The NSW Crime Commission's Project Islington: Inquiry Into Money Laundering via Electronic Gaming Machines in Hotels and Clubs report states
Across NSW, $95 billion was gambled (turned over) in electronic gaming machines (EGMs) in pubs and clubs in the year ending 30 June 2021. There are almost 100,000 EGMs licenced to be used in NSW, with 86,747 of these currently available in gaming rooms. From corner pubs in regional towns to large multi‐venue conglomerates of registered clubs, EGMs are broadly accessible.
The Inquiry found that a significant amount of money which is put through poker machines is the proceeds of crime, or ‘dirty money’. The Inquiry assesses that billions of dollars gambled in NSW in the year to 30 June 2021 was dirty money.
As the Inquiry’s lead agency, the NSW Crime Commission (NSWCC) used the special powers entrusted to it to conduct coercive hearings with criminals and their associates as part of extensive criminal investigations. In addition, the Inquiry analysed and matched large datasets across law enforcement, regulatory and intelligence holdings, interviewed industry stakeholders, staff in venues and other experts, considered submissions to the Inquiry and undertook an analysis of judicial decisions.
Based on an assessment of this material, the Inquiry found that most dirty cash being used in EGMs is being gambled, rather than being used to extract “cleaned” money. Part 4AC of the Crimes Act 1900 (NSW) criminalises both types of conduct as money laundering, with both being serious indictable offences.
EGMs constitute a money laundering risk because they primarily accept cash and because cash continues to be the primary method by which criminals obtain wealth from dealing in illicit commodities.
The extent of money laundering via EGMs cannot be precisely quantified, but the Inquiry assesses it to be widespread and significant. Even utilising the combined holdings of law enforcement agencies and coercive functions, the Inquiry was not able to get a complete picture of criminal activity due to a lack of data. This hinders detection and investigation by law enforcement and minimises the ability of the NSW Police Force (NSWPF) and other law enforcement agencies to prosecute this type of criminal activity.
The recommendations in this report are designed to make it significantly more difficult for criminals to place their ill‐gotten gains into EGMs. They will, if implemented, also make it easier for regulators and venues to detect, and law enforcement agencies to investigate and prosecute money laundering when this occurs.
Mandatory cashless gaming will minimise money laundering associated with EGMs by removing anonymity and increasing traceability of EGM related transactions. This will enable law enforcement to identify and respond to money laundering and will improve data analytics around gambling and money laundering. The recent (not yet commenced) amendments to the Casino Control Act 1992 (NSW) provide a model which could be extended to pubs and clubs operating EGMs.
Introducing a voluntary system (where gamblers can opt to use either cash or a player card) will not address money laundering as criminals dealing with the proceeds of crime will simply use cash. A hybrid/voluntary system will likely make pubs and clubs more attractive venues for money launderers as hybrid player card systems could be exploited to make ‘cleaning’ easier.
The Inquiry found that law enforcement faced challenges when investigating money laundering via EGMs as the evidence can be difficult to verify. The introduction of a general proceeds of crime offence in the recent Crimes Amendment (Money Laundering) Act 2022 will assist in prosecutions of money laundering offences.
The Inquiry considered multiple data sources, including the Central Monitoring System (CMS), which is a regulatory tool that all gaming machines in NSW registered clubs and pubs must be connected to. The information collected from each machine is used to calculate the Gaming Machine Tax and to monitor any faults and integrity issues. However, the CMS was not designed to collect information that could flag money laundering and the level of data captured cannot identify suspicious money laundering activity. In 2021, Liquor & Gaming NSW (L&GNSW) developed an algorithm which used CMS data to attempt to flag suspicious transactions. While this identified a number of suspicious gaming activities, it also flagged a significant number of false positives. There is no data source in NSW that identifies criminal activity associated with EGMs. Mandatory cashless gaming will, if implemented, resolve this, increase the capacity of venues to identify and report suspicious activity and enhance the ability of law enforcement to prosecute alleged offending.
The Inquiry was not able to develop a comprehensive method to calculate the precise value of proceeds of crime used in EGMs in NSW. However, based on multiple sources of information, the Inquiry was able to assess that there are likely billions of dollars of proceeds of crime put through EGMs in NSW each year.
Hearings and interviews carried out by the NSWCC, when combined with data analysis and a review of law enforcement holdings, highlight the prevalence of dealing with the proceeds of crime in EGMs, with dirty money being gambled across pubs and clubs in NSW.
The NSWCC took evidence from a number of convicted criminals. They stated that cleaning money via an EGM would not be effective due to the time it takes, the amount of money that would be lost and the risk that it would be monitored and reported. This aligns with information available to the Inquiry based on current and historical criminal investigations. Instead of ‘cleaning’ money via EGMs, the Inquiry found evidence that EGMs were being used extensively for spending the proceeds of crime, including by people who became involved in criminal activity to fund their gambling.
