurprisingly) does not want to disclose sensitive personal data to a bookmaker with whom they have never had any dealings, more often than not the response from the bookmaker is that the funds will not be released until the demanded information is disclosed. That logic is highly problematic not least because it means that funds are sitting in a bookmaker’s bank account that it considers may be the proceeds of crime indefinitely. That is certainly not in the interests of the punter and it may be thought that it is hardly in the interest of the bookmaker.

In fact there are several potential reasons why the bookmaker might be perfectly content with this apparent Mexican stand-off. First the bookmaker knows that once money is paid out, it is very unlikely to come back. As long as Honest Joe is sitting on the funds in question he may feel he at least has a chance of keeping it. This ties in with why he is asking for information he cannot reasonably believe he is required to obtain – it does not seem unreasonable to assume that Joe might have at least a passing interest in whether that information might allow him to establish a breach of contract thereby allowing him to retain some or part of the sum in question and certainly we have seen several instances of this.

More concerning however is the possibility that some bookmakers are looking to manufacture a right to pay themselves sums that they are refusing to release until they are ‘satisfied’ that they can do so safely. ‘Dormancy fee’ clauses are particularly disquieting in this regard. This is an example of such a clause:

“If an account has been inactive (no successful deposits made or bets placed) for a period of 180 days then it shall be a ‘dormant’ account and [Honest Joe] shall be entitled to charge 5% of the account balance per month until the balance is zero or until the account is reactivated.”

On a literal reading of this clause, a bookmaker who refuses to release funds until demands relating to information that its customer is unable to provide, can slowly appropriate that sum while claiming that it considers that it may represent the proceeds of crime.

It is of course extremely important that the bookmaking industry is not used by criminals to launder money. However it may well be time to re-assess how that can be best achieved.

This article does not constitute legal advice – see ‘Legal’.

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