As a part of a performing and effective anti-money laundering system, Swiss lottery and sports betting operators must develop their own monitoring programmes for business relationships and transactions. These consist of defining when a relationship or a single transaction must be subject to simplified Compliance Due Diligence (“CDD”) or Enhanced compliance Due Diligence (“EDD”) measures. To define this programme, the operator should follow a risk-based approach, according to which the higher the risk represented by the business relationship or transaction, the more detailed the information about the player and the economic background of the relationship or transaction must be, and the greater the frequency of additional checks carried out on that person and/or relationship.
Although the law leaves the operator some leeway in terms of implementing its personal monitoring programme, it requires the operator to assign its business relationships to four different categories, depending on the risk of ML/TF that they present. It also lists some criteria to be considered when assigning business relationships to these four categories, and defines situations where the relationship or transaction is deemed to entail a high risk of ML/TF and therefore subject to EDD. This chapter summarizes these criteria and conditions – set forth in Article 12 to Article 17 of the OAML-FDJP – where a business relationship or transaction is deemed to present a high risk of ML/TF.
The rules that determine when the identity of the player must be verified and when a business relationship or a single transaction must be considered a high-risk exposure to ML/TF are extensive and complex. They require the operator to deploy advanced IT systems capable of the automatic detection and monitoring of transactions that could incur increased risk. This condition is set out in Article 20(3) of the OAML-FDJP, which leaves it to GESPA to decide whether to require the operator to deploy a digital transaction monitoring system, if deemed necessary for effective monitoring.
The law even declares (Article 20(2) of the OAML-FDJP) that an efficient transaction monitoring system be in place when:
- for offline games, all winnings exceeding CHF 15,000 are monitored4 and documented;
- for online games, all transactions concerning players’ online accounts, including winnings directly credited to players’ bank accounts not transiting on players’ online account, are monitored and documented.
Criteria for determining the risk associated with a business relationship or transaction
The following criteria should be taken into consideration and adapted to the operator’s business model for defining the risk presented by the business relationship with the player (in offline gaming, where no long-term business relationship exists, a single transaction is considered as a business relationship):
- The country of residence of the player or BO
- this criterion is applicable to offline players, and only in very particular situations to players’ online accounts, where the BO does not live in Switzerland ;
- when defining this criterion, the operator should consider the money laundering risk exposure of the country (including terrorism risk, corruption risk and the presence of the country in internationally approved sanction lists, such as the Financial Action Task Force (FATF) high-risk jurisdictions list). An offline player whose country of residence is on the high-risk jurisdiction list should, for example, be considered a high-risk player and be subject to EDD;
- The nationality of the player or BO
- this criterion, applicable to both online and offline business relationships, is similar to the previous one regarding the country of residence, but concerns the citizenship of the person;
- The PEP status of the player or BO
- business relationships with PEPs may represent increased risks due to their predominant position that may lead them to abuse their power and influence for personal gain or advantage, or for the personal gain or advantage of close family members and close associates;
- if the players or BOs are foreign PEPs, the business relationship with them as a player or BO is deemed high-risk;
- business relationships with Swiss (domestic) PEPs (e.g. Swiss prosecutors, the director of the Swiss National Bank, high-ranking officers of the Swiss Army, members of the Federal Council, the director of state-owned armaments company RUAG, etc.) and PEPs in international organizations (e.g. individuals with a prominent function in the International Olympic Committee, FIFA, the United Nations, the World Trade Organization, etc.) are deemed to present a higher risk when combined with one or more risk criteria;
- The type and place of the business activity of the player or BO
- this criterion aims to define a business relationship (online or offline) as a high-risk relationship when the type of business or profession is more prone to illegal activities, such as mining, the oil industry, tobacco trading, adult entertainment, etc.;
- The type of products solicited
- sports betting tends to present a higher risk of money laundering compared to draw games or scratch tickets, since it can be more easily manipulated;
- The amount of money deposited on the player’s online account;
- The amount of money won or refunded to the player’s bank account;
- the country of origin or destination of frequent transactions – similarly to other criteria mentioned above, some countries are more prone to money laundering, illegal activities and tax evasion, than others;
- Significant fluctuations in the type, volume or frequency of transactions (deposits, wagers placed and withdrawals) usually undertaken by the player;
- Significant deviations in the type, volume or frequency of transactions usually undertaken by other players in similar situations.
Swiss lottery and sports betting operators are free to define, within the parameters of the aforementioned list, their own criteria that help determine if a business relationship carries a higher risk and needs EDD measures to mitigate risks. That said, the law defines certain precise rules that clearly state which business relationships and transactions always carry high risks.
In contrast to what is contained in Article 13(3) of the Ordinance on the Due Diligence Obligations of Casinos in the Fight against Money Laundering and Terrorist Financing of 12 November 2018 (CFMJ-OAML, SR 955.021), the OAML-FDJP (the ordinance applicable to lottery and sports betting operators) does not specify that business relationships involving a person, a resident in or being a national of a jurisdiction judged by FATF to be high-risk, or of a country subject to international sanctions based on the Federal Embargo Act (EmbA, SR 946.231), should be classed as high-risk. Moreover, it can be argued that the country of residence presents a higher risk than the simple nationality of a person, since citizenship alone is rarely a pertinent AML criterion. It could be a risk criterion, but only in connection with tax risks/obligations. It therefore depends on the business activity of the financial intermediary as to whether and how important the nationality risk is.
High-risk business relationships and transactions for large-scale offline games
In addition to the aforementioned criteria for determining the risk presented by a business relationship or transaction, the law specifies that winnings in offline games that reach or exceed CHF 100,000 (aggregated value of winnings in a 365-day period6) are always to be considered as carrying high risks. When this happens, EDD measures must be taken with the aim of mitigating the ML/TF risk.
Moreover, an offline business relationship with a foreign PEP (including close relatives and associates) as a player or BO always carries a higher risk when a threshold is attained.
High-risk relationships and transactions for large-scale online games
In the case of online games, a business relationship presents high ML/TF risks if, during a period of 365 days:
- at least CHF 30,000 are deposited in the player’s account;
- at least CHF 100,000 in winnings are credited to the player’s bank account7 if during these 365 days half or less than half of the player’s wagers are on games with a payout ratio ≥ 70%;
- at least CHF 40,000 in winnings are credited to the player’s bank account if during these 365 days more than half of the player’s wagers are on games with a payout ratio ≥ 70%;
- at least CHF 20,000 available in the player’s online account have to be transferred to the player’s bank account because of the closure of the online account;
- at least CHF 20,000 are transferred from the player’s online account to the player’s bank account and this amount does not come from winnings.
The interpretation of the application of the thresholds listed above for defining high-risk relationships or transactions is similar to that explained in Chapter 2 concerning identity verification in the case of large-scale online games.
Furthermore, an online business relationship with a foreign PEP (including close relatives and associates) as player or BO always carries a higher risk.
6 According to Article 20(2)(a) of the OAML-FDJP, only winnings exceeding CHF 15,000 are considered for the total calculation of this threshold.
7 Only winnings directly credited to the player’s bank account and withdrawals ordered by the player are considered in the total calculation applicable to the threshold. Small winnings that remain in the player’s online account are not counted in the total amount of winnings.