EUROMAT’s response to the public consultation on the European Commission report

EUROMAT’s response to the public consultation on the European Commission report on the application of Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing of 11 April 2012

EUROMAT welcomes the European Commission’s efforts to maintain a strong and consistent EU framework designed to protect businesses and consumers against the risks of money laundering (ML) and terrorist financing (TF).

EUROMAT is of the view that the European Commission’s proposal to introduce a broad definition of gambling in the context of AML legislation, which could cover all gambling activities, is unnecessary and, in the case of low AML/CTF risk activities such as gaming machines would be entirely disproportionate. Indeed, in its newly adopted recommendations the FATF itself does not call for a widening of the scope of AML rules to cover other forms of gambling than casino gaming. Gaming arcades are simply not in the same league as casinos in terms of monies wagered and monies paid out and we question why the casino sector appears so intent on pushing the Commission to widen the scope of the Fourth AML Directive to include all forms of gambling. These machines entail only low stakes and low payouts and thereby represent only very minimum or no AML/CTF risks. This low risk activity, due to its nature – vastly different from that inside a casino – present no real threat and as such broadening the scope to cover gaming machines would not have achieve any real value in the fight against money laundering.

Following the stakeholder meeting held on 23 May 2012, herewith we would like to provide you with further details about the gaming and amusement machine industry outside casinos, as well as EUROMAT’s position on the proposal to broaden the scope of the