The gaming industry has exploded in popularity in recent years, with billions of dollars being spent on gaming each year. Unfortunately, it has also attracted the attention of terrorist networks and criminal organizations looking to use gaming as a way to launder money. The links between money laundering, organized crime, drug trafficking, and terrorism pose a risk to financial institutions and gaming organizations globally. One key way for these organizations to prevent money laundering is to implement a strong Know Your Customer (KYC) process.  

Why KYC? 

What exactly is KYC, and why is it so important in the gaming industry? Simply put, KYC is knowing your customers and the risks they bring to your organization. This knowledge is the foundation of a compliance program because it allows casinos to reduce their risk of being misused by individuals or criminal elements for money laundering purposes. Only by knowing who your higher-risk players are can you proactively manage their risk. Often times gaming organizations lack the software tools to effectively identify risk and use rudimentary methods like limiting risk scoring to only their top 1% of players. This means they do not have even a basic understanding of the risk 99% of their active players bring to their organization. Through the use of new software systems that simplify the KYC process, casinos are now able to apply the same level of risk analysis they give to the top 1% of players to every player in their database. This allows casinos to identify risky players who used to slip beneath the radar, and apply appropriate risk management measures.

In addition, KYC is essential to meet compliance expectations with various laws and regulations requiring KYC processes. Organizations that fail to comply with these regulations can face serious consequences. In 2022, the total dollar value of financial penalties imposed on gaming operators by global regulators increased by nearly 450%^1.  Implementing a robust risk-based approach to the KYC process helps gaming organizations meet relevant legal requirements, which creates a layer of protection from potential fines and other penalties. This approach can only be achieved by obtaining a clear understanding of who their customers are and what potential risk they can bring to the organization.

Conducting a KYC review involves making a reasonable effort to determine the true identity and beneficial ownership of an account, a player’s source of funds, the nature of a player’s business, and whether or not a player’s activity is reasonable in relation to their account profile. After these efforts have been made, casinos can assess each player to determine the level of risk they possess and identify potential bad actors. Only by adequately understanding these elements about their players can gaming organizations manage their risks appropriately.

So, how can gaming companies implement a strong KYC process? They should focus on three key elements: customer identification, enhanced due diligence, and risk management.

Customer Identification

What is a customer? While the answer may seem obvious, for KYC purposes a customer is defined as any person completing an inbound or outbound financial transaction within a gaming organization, or who maintains an account or relationship with the gaming organization. While business and vendor relationships also require KYC review, this article will focus on individual players.

Truly identifying a customer requires knowing personal identifiers as well as verifying them through reliable and independent documents, data, and information. Casinos need to be able to prove to the authorities that due diligence was observed in accordance with legal and regulatory requirements. For most customers in a casino, identity is confirmed through the use of a state issued ID (US customers) or with a passport (international customers). As a customer’s transactional amounts increase beyond thresholds, additional identifiable information will be required. In some cases, the customer will be subject to an Enhanced Due Diligence (EDD) review.

Enhanced Due Diligence

EDD is an essential part of the KYC process in gaming. It involves conducting a more thorough and in-depth review of a customer to identify potential risks or red flags that might indicate illicit activity or financial crime. Both open-source searches and pay per search data providers are used to gather this type of information.  

During the EDD process, many factors must be taken into account to paint an overall picture of the player’s financial position. The player’s source of wealth can provide crucial background information for reviewing transaction history. The customer’s level of play should also be compared against their reported income and any potential additional sources of wealth to determine risk. The analyst should also consider whether the customer owns any other high-end assets, multiple homes, luxury cars, boats, airplanes, or other indicators of wealth.  

Criminal activity and negative media publications should also be examined. An analyst might seek answers for questions like:

• Does the customer have any legal filings, bankruptcies, civil litigation (petitioner or defendant), or criminal cases?  

• Has any regulatory agency ever taken action against this player, his or her licenses, or business?  
• Has the player ever been reported on by the media for being involved in an activity that was questionable or criminal in nature?

Of course, there is always the chance that something is discovered during the EDD phase that can’t be captured neatly in the previous categories but is still relevant. Any findings of that nature should be included in the report to paint a more complete picture of the customer being reviewed.

Risk Management

Once identity verification and EDD are completed, the gaming organization can calculate how much risk that player poses to the establishment for potential money laundering. Compliance teams will review the results of the EDD alongside transactional history and other pertinent information to determine a risk score for the player. Once potential risks have been identified, it is important for casinos to implement controls and procedures to mitigate those risks. Patrons with elevated risk scores or scores within an undesirable range may be subject to additional transaction monitoring, periodic reviews or similar oversight to ensure high risk players are not utilizing the casino for money laundering.  

KYC is a critical element in any anti-money laundering program. Developed by compliance people for compliance people, Kinectify makes it easier to identify customers, perform enhanced due diligence, and manage risk by presenting information in an easy- to- use interface and streamlining each element of the KYC process.

Want to see how these all fit together? Book a demo with Kinectify to see how we can help you implement a strong KYC process within your gaming organization.

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¹ https://usa-casino.com/casino-news/casino-industry-fines-reach-record-levels-2022/

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