SJU Limited (“Stan James”) and Gala Interactive (Gibraltar) Limited (“Gala”) have both agreed with the Gambling Commission to pay penalty packages for social responsibility failures resulting from customers gambling proceeds of crime. Stan James is set to pay a total of £80,000, whilst Gala will have to stump up £2.3 million. Both operators were found to have failed to comply with their customer interaction obligations (and Stan James additionally its anti-money laundering obligations). This enforcement action follows other instances of the Commission settling for large sums with operators for compliance failings, and is further evidence of the changing regulatory climate that the sector now finds itself in.
Investigation into Stan James
The Commission commenced a regulatory investigation into Stan James (part of the Kindred group) in March 2017, after receiving a police report that an individual who was convicted of stealing from his employer had deposited some of the proceeds with the operator, losing £40,000 between 1 November 2014 and 30 October 2016. The public statement setting out the Commission’s findings was subsequently published on 30 October.
During the course of the investigation, the Commission found that Stan James breached Social Responsibility Code Provision 3.4.1 of the ‘Licence Conditions and Codes of Practice’ (“LCCP”). This requires all licensees to put in place adequate policies and procedures to identify problem gambling. It is a requirement that these include provisions to guide and deliver effective customer interactions, in particular in relation to high value players, and to identify at risk customers displaying obvious signs of, or behaviour associated with, problem gambling.
The Commission found that Stan James’ responsible gambling policy did not meet these standards and that this contributed to the operator’s failure to identify and effectively interact with the customer in question. Stan James’ social responsibility interactions with the customer were limited to emails containing social responsibility sign posting, which the Commission states were triggered by monetary alerts only and failed to take a “holistic view of the customer’s gambling activities” that the Commission expected.
In addition to this, the Commission found that Stan James breached Ordinary Code Provision 2.1.2 of the LCCP. This requires that all (non-casino) licensees must take into account the Commission’s guidance ‘Duties and responsibilities under the Proceeds of Crime Act 2002’ as part of their procedures for compliance with the prevention and detection of money laundering in the Act.
The customer gambled £137,000 of stolen money over two years. During this time, no anti-money laundering thresholds were triggered, nor was the customer subjected to adequate source of funds checks. The Commission held that, had the guidance been followed, such failings would have been avoided.
Investigation into Gala
Only a week later, the Commission found that Gala (now part of Ladbrokes Coral) had also breached Social Responsibility Code Provision 3.4.1 of the LCCP, as a result of failing to adequately interact with two customers who were displaying problem gambling behaviour, and the fact that specific provision had not been made for social responsibility requirements when interacting with VIP customers. The public statement was published on 6 November.
Both customers used stolen money to fund their gambling with the operator. The first (“Customer A”) lost £837,545 over a 14 month period, placing 842,020 bets on online games. The second (“Customer B”) lost £432,765 over an 11 month period, placing 554,954 bets. Both customers deposited large amounts in a single day - with Customer A depositing approximately £49,000 and Customer B £20,000 – and were later prosecuted and are currently serving prison sentences.
Again the Commission found that the interactions between Gala and the customers were inadequate. In respect of Customer A these primarily consisted of communications designed to facilitate the customer’s gambling and, despite frequent contact with Gala’s VIP team, Gala failed to ensure all information was used to make effective decisions when considering Customer A as an at-risk customer. The Commission also held that interactions should have taken place to establish whether Customer B was a problem gambler – the regulator could find no evidence that such considerations took place at all.
Finally, the Commission established that Gala’s written policies did not make specific provision for social responsibility requirements when interacting with VIP customers, a specific requirement of Social Responsibility Code Provision 3.4.1, as introduced on 8 May 2015. Whilst Gala did provide an updated and compliant policy on 31 May 2017 to the Commission, the regulator held that it was unacceptable that it had taken so long for the operator to do so.
Stan James’ £80,000 penalty package consists of a £40,000 payment to the customer’s employer and a payment in lieu of a financial penalty of £40,000. The latter was discounted by the Gambling Commission on account of Stan James’ transparency, acceptance of failures and timely disclosure during the investigation. Stan James accepted that it did not have adequate procedures and policies to identify problem gambling behaviour and they failed to comply with financial requirements to identify and prevent money laundering at an early stage of the investigation. The operator also made immediate improvements to its anti-money laundering and responsible gambling policies and procedures following commencement of the investigation.
Gala meanwhile will pay a total package of £2.3 million, consisting of a £1million payment in lieu of a financial penalty, £837,545 to the employers of Customer A, and £432,765 to a business who had funds stolen from them by the partner of Customer B. Gala also volunteered to pay an additional £200,000 for research relating to the causes of problem gambling. In addition to these financial penalties, Gala has agreed to implement improvements to its social responsibility procedures to minimise the risk of repetition of the failings identified.
The size of the payment in lieu of fine agreed is likely a reflection of the fact that the failings identified were held to be similar to those relating to a separate regulatory settlement from last year. Gala Coral Group Ltd agreed to a payment package of more than £846,000 as a result of weaknesses being identified in its social responsibility and anti-money laundering controls after the Commission identified potential money laundering and problem gambling activity in relation to one of its customers. The operator assured the Commission that similar customers of concern would be identified sooner and more effectively handled. This assurance was made during the same period of time in which Customer A and Customer B were gambling.
Lessons for operators
Given the unveiling of the Commission’s reformed enforcement strategy back in July and recent landmark settlements with BGO, Lottoland, and 888 the settlements will perhaps not come as such a surprise to the sector. Viewed in this context, the settlements with Gala and Stan James can be seen as yet more illustrations of the new regulatory environment and a harder line taken by the regulator for non-compliance, rather than as anomalies. Neither, however, were subject to a licence review by the Commission, something which the regulator stresses in the enforcement strategy is on an equal footing with other regulatory tools.
Both cases show the importance of ensuring adequate customer interaction procedures are in place to identify at risk and problem gamblers. Operators would be wise to take note of the specific guidance set out in the public statements by the Commission regarding this. The Commission identified various lessons to be learned in respect of both cases and emphasised that these were of value to remote and non-remote operators alike.
In respect of the Stan James case, the Commission recommended that operators should make use of all relevant information to ensure effective decision making in respect of anti-money laundering and responsible gambling issues, as well as suggesting operators consider whether:
- their policies identify at risk customers who may not be displaying obvious signs of, or overt behaviour associated with, problem gambling;
- they regularly update and review their anti-money laundering policies and procedures and staff training to ensure they are effective and remain relevant;
- they are gaining a holistic picture of a customer’s source of funds/wealth using all available information; and
- they have procedures for reviewing all available information before deciding a suitable response once at risk customers are identified.
In respect of the Gala settlement, meanwhile, the Commission also stressed the need for operators to consider whether they are using all information (including customer spend levels and emotional state) to spot problem gambling behaviour. In addition to this, they recommended that operators consider, whether they:
- are checking on the wellbeing of customers whose behaviour may indicate problem gambling and have policies and procedures in place that help them do so;
- have policies and procedures which make specific provision for social responsibility requirements when interacting with VIP customers; and
- are keeping accurate records of these interactions.