Payment processors play a critical role in online casinos and gambling by facilitating transactions between operators and their players. Given the evolving regulatory landscape, particularly with the introduction of the LOK in Curacao, payment processors must navigate a complex environment to mitigate legal and financial risks. In most EEA jurisdictions, a Curacao license is not sufficient, so accepting players from these jurisdictions is illegal. Payment processors have a responsibility here.
Payment Processors’s Responsibilities
In the past, we have repeatedly discussed this with payment processors, many of which are in Cyprus. They have complained directly or through their lawyers when we have argued that the deliberate or negligent facilitation of illegal activities by their clients, such as online casino operators operating unauthorized in different regulatory regimes, also results in the payment processors breaching legal and regulatory requirements, including AML.
Payment processors, especially in the high-risk segment, must also check their customers’ activities at the transaction level and verify the money’s origin. A proper AML algorithm has no problem determining from which jurisdiction a payment is made. Financial institutions, including payment processors, must file Suspicious Activity Reports (SARs) with the responsible authorities in their regulatory regime. It is also easy to determine whether a casino operator has licenses for the jurisdictions from which it accepts players.
Risks and Compliance Issues
- Regulatory Compliance:
- Payment processors must ensure that their clients, the online casino operators, comply with local regulations where they accept players. In Europe, this means verifying that operators hold the necessary local licenses in jurisdictions such as the UK, France, Italy, Germany, Austria, and the Nordic countries.
- Failure to do so can expose payment processors to legal liabilities, including fines and sanctions from regulatory bodies. For instance, the UK Gambling Commission has stringent measures against financial institutions facilitating unlicensed gambling.
- Anti-Money Laundering (AML) and Know Your Customer (KYC):
- Payment processors are obligated to perform rigorous AML and KYC checks on their clients. This involves verifying the legitimacy of the online casinos and ensuring they adhere to international AML standards. The new LOK framework in Curacao emphasizes enhanced AML measures, which payment processors must take into account when onboarding clients.
- Operational Risks:
- The association with unlicensed or unauthorized gambling operators can damage the reputation of payment processors. This risk extends to financial relationships with banks and other financial institutions that might sever ties with payment processors engaging with illegal operators.
Illegality of Proceeds
- Proceeds from Unlicensed Gambling:
- If online casino operators are accepting players and their money in jurisdictions without the necessary licenses or authorizations, the proceeds from these activities can be considered illegal. This is because they violate local gambling laws designed to protect consumers and maintain fair market practices.
- For example, in countries like Germany, Italy, and France, gambling without a local license is explicitly prohibited. Revenues generated under these conditions are often classified as proceeds of crime under AML regulations.
- Implications for Payment Processors:
- Payment processors handling these funds can be implicated in money laundering activities, even if indirectly. This can lead to severe penalties, including hefty fines and restrictions on operations in regulated markets.
- Compliance departments within payment processors must be vigilant, ensuring they do not facilitate transactions for operators conducting business illegally. Regular audits and compliance checks are essential to mitigate these risks.
Conclusion
Payment processors accepting online casino operators as clients must prioritize regulatory compliance and robust AML measures. The evolving legal landscape, especially with reforms like the LOK in Curacao, underscores the need for stringent due diligence and compliance processes. Handling funds from unlicensed or unauthorized gambling operations can result in legal repercussions and reputational damage, making it imperative for payment processors to ensure their clients operate within the bounds of the law.
Maintaining compliance with local regulations, performing thorough KYC and AML checks on clients and their transactions, and staying informed about changes in the regulatory environment are crucial steps for payment processors to manage risks effectively and uphold the integrity of their operations.
We will continue this topic with the next article focusing on payment processors and payment agents in Cyprus. Stay tuned!