Internet Sportsbook AML Compliance: 10 Things You Need to Know

Internet Sportsbook AML Compliance: 10 Things You Need to Know

by John Wellendorf

Director of Regulatory Affairs

Dec 11, 2023

In the fast-paced world of online sports betting, ensuring compliance with Anti-Money Laundering (AML) regulations is paramount. AML laws are designed to prevent and detect illicit financial activities, making it crucial for internet sportsbooks to establish robust compliance frameworks. This blog provides an overview of the basics of AML compliance for internet sportsbooks, covering federal AML laws, overseeing agencies, internal staff responsibilities, risk assessments, client identification, due diligence, and reporting requirements.

Here are 10 things you need to know when it comes to Internet Sportsbook AML Compliance:

1. Federal AML Law Summary:

The United States has a comprehensive set of federal AML laws, primarily governed by the Bank Secrecy Act (BSA). This legislation mandates financial institutions to establish and maintain effective AML programs to curb money laundering and terrorist financing. Casinos are included under the definition of financial institutions in the BSA, of which internet sportsbooks are generally considered an extension of casino gaming and thus subject to the law.

2. Overseeing Federal Governmental Agencies:

Two key federal agencies oversee AML compliance: the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC). FinCEN is responsible for enforcing the BSA, while OFAC administers sanctions programs to prevent funds flowing to individuals or entities involved in illegal activities. Any potential suspicious activity should be reported to FinCEN if it meets the filing threshold for your operation, and any confirmed matches of patrons at an internet sportsbook to the OFAC sanctions list should be immediately reported to OFAC.

3. Key Responsibilities of Internal Staff:

Internal staff at sportsbooks play a vital role in AML compliance. They are responsible for implementing and maintaining AML programs, conducting customer due diligence, monitoring transactions for suspicious activities, and reporting suspicious transactions to the authorities. All AML reporting institutions are also required to have a BSA/AML Officer, who, along with the company’s Board of Directors, is responsible for AML compliance. Customer-facing staff also play a crucial role in AML compliance, as they are the first line of defense when monitoring for money laundering and suspicious activity.

4. Best Practices for AML Risk Assessments:

Regular AML risk assessments are crucial. Sportsbooks should identify and evaluate potential risks associated with their operations, customers, and geographic locations. This helps in tailoring AML programs to address specific threats effectively. At a minimum, the AML risk assessment should be updated every 12 months, but more frequent assessments should occur if there are significant changes in business operations, the products offered to the public, or significant changes in technology.

5. Best Practices for Independent AML Assessments:

Independent AML assessments, often conducted by external experts, ensure an unbiased evaluation of a sportsbook’s compliance measures. This provides valuable insights into potential weaknesses and areas for improvement. Best practice in the industry is a yearly independent assessment of the company’s AML policy, controls, and the effectiveness of current AML efforts.

6. Know Your Client (KYC) Requirements:

Implementing strong KYC procedures is fundamental. Sportsbooks must verify the identity of their customers, collect relevant information, and assess the risk associated with each client. This helps in preventing the use of the platform for money laundering. Sufficient information about each customer is needed to determine the risk presented by that customer, reasonably predict the types of transactions in which a customer is likely to engage, detect and report suspicious activity, and evaluate whether the potential customer is a Politically Exposed Person (PEP).

7. Enhanced Due Diligence Tips:

For high-risk customers or transactions, Enhanced Due Diligence (EDD) is essential. Sportsbooks should conduct more thorough investigations, understanding the source of funds and monitoring these accounts more closely to detect and prevent suspicious activities. EDD can take various forms depending on the case but generally includes background checks, a review of publicly known information relating to the patron, and a request for information related to the patron’s Source of Funds/Wealth documentation.

8. SAR Reporting Requirements:

The BSA mandates the filing of Suspicious Activity Reports (SARs) by sportsbooks whenever there is suspicion of illicit activities. Staff must be trained to recognize red flags and promptly report such activities to FinCEN. Most sportsbooks have to file SARs when any suspicious activity occurs at an aggregated amount of $5000. However, if your internet sportsbook is also considered a Money Services Business (MSB), then a lower threshold for reporting would apply.

9. CTR Reporting Requirements:

Currency Transaction Reports (CTRs) must be filed for transactions exceeding $10,000 aggregate in physical cash over a 24-hour period. It’s important to note that only physical currency or the equivalent requires CTR reporting; credit card and bank transactions are exempt from CTR reporting but should be monitored internally. Sportsbooks need to ensure accurate and timely reporting of large cash transactions to comply with federal regulations. Specifically, the ability to track multiple cash transactions by a singular actor is crucial to meeting your federal CTR reporting requirements.

10. Tipping Off Provisions:

Tipping off provisions in AML laws prohibit sportsbooks from disclosing the filing of SARs or other AML-related information to the subjects of the reports. Strict confidentiality must be maintained to prevent interference with investigations. This is true both internally and externally, and punishment for sharing information related to the filing of a SAR is a federal crime for the individual who breaks confidentiality.

In conclusion, a robust AML compliance framework is indispensable for internet sportsbooks to operate ethically and legally. By understanding and implementing these basics, sportsbooks can create a secure environment for users while contributing to the global fight against money laundering and financial crimes.