The prevalence of criminals dealing with the proceeds of crime via EGMs highlights the importance of venues having a strong understanding of their money laundering risks and obligations under the Anti‐Money Laundering and Counter‐Terrorism Financing Act 2006 (Cth) (AML/CTF Act) and creating a culture of compliance in venues. This can protect a venue from:
- misuse by criminals for money laundering purposes;
- findings that they have breached their AML/CTF obligations; and
- findings that they have been reckless to the fact that their customers, and by implication, the venues themselves, have been dealing with the proceeds of crime.
The Inquiry assesses that the currently varied load‐up limits are a money laundering vulnerability because they allow for up to $10,000 in cash to go into an EGM at any one time. This makes money laundering easier, because higher value bank notes can be laundered in a short time period. The shorter time period means less opportunity for money laundering to be detected and reported by the venues.
Not all the money laundering that the Inquiry has identified can be set out in the body of this report. Some criminal investigations remain active and ongoing. To maximise the ability of law enforcement and regulators to respond to the issues identified, the Inquiry through the NSWCC will be providing classified reports to relevant agencies.
The Commission's findings are
F 1 – Some people involved in serious criminal offences, when found by NSWPF to be in possession of large amounts of cash, claimed that money in their possession was EGM winnings. The accuracy of these claims is difficult to refute due to limited evidence that law enforcement can rely on to confirm if an EGM win had occurred.
F 2 – The Inquiry’s assessment, based on analysis of several large datasets, reviews of law enforcement holdings, information obtained from coercive hearings, and interviews with both industry stakeholders and people involved in organised criminal activity, is that a large amount of 'spending' type money laundering – dealing with proceeds of crime – is occurring across pubs and clubs in NSW.
F 3 – Current detection systems successfully identify only some money laundering, more sophisticated money laundering cannot be detected.
F 4 – It was not possible to precisely quantify the proceeds of crime being laundered via EGMs in NSW, however the Inquiry’s assessment of this figure is that billions of the $95 billion EGM turnover for the 2020‐21 financial year was likely the proceeds of crime.
F 5 – Using EGMs to clean large quantities of dirty money is high risk and inefficient. Accordingly, while it is occurring, it is not widespread.
F 6 – The October 2022 amendments to Part 4AC of the Crimes Act 1900, particularly the introduction of a ‘proceeds of general crime’ offence, will support more successful prosecutions of people dealing with proceeds of crime in licenced venues in NSW.
F 7 – While only a small number of RCG holders have significant criminal histories including convictions for a prohibited drug, fraud and other high‐risk offences, there is no mechanism by which an RCG holder’s certification can be cancelled.
F 8 – The tipping off offence under the AML/CTF Act is misunderstood by many venues as restricting their ability to exclude patrons or revoke their membership, leading to money launderers not being reported or not being excluded from venues.
F 9 – Not all venues with a legal requirement to do so have an AML/CTF program and risk assessment tailored to their circumstances.
F 10 – Many venue staff lack knowledge and training on AML/CTF issues.While industry stakeholders expressed a willingness to comply with AML/CTF obligations, the training these venues deliver to employees and board members does not always provide an adequate understanding and awareness of money laundering, or the associated AML/CTF obligations.
F 11 – NSW has the highest load‐up limits associated with EGMs in Australia. This represents a money laundering vulnerability because larger amounts of dirty money can be loaded into an EGM.
F 12 – Some EGM audit reports and player gambling histories lack the detail needed to identify suspicious behaviour.
The consequent recommendations are -
R 1 – Government introduce a mandatory cashless gaming system to minimise EGM related money laundering within pubs and clubs.
R 2 – Government, in consultation with industry and regulators, create a legislative or regulatory framework requiring certain standardised data be maintained for EGMs to better flag suspected money laundering.
R 3 – Government engage with industry to: (a) identify ways that collection and analysis of EGM data could be enhanced for the purposes of money laundering identification at a venue level and to improve evidence available for prosecution; (b) explore technical and policy/process solutions to better utilise data collected by EGMs; and (c) identify ways of creating real‐time alerts for money laundering flags.
R 4 – The legislative and regulatory frameworks governing EGMs in NSW be amended to clarify that persons/entities with functions associated with EGMs must take steps to prevent money laundering.
R 5 – Government introduce a mechanism that enables government agencies or venues to recommend the cancellation/revocation of an RCG certification; and a mechanism for the regulator to revoke an RCG certification in appropriate circumstances.
R 6 – Government engage with industry and regulators to create a legislative or regulatory mechanism to support the exclusion of persons suspected of dealing with proceeds of crime from venues with EGMs, supplementing the existing rights of venues to exclude patrons from their premises.
R 7 – Government, in consultation with industry, update education requirements to include education on money laundering and increase the frequency of the training provided to venues from internal and external sources to support venues in discharging their obligations under the AML/CTF Act. Recommendation 8 – Page 56 Government work with industry to build the sector’s investment in AML/CTF training and education, and secure support for training from external sources.
