financial intelligence centre REPUBLIC OF SOUTH AFRICA Presentation to the Portfolio Committee on Trade and Industry on the Report prepared by the Gambling Review Commission 9 November 2011 Presentation by: Pieter Smit

DISCUSSION POINTS Provide background information on the Financial Intelligence Centre Act Indicate vulnerability of interactive gambling from money laundering / terror financing perspective Discuss Financial Intelligence Centre’s concerns with certain recommendations in Gambling Review Commission’s report

OBJECTIVES OF THE CENTRE Identify the proceeds of unlawful activities, combat money laundering activities and combat financing of terrorist and related activities Make information available to investigating authorities, intelligence agencies, supervisory bodies and the South African Revenue Services Exchange information with similar institutions in other countries Supervise and enforce compliance with the FIC Act and facilitate effective supervision and enforcement by supervisory bodies

VULNERABILITIES Money Laundering: Objective is to hide the fact that crime has taken place - proceeds from crime are no longer associated with that activity, illegitimately acquired proceeds appear to be legitimate income Terrorist Financing: Objective is to hide the fact that terrorist activity will take place or is being facilitated

VULNERABILITIES Use of gaming facilities by on-line punters to transfer funds from one person to another and/or from one location to another Use of on-line casino by operator as a front to receive funds from and to persons and/or locations

Transfer from one account to another VULNERABILITIES Person transfers funds into his on-line gambling account from a bank account Person conducts minimal or no gambling Person instructs on-line casino to transfer funds from gambling account to different bank account Funds have moved from one account and possibly from one person and/or location to another with a break in the transaction trail in the on-line casino’s records

Opposing losing and winning bets VULNERABILITIES Two persons play on-line poker in a game where the bets are not large They place large enough bets to scare off the other players One person then deliberately loses to the other The “winner” has the funds paid into the bank account of his choice Funds have moved from one person and/or location to another with a break in the transaction trail in the casino’s records

Use by operator as a front VULNERABILITIES Person acquires domain and sets up “on-line casino” for registered punters only Person opens bank account for on-line casino Criminal associates register as “gamblers” “Gamblers” lose to the casino and transfer funds from bank accounts to casino account Funds have moved from one person and/or location to another with a break in the transaction trail in the casinos’ records

Obligations on financial and non-financial institutions Identify customers Keep records of customers and transactions Report cash transactions above R Register with the Centre Institute internal controls MEASURES TO COMBAT MONEY LAUNDERING

Recommendation that betting exchanges and on-line poker be brought into the regulatory framework explicitly Increased money laundering risk because of possibility of collusion for the movement of funds Traceability of individual transactions and access to records on an exchange is very difficult Propose that betting exchanges and online poker not be allowed, but if so operators would have to be subject to all the regulatory measures against money laundering and terrorist financing as required by FIC Act CONCERNS

Recommendation that all forms of remote gambling be regulated by the National Gambling Act rather than limiting it to games played ‘against the house’ Alternative methods to establish and verify players’ identities in instances of non-face-to-face interaction Absence of human intervention means less or no possibility to detect suspicious activity through interactive casino facilities Propose that interactive gambling not be extended beyond current scope of National Gambling Act CONCERNS

Recommendation that there should not be a requirement for the server to be hosted in South Africa Lack of clarity as to jurisdiction where online gambling activities take place raises concerns from perspective of regulatory oversight and investigation and prosecution of criminal offences Supervisors need to establish jurisdiction over an operator in order to inspect punter and transaction information CONCERNS

Recommendation that there should not be a requirement for the server to be hosted in South Africa (ctd) Criminal investigations and prosecutions are hampered if location where transactions take place is called into question Investigations are hampered if records of financial transactions with South African link are located in foreign jurisdictions Essential that there is certainty as to where online gambling activity takes place and that all documentation and transaction records are located in South Africa where they can be easily accessed CONCERNS

Recommendation that there needs to be strict enforcement of illegal advertising by unlicensed operators Issue is not just one of advertising, but of ‘policing’ of licensing requirements and pursuing unlicensed operators Recommendation is supported - possible solution may be to require that operators have local footprint in order to advertise online gambling CONCERNS

Measures taken by the FIC to prevent cross border flow of funds due to interactive gambling FIC, together with the Reserve Bank and PASA, explored ways to limit the payment of funds connected with online gambling FIC initiated bilateral discussions with the banks which has resulted in some banks contacting their clients to inform them that online gambling is illegal Some banks have entered the names of known online gambling institutions on their payment screening databases CONCLUSION

Criteria for evaluating whether a form of gambling should be included in the legislative framework or not Potential abuse of interactive gambling must be considered in developing criteria for evaluating whether a new form of gambling should be included in the legislative framework or not Measures that preclude criminal involvement in the gambling industry generally and more specifically in the new forms of gambling must always be part of the equation CONCLUSION

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