Review of Australia's AMLICTF Framework Submission by Australian Bookmakers Association (ABA)

Australian Bookmakers' Association Pty Ltd. (Formerly ARBAC Pty Ltd.) A.C.N. 066 699 607

ACT Bookmaker's Association Chairman: Warren Barrington NSW Bookmaker's Co-operative Ltd. CEO: Peter Fletcher Queensland Bookmakers' Association Address: 198 Pitt Street South Australian Bookmakers' League Inc. Sydney NSW 2000 Tasmanian Bookmakers' Association

Victorian Bookmakers' Association Ltd. e-mail: [email protected] W.A. Bookmakers' Association Inc. Telephone: 02. 9267.7605 Facsimile: 02. 9267.4147 ww w . australianbookmaker s .com.au

27th February 2014

Review of Australia's AMLICTF Framework

Submission by Australian Bookmakers Association (ABA)

The ABA is pleased to take this opportunity to make a submission to the statutory review of the operation of the AMUCTF Act, Regulations and Rules (Regime) as invited by the Attorney-General's Department in December 2013.

The Australian Bookmakers' Association

The Australian Bookmakers' Association (ABA) is the representative body for Australia's on-course bookmakers on matters of nationalimpact.

Our support base is drawn from the state bookmaking associations, their delegates and approximately 600 on-course bookmakers Australia-wide who provide their services to the Australian racing industry.

On-course bookmakers are typically sole traders or small partnerships. They are acknowledged to be a vital part of the racing industry, adding colour and excitement to the race day experience of racegoers and punters.

Our members' market share within the national wagering industry has diminished in relative size in recent years due to competitive pressures from larger corporate style operations ('corporate bookmakers') and the TABs.

Due to scale of business factors, the viability of our members is very much tied to their costs of operation including the costs of related administrative and compliance obligations. AUSTRAC compliance obligations are significant and in our view should be reduced wherever possible in line with the Govemmenfs stated policy of reducing the regulatory burden on small businesses.

Finally, the ABA is an active participant on the AUSTRAC Gambling Industry Consultative Forum which meets regularly to provide a '2-way' update on AUSTRAC related issues impacting the industry. The ABA is committed to continued participation in that forum and any similar processes that would be helpful to AUSTRAC.

Outline This submission is organised into the following sections: • Summary • Difficulties with Regime • AUSTRAC's proposed exemption • An extended exemption - proposal • A simplified regime (outside the exemption)- proposal • Some particular issues • Next steps in reform process Page 1 Australian Bookmakers' Association Ply Ltd.

Summary

ABA members understand and are committed to the public policy objectives of the AMLICTF Regime. The Regime must be designed to allow them to take some achievable and effective measures toward mitigating MLITF risk and combating MLITF while being practical and administratively manageable for them as extremely small businesses among the universe of reporting entities.

At present the substantial burden for bookmakers of undertaking risk assessments, writing their own risk-based programs and undertaking considerable compliance management activities diverts bookmakers' limited capacity away from actually undertaking effective AMUCTF measures including meaningfulmonitoring of customers.

AUSTRAC's proposed limited exemption (the in-principle decision advised to ABA by letter dated 2 December 2013) is welcome but applies to too few bookmakers. It should be extended to be available even where a small bookmaker operates a low value, small turnover, customer account.

Where the Regime does apply to bookmakers (that is where the exemption is unavailable), the Regime needs to be substantially simplified. Rather than each bookmaker necessarily undertaking their own risk assessment and designing their own program, AUSTRAC should design a standard set of AMUCTF measures for bookmakers to comply with (Standard Measures). The Standard Measures can be devised in conjunction with ABA based on a typical bookmaking operation. Such an approach would require an amendment to the Act to allow AUSTRAC to specify Standard Measures that would apply unless a bookmaker properly developed its own risk-based program.

In any event, the Regime's requirements about politically exposed persons are completely impractical and unattainable in an on-course bookmaking situation.

ABA looks forward to working with AUSTRAC, assuming that the Act is amended to allow it, to devised Standard Measures which will be truly achievable and effective measures toward combating MUTF.

Difficulties with Regime

The present Regime is, according to feedback from our national membership, fairly onerous for most on-course bookmakers given their typically small scale businesses.

It is estimated that over 85% of our national members now experience total annual betting turnovers of less than $1 million per annum. Spread over their annual race meeting attendances (most are fielding at least 1 day per week) and the number of races that are operated on, these are very small businesses in the context of the wider gambling industry. More relevantly, their scale in terms of gambling turnover could not be sufficient to be considered as conceivably presenting a 'high' or even 'medium' risk in terms of a broader AMLICTF perspective.

Nevertheless our members' current administrative burden includes the undertaking of risk assessments, writing their own risk-based programs and undertaking considerable compliance management activities. Bookmakers are expected to individually analyse and document risks in their operating environments despite those circumstances being fundamentally similar.

All of these tasks divert our members' limited capacity away from actually undertaking effective AMUCTF measures including the meaningful monitoring of customers.

AUSTRAC's proposed exemption

On 2 December 2013 AUSTRAC advised ABA by letter of its in-principle decision to exempt certain small bookmakers from compliance reporting and "Part A obligations" (essentially the need to have a program). The decision was taken in response to a submission by ABA made 23 November 2010 and took a different approach to that sought by ABA, which was an exemption for bookmakers below a total turnover threshold.

The in-principle decision is welcome but applies to too few bookmakers. Page 2 Australian Bookmakers' Association Pty Ltd.

Subject to the detail of rules that are yet to be drafted or released for consultation, it will provide limited exemption to bookmakers who attend no more than 13 race meetings in a year if their activities are limited to thoroughbred, harness and greyhound racing and they do not provide account betting or betting on sports events.

ABA estimates that it will apply to fewer than 20% of bookmakers. It is quite possible that a part-time small bookmaker who fields principally at social country racing meetings with very low maximum bets and a small total turnover could fall outside the exemption.

Occasional bookmakers who do fall within the exemption will still need to enrol with AUSTRAC, identify customers who are paid out winnings over $10,000, lodge threshold transaction reports and lodge suspicious matter reports.

An extended exemption

ABA considers that 13 race meetings is too low a threshold for exemption. The number should be higher, possibly split between a number of country and metropolitan race meetings in any one State, and possibly higher again if total turnover is low.

More importantly, the operation of customer accounts should not disqualify a small bookmaker from exemption.

Accounts can be consistent with very small bet limits and low turnover. Accounts also increase a bookmaker's customer insight, which can be only a good thing for the threshold transaction and suspicious matter reporting obligations that currently exist and would continue to exist under any exemption or modified Regime scenario.

A simplified regime (outside the exemption)

The Act should be amended to allow AUSTRAC to design a standard set of AMUCTF measures for bookmakers (Standard Measures) that would apply where a bookmaker does not adopt a tailor-made risk based program. These Standard Measures could be devised based on the typical and relatively invariable risk profile and operating practices of on-course bookmaking businesses by an industry-wide risk assessment undertaken with the assistance of the ABA.

For the vast majority of bookmakers it is a massively unnecessary and duplicated burden for each to undertake his or her own risk assessment. If conducted properly,each risk assessment should produce substantially similar outcomes. On-course bookmaking is highly regulated by racing and gambling authorities and involves the same 3 designated services, the same product types, the same delivery methods, the same jurisdictions and the same relatively indistinguishable customer types.

The collective efforts of bookmakers, the ABA and AUSTRAC should be devoted to discerning the aspects of bookmaking that present the greatest relative and inherent MUTF risk and directing the necessarily limited resources of bookmakers to implementing a handful of achievable and effective measures that AUSTRAC regards as priority efforts.

While a matter for future examination and decision, it is likely that Standard Measures would focus on effective and high quality identification and reliable reporting of customers who are paid out large winnings and lodgement of carefully considered suspicious matter reports. Any "non-operational" time of bookmakers that is taken up by compliance with the regime would be better spent on training about identification of suspicious matters rather than creating abstract paperwork.

Some particular issues

PEPs The current Rule enhancements about politically exposed persons are particularly troublesome for on-course bookmakers. The practical prospect of identifying an individual as a PEP, particularly a foreign PEP, in a face-to-face spontaneous transaction is negligible. Bookmakers should not be expected to do so.

Australian Bookmakers' Association Ply Ltd.

$10,000 winnings threshold $10,000 as a threshold for identifying customers and lodging threshold transaction reports at the time of paying out winnings is too low and has not been adjusted over about 3 decades since the introduction of the Financial Transactions Reports Act. A win of an amount over $10,000 from a long-odds bet, of itself, does not involve increased money laundering risk; it merely represents a fortunate betting outcome.

ABA requests that the threshold be increased to $20,000 and be subject to periodic indexation.

Offshore bookmakers

ABA's ongoing analysis of integrity and ML/TF risks in bookmaking confirm its belief that small on-course bookmaking is not associated with either a material incidence or a high risk of money laundering. In terms of relativity of risk, ABA believes that offshore bookmakers present the greatest risk and that cross-border operations are most closely correlated with higher MUTF risk.

The ABA has received many recent reports concerning the emergence of large-scale corporate wagering operations, licensed overseas in countries such as Vanuatu. These operations conduct telephone and internet betting services targeting Australian residents and offering gambling on Australian racing and sports events. Their MUTF risk profiles would be significantly higher than on-course bookmakers, yet they would appear to evade the current AUSTRAC compliance regime.

Such MUTF risks can be eliminated, rather than simply mitigated and managed, if unlicensed and foreign licensed bookmakers are not allowed to operate in Australia. While it is outside the immediate scope of this review to deal with such proscription, the ABA believes that the Regime should be applied with full force to offshore bookmakers.

Next steps in reform process

The ABA is committed to working with AUSTRAC on behalf of bookmakers to achieve a simple, practical, effective Regime with a high degree of compliance by bookmakers.

Broadening the small bookmaker exemption and amending the Act to allow the prescribing of Standard Measures (both as suggested above) will position the ABA to assist in achieving 100% compliance with a simple, practical and effective Regime.