Evidence submitted by Simon Thomas (ECR0025)
8 May 2018
Dear Mrs. Morgan,
The Treasury Select Committee’s Economic Crime Inquiry
I am writing in response to the Treasury Select Committee’s Economic Crime Inquiry. As the CEO and Chairman of the Hippodrome Casino in London (the UK’s largest international-style casino and its busiest), I have a particular interest in relation to the aspects of this inquiry which relate to the scale of money laundering in the UK and the current legislative and regulatory landscape and potential weaknesses within this.
I have a great deal of experience in many sectors of the gambling industry, and am firmly committed to supporting a strong and responsible gambling industry which is operated both fairly and safely. As you may know, I have been outspoken in my concern about Fixed Odds Betting Terminals which are both causing harm to vulnerable people and present money laundering risks and therefore bringing our industry into disrepute.
As a counter-point, the Hippodrome is an excellent example of how the gambling industry can act in a socially responsible way, well within financial regulations and provide gambling in a proportional way. The Hippodrome is at the heart of a community rather than the scourge of it, leads regeneration, renovation, job creation and the (legitimate) inward flow of money into the country, both capital from investment and income from tourists.
It is critical that gambling operators act with the rigour in terms of dealing with potential opportunities for money laundering. The laundering of proceeds of overseas corruption into, or through, the UK fuels political instability in key partner countries. Domestic money laundering is also a key enabler of serious and organised crime, the social and economic costs of which are estimated to be £24 billion a year.
As I understand it, the UK’s law enforcement agencies know most about cash-based money laundering, particularly cash collection networks, international controllers, and money service businesses, although some gaps in knowledge remain. However, the intelligence picture in other areas – such as high value dealers, gambling, and new payment methods – is reported to be mixed.
The Hippodrome treats the potential for money laundering with the utmost seriousness and has a wide range of measures in place to prevent it. Our customer facing staff all have Anti Money Laundering training, with annual refresher training. We employ dedicated slot hosts to constantly monitor machine play as well as inspectors to monitor table gaming play and trained staff interact where appropriate with customers to establish their source of funds. Moreover, we are bound by the Money Laundering Regulations 2007 that currently apply in the gambling sector (only) to casinos, so we have to record photo ID on any customer that transacts more than the equivalent of €2,000, and we have enhanced due diligence for larger transactions.
While the overall money laundering risk in the regulated casino sector is low, we look forward to continuing to work with the regulators on the best ways to continue to prohibit laundering through casinos moving forward.
I would however like to take this opportunity to underline my concerns in relation to Fixed Odds Betting Terminals (FOBTs), of which there are currently around 35,000 in Britain’s bookmakers, since there is significant evidence that these machines are driving opportunities for money laundering. These casino gaming machines are situated in bookmakers. As you will know, FOBTs are touch screen roulette machines found in betting shops across Britain on which gamblers can play casino games with a stake of up to £100 every 20 seconds, FOBT roulette is over four times faster than roulette in a real casino. So a player can transact £18,000 an hour in an environment often with just one member of staff who is behind a screen and will therefore be unable to interact with customers let alone monitor their machine play.
Along with many others in sector, given the risks FOBTs, I was both surprised and concerned that bookmakers were not categorised as ‘high risk’ and included last year within the scope of the Fourth Money Laundering Directive. Despite the material difference in regulation and control, bookmakers have been categorised in the same way as casinos, ie ‘low risk’ in comparison to other regulated sectors. Given the very evident money laundering risks FOBTs present, this was a missed opportunity, presents a clear revenue risk to the Exchequer and provides a further source of income for organised crime.
The Gambling Commission following investigations that highlighted weaknesses in bookmaker anti money laundering procedures and has said “In our view, a retail betting model that includes high volumes of cash transactions, particularly where this includes low individual spend and a high level of anonymity, presents a high inherent money laundering risk, especially where that model also offers B2 gaming machine play as a substantial part of the gambling facilities available to customers and where this is widely available through multiple premises across a spread of betting operators as high risk for money laundering.”[1]
With such high stakes available at high speeds, in unregulated and low supervision environments, with weak operator compliance procedures, FOBTs in bookmakers present a prime opportunity for money laundering. The Gambling Commission has reported that they have been engaging with the police in relation to money laundering in bookmakers. Indeed, there have been a number of media reports of money laundering through these machines, with real life reports of how criminals launder money through FOBTs, betting on both red and black on a roulette game to lock in a win at a ‘laundering cost’ of 2.73%. These reports also note that winning slips from the machines are traded as anonymous currency by drug dealers. The recent initiative by some bookmakers to allow cash winnings to be transferred onto pre-paid debit cards present further opportunity for fraudsters to launder money. There are frequent stories in the press demonstrating how this is all happening now. This was in today’s press giving a perfect example of the problem
https://www.manchestereveningnews.co.uk/news/greater-manchester-news/gang-laundered-fixed-odd-betting-14612826
Given the growing evidence that FOBTs are being used as a prime vehicle through which to launder money, I urge the Government to ensure there is a focus on these machines in its Anti-Money Laundering oversight. At present bookmakers should be categorised as high risk for money laundering purposes moving forwards, and be bound at least by the same AML regulations as Casinos.
I very much hope the Government will soon act and make a significant stake reduction to £2 on FOBTs which will go some way towards dealing with these risks.
The Hippodrome, like all casinos, is heavily regulated and rightly so. Casinos worldwide are recognised as appropriate venues for harder gambling (gambling where you can win, or lose, large amounts of money quickly) with corresponding levels of regulation, supervision and player protection. We are at the top of Sir Alan Budd’s triangle of gambling regulation, with high levels of supervision appropriate to the level of gambling we offer. You will note that this is unlike FOBTs where bookmakers offer high stakes, hard gambling, in the low level supervision, easily accessible, ambient gambling environment of a bookmaker. FOBTs effectively fall well outside the internationally accepted pyramid of gambling regulation. And online gambling is so far out of the normal, that it would be above FOBTs on the below diagram. The diagram below illustrates this point:
However, at the Hippodrome, despite our very high levels of supervision and anti money laundering controls, we are always, rightly, looking for ways to improve wherever we can.
I would very much welcome the opportunity to discuss these issues in further detail with you, particularly given the cash intensive nature of the gambling industry. The Select Committee would also be most welcome to visit the Hippodrome, a truly historic landmark in the heart of London’s Leicester Square, to get a stronger understanding of all the innovative work we do in this area. I will ask my office to get in touch to see if this would be of interest.
Yours sincerely,
Chairman & CEO, Hippodrome Casino Ltd
LEICESTER SQUARE, LONDON WC2H 7JH
HIPPODROMECASINO.COM
Registered in England and Wales: Hippodrome Casino Limited, Cranbourn Street, Leicester Square, London. WC2H 7JH.
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