In a recent discussion at ABA/ABA Financial Crimes Enforcement Conference, "Sports Betting Apps: AML and Fraud Risk," K2 Integrity Director Bryan Conner sat down with compliance officers from MGM Casino and Churchill Downs to review the state of current regulations and what to expect in 2022.

Gambling is an industry that, like it or not, is inherently associated with risk. In fact, its very existence is based on participants willing to take chances with (usually) their own hard-earned money. These truths, as well as the decades-long reputation of attracting bad actors (sometimes literally), have created an environment that is ripe for illicit behavior. Transferring this activity to apps on mobile devices can create additional entry-points for criminals, requiring layers of risk management to ensure the legitimacy of play.

Just like financial institutions, casinos and gambling entities are subject to federal anti-money laundering regulations and required to report suspicious activity to the government. In the last several months, FinCEN has begun tightening enforcement of Title 31 of the Bank Secrecy Act that holds casinos accountable for their compliance practices. As these rules become more stringent and financial penalties raised – a trend that's expected to continue – businesses need to install appropriate AML controls to monitor transactions and safeguard processes. With pressure mounting, the need for secure operations online is being raised to a whole new level. Key compliance issues faced by mobile sports betting apps include:

  • Customer identification for online/virtual persons
  • Know Your Customer (KYC) & Knowledge-Based Authentication (KBA)
  • New guidance/relief from FinCEN for casinos and sportsbooks, with alternate customer identification requirements
  • Geolocation technologies and testing controls designed to ensure legal wagering
  • VPN detection and IP spoofing
  • Minimal gaming and suspicious betting
  • Data analysis for identifying unusual trends and suspicious activity
  • Creating and documenting AML procedures designed to address specific risks related to mobile sportsbook betting

Due diligence on mobile/virtual customers is essential and difficult, but not impossible. An organization is best positioned for success when compliance programs are developed and advocated for starting at the top. With the board agreeing to sign on, and then sign off on, a full AML program, resources can be allocated in the most effective way. Staff and employee training, reporting technologies, cybersecurity practices, and other expenditures are necessary to avoid being hit with heavy fines.

By taking stock of current compliance programs and assessing potential weaknesses, those in the gaming sphere can position themselves as leaders—and mitigate bad behavior (and costly fines and penalties) before it begins.

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