To begin implementing the reforms, a “transition taskforce” will be established in April 2023 to protect the economic viability of venues across the state and monitor delivery against the roadmap.

The five-year plan

According to the Australia Institute, one-fifth of the world’s one million legal poker machines can be found in Australia, half of which are in NSW. To combat money laundering in the electronic gaming sector, Perrottet says the switch to cashless poker machines “solves problem gambling, solves money laundering, protects jobs and industries”. Additionally, the government says the reforms will enable law enforcement to better identify and respond to financial crime and will improve data analytics around gambling and money laundering. 

The NSW government’s five-year plan includes the following actions:

• Introducing mandatory cashless gaming in NSW across all venues
• Legislating for December 31, 2028, to be the date by which the full transition to cashless gaming must be complete
• Requiring any new cash machine purchased after July 2023 to have a load-up limit of $500, compared to the current $10,000 limit
• Enabling player identity verification to be linked to a single bank account
• Ensuring funds for gaming come from a bank account rather than allowing credit to be used 
• Ensuring personal player data can only be used for law enforcement
• Legislating the best possible player privacy protections for all system-generated data

Money laundering via EGMs

In October 2022, the NSW Crime Commission published the results of its Inquiry into Money Laundering via Electronic Gaming Machines (EGMs) in Hotels and Clubs. According to the report, approximately $95 billion was gambled through EGMs in hotels and licensed clubs in NSW from 2020 to 2021 with a “significant amount” of the funds estimated to be the proceeds of crime.

To minimize money laundering associated with EGMs, the NSW Crime Commission recommended the implementation of mandatory cashless gaming as it would remove anonymity and increase the traceability of EGM-related transactions. Additionally, the report outlined the following recommendations for the NSW government:

• Identify ways of creating real-time alerts for money laundering flags
• Create a legislative or regulatory framework that requires certain standardized data be maintained for EGMs to better flag suspected money laundering
• Work with industry to build the sector’s investment in AML/CTF training and education and secure support for training from external sources
• Explore technical and policy/process solutions to better utilize data collected by EGMs

The NSW government’s five-year plan aims to support all of the recommendations laid out by the commission.

Key takeaways

Firms with clients related to gambling businesses should be careful to ensure their customer due diligence (CDD) investigations go beyond basic know-your-customer (KYC) policies to better manage risks that may occur.

Compliance staff should also familiarize themselves the gambling sector guidance published by the Financial Action Task Force (FATF), paying close attention to the money laundering indicators explored in chapter two. In the report, countries and their national authorities are reminded to establish a partnership with casinos and other designated non-financial businesses and professions (DNFBP) sectors to combat money laundering and terrorist financing. The FATF also calls out casinos in its updated AML/CFT standards, stating that “casinos should be subject to a comprehensive regulatory and supervisory regime that ensures that they have effectively implemented the necessary AML/CFT measures.” 

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Speaking alongside senior executives from the Reserve Bank of Australia, the Australian Prudential Regulatory Authority, and the Australian Securities and Investment Commission, Rose contextualized AUSTRAC’s priorities in light of the impact of COVID-19 on financial behaviors around the world. She cited reports from the Financial Action Task Force (FATF) that detailed a spike in online banking, customer onboarding, and identity verification during the pandemic, resulting in a global reduction in the use of cash, but also an increase in the possession of digital currencies, trading of precious metals, and activity in the insurance sector and parts of the gambling sector. 

Education and information sharing

To meet these objectives, Rose stated a “general uplift” in AML/CFT program investment is necessary. AUSTRAC is committed to education and sharing financial intelligence through collaboration. . AUSTRAC’s team has visited over 450 pubs and clubs to ensure a good understanding exists of the need for compliant AML/CTF programs.  

Further consideration will also be given to the value of information sharing between casinos and law enforcement, as this could “add great value to law enforcement operations and would result in tangible disruption outcomes”. FATF guidance on private sector information sharing can be found here. 

Rose also noted that targeted supervision of the pubs and clubs sector will take place during the latter half of 2022. As a result, firms operating in this industry have an opportunity not to ensure their AML/CFT programs are comprehensive and risk-based, going beyond basic know your customer (KYC) policies.

Investing in technology 

To combat the increasingly large volumes of data received by AUSTRAC year on year, the regulator has prioritized the delivery of its Reporting Entities System Transformation (REST) program. The program aims to streamline the suspicious matter reporting process and enable AUSTRAC to sustainably collect the vast volumes of information required under the AML/CTF Act.

