European Gaming Lawyer magazine EGL_Spring2017_opt - Page 8

Implementing the 4th AML Directive: New challenges ahead for the German market by Dr Joerg Hofmann, Dr. Matthias Spitz and Jessica Maier, ”I ’ve lost a million and a half on the horses and dice in the last two years. And the funny part is, I still like ‘em, and if someone handed me another million I’d put it right in the nose of some horse that looked good to me.” (Al Capone on his gambling habit) Joerg Hofmann Matthias Spitz Jessica Maier Introduction Al Capone certainly is not the kind of patron modern- day online gambling operators would wish to form part of their customer base. Yet, so far horse-race betting has not been subject to anti-money laundering (‘AML’) requirements under federal law in Germany and this may well stay like this under the future German AML regulation that is to enter into force by June 2017. Hence, Al Capone’s heirs would still be able to enjoy a gamble on German racetracks. In contrast, retail and online sports betting will be subject to strict AML requirements from June 2017 onwards. Implementing the 4th AML Directive of the European Union 1 (the ‘4AMLD’) the Federal Government of Germany approved a draft AML Act on 22 February 2017 and initiated the parliamentary procedure. Th is article will summarise the key elements of the draft law and the challenges the gambling industry may face implementing them in practice. Status Quo Under the current AML Act, only two types of gambling operations are subject to AML requirements as per the federal AML Act: Bricks-and-mortar casinos and operators of online gambling. Th ese are obliged to implement internal safeguards against money laundering (‘ML’). Th ese include internal policies to combat ML, which have to be created and periodically reviewed by an AML offi cer who has to be appointed, together with a deputy AML offi cer. Further key requirements include the vetting and 1 Directive (EU) 2015/849 of 20 May 2015 on the prevention of the use of the fi nancia s ste 8 | European Gaming Lawyer | Spring Issue | 2017 for t e purposes of one aunderin or terrorist fi nancin of C a fi r training of staff , monitoring of customer transactions and the establishment of implementing procedures for suspicious transaction reporting (‘STR’). Customer due diligence – commonly also referred to as “know-your- customer” (‘KYC’) has to be applied in bricks-and- mortar casinos for transactions exceeding 2,000.– EUR, i.e. single or combined purchases of chips in that amount. For online gambling operations, the current law already prescribes a general KYC obligation upon customer registration, i.e. irrespective of a certain transaction threshold. Consequently, it would have been a surprise if the German legislator reverted to the 2,000.– EUR threshold provided for in the 4AMLD for KYC obligations in relation to gambling services now when implementing the directive into national law. Scope of the new law Consequently, the online gambling market in Germany continues to be subject to AML requirements under the new law, and KYC will have to be applied irrespective of a certain threshold of online gaming transactions being met. In contrast – and this is where Mr Al Capone enters the scene again –, the draft AML Act that was approved by the Federal Government provides for considerable exemptions for other gambling sectors. Th ese include: 1) Slot machine operations in gaming halls and restaurants; 2) Land-based horse-race betting at racetracks; and 3) Retail lottery sales. Th e parliamentary explanatory notes attached to the draft AML Act provide some sketchy considerations as to why the above should be entirely (!) excluded from the scope of the new law. Th ese mainly focus on a “rather low ML risk” being associated with these products which allegedly allows for these products to be excluded from the scope of the law. While this may be plausible from a product-centred point of view, the 4AMLD stipulates that Member States may decide to