According to AUSTRAC, this improvement will:

• Make it easier to comply with reporting obligations
• Deliver a modern, secure and intuitive experience
• Support firms to proactively address compliance issues before they become a serious threat; and
• Improve data quality by alerting AUSTRAC to incorrect or non-compliant data.

Beginning in June 2021, the program is due to be finished in 2025. 

Simplified legislative frameworks

Rose also noted the need for AUSTRAC to simplify its AML/CTF legislative framework as its current complexity acts as a barrier to firms trying to comply. 

First acknowledged in the 2016 Statutory Review of the AML/CFT Act, AUSTRAC will be focusing on creating a streamlined regulatory framework that addresses contemporary challenges in the financial, criminal, and national security environments, without compromising on innovation or creativity. 

Blockchain analytic tools

An additional impact of COVID-19 was the increased uptake of distributed ledger technologies such as blockchain. To be in the best position to deal with this rise in crypto and the associated risks, Rose acknowledged the critical importance of blockchain analytic tools to detect illicit activity.

Rose also noted that while crypto-related risk typologies have risen over the course of the pandemic, criminals largely still need to convert digital currency into fiat currency to maximize their gains. 

Firms need to ensure they’re prepared for higher volumes of crypto-related transactions. Central to this is ensuring transaction monitoring tools include blockchain analysis, enabling firms to consolidate their risk management processes, and detect truly high-risk transactions and customers. 

Key takeaways

Compliance teams operating in any of AUSTRAC’s priority focus sectors should ensure they are familiar with the regulator’s extensive guidance that has been published on a host of major risks/typologies and how to handle them. All official resources can be found on the AUSTRAC website, including guidance on forced sexual servitude, the misuse of payment text fields, and suspicious crypto behaviors. 

A Guide to Anti-Money Laundering for Crypto Firms

Uncover the essentials of building and scaling a crypto AML program and how to navigate regulatory change.

Download the full guide

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Ismail Shalash sold vehicles to dealerships across the US, defrauding five victims in four states out of a total of $1.7m and attempting to defraud eight victims in five states out of a total of $3.4m.

According to the FBI, victims would try to contact Shalash (sometimes using the alias Armand Brigante of MDDI Inc) after waiting for the purchased vehicles to be delivered. But the vehicles never came, and the victims received no refund.

Authorities reviewing his bank account found that after receiving money from victims through wire transfers, Shalash would withdraw large amounts and cash them in at a casino. He would then launder the money by cashing out in credits.

The Hard Rock Casino Cincinnati’s Currency Transaction Reports (CTRs) reveal that between May 24th and August 24th, Shalash cashed in $464,796 and cashed out $789,541 – significantly more than he had deposited.

Documents also show patterns of suspicious activity in which Shalash’s casino account was used as a “conduit to transfer significant amounts of funds he received from victims through financial transaction channels”.

In September, a federal arrest warrant was issued for Shalash, who has dual Jordanian and Palestinian citizenship, after he was charged with wire fraud and money laundering. However, he had already moved to Morocco with his new wife Abir Mulawwah.

Shalash withdrew $500,000 in cashier’s checks before fleeing Cincinnati, while Mulawwah opened a safety deposit box at a bank in Houston, believed to be used to store Shalash’s illegally obtained funds.    

In November, FBI agents learned that Mulawwah was planning to return to the US and retrieve her safety deposit box. Arriving in Houston she went on a shopping spree, paying for items in cash.

“Mulawwah was planning to travel back to the United States frequently and slowly take cashback with her to Morocco,” documents read, adding that she planned to “purchase high dollar items in the United States and take them to Morocco to sell.”

A search of the safety deposit box found $300,000 in cash and Mulawwah was stopped from boarding a Turkish Airlines flight. FBI officials say that when interviewed, Mulawwah claimed she was no longer married to Shalash and had not been in contact with him since September. She was arrested and now faces charges of conspiracy to defraud the US, false statements, and money laundering. Shalash is still at large. 

Money laundering tactics

Despite the growing prevalence of illicit activity online, this case shows that cash continues to be a popular vehicle for money launderers. Compliance teams should look at the tactics employed by the money launderer here, including the use of casinos – which are a popular vehicle for criminal activity – spending on luxury goods that might not be easily detected, and the use of safety deposit boxes. 

The scope of the activity across multiple US states and countries is also notable, highlighting the importance of adverse media checks to help detect patterns that siloed transaction data may not, and the need to monitor high-risk individuals regularly. Screening online forums can be overlooked by compliance teams, but in a case such as this forums may have been used by victims to complain about Shalash’s activities. 

Financial institutions that are providing services to casinos and other high-risk venues should ensure that a comprehensive review of the business’ AML program is part of the onboarding process. Casinos themselves must also ensure they have conducted appropriate due diligence on customers accessing their services, whether in-person or online. 

In November, Bicycle Hotel & Casino in California found itself in trouble due to shortcomings in its AML program and failures to file SARs and CTRs for a foreign national who conducted millions of dollars in cash transactions at the casino in 2016. The casino was fined $500,000 and will submit to increased reviews of its AML program.

Find out more about the state of compliance in 2021 with our latest on-demand webinar. 

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Importance of the non-financial sector 

The perpetrators of these crimes know that they can bypass the banking sector and still effectively launder money. Cash-intensive businesses such as restaurants and betting shops, the purchase and export of luxury goods and the use of informal money mules are all common vehicles.

Money laundering at scale through financial institutions has been the primary focus of German legislators, with a view to preventing criminals from legalizing their illegitimate income, and assuming influential positions in the social and political life of Germany.

However, the importance of the non-financial sector for money laundering activities raises questions about the responsibilities of public authorities in this area and of the administrative structures in place outside the financial sector to combat money laundering. 

Allocation of responsibilities under section 50 of the Money Laundering Act

Section 50 of the Money Laundering Act sets out which firms are covered by the regulation based on whether they belong to a financial or non-financial sector of the German economy. 

However, these two categories are not defined in more detail in the Money Laundering Act. Instead, it is the responsibility of the Financial Intelligence Unit (FIU) set up at the border customs office to evaluate suspicious activity reports (SARs) and divide companies based on whether they belong to the financial or the non-financial sector.

Which firms are in the financial sector?

Accordingly, the entire banking industry, including financial services institutions and e-money companies, are classified as part of the financial sector. On the basis of the provisions set out in Section 50, money laundering supervision for the entire financial sector is in the hands of the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin). 

Which firms are in the non-financial sector? 

According to the classifications set by the FIU, the following companies subject to money laundering regulations (Section 2 AMLA) are to be assigned to the non-financial sector: 

• Insurance intermediaries
• Lawyers, tax consultants, auditors and notaries public
• Trustees
• Real estate agents
• Gaming operators
• Freight traders

The fact that these companies belong to the non-financial sector initially means that money laundering supervision by BaFin is out of the question. As there are no other assigned federal authorities, money laundering supervision of these companies falls within the administrative competence of the states (Länder).

The supervision of the non-financial sector

Non-financial sector organizations typically belong to a chamber of commerce or other form of professional organization who will supervise their activities alongside local authorities. 

As a general rule, this means the same authority that is responsible for ensuring compliance with hygiene regulations in the restaurant business or with food preservation regulations in  supermarkets is also responsible for monitoring jewellers and car dealers. 

The task of monitoring money laundering in the non-financial sector is therefore spread over hundreds of local authorities. Some of these may struggle with access to relevant expertise, staff and the wider industry awareness necessary to supervise firms effectively. 

One measure of the disparity between financial and non-financial businesses can be seen in SAR filings. In 2020 104,325 SARs were filed by the financial sector. Just 2,854 SARs were filed by non-financial companies in the same period. Of these limited SAR filings, only around 400 were filed by goods traders nationwide (source: Bafin Annual Report 2020, page 17). 

Focus on the banking sector

For years, the federal government has given high priority to the fight against money laundering. This has most recently been demonstrated by the tightening of Section 261 of the Criminal Code, which goes far beyond all European legal requirements in its definition of money laundering, including even petty offenses in the circle of predicate offences, as well as the increasingly far-reaching allocation of control tasks to banks. 

A look at the non-financial sector, however, makes it clear that administrative structures have so far not been able to keep pace with political objectives. It has been known for years that the non-financial sector accounts for a significant proportion of criminal money laundering offenses. In this area, administrative tasks aren’t centralized, and the inadequate staffing and technical resources of local authorities mean that effective monitoring of money laundering may not always be guaranteed. 

Further reading

Redefining money laundering in Germany: The Implications of Section 261

Raids Across Germany Target Network Suspected of 140m EUR Money Laundering

Anti-Money Laundering In Germany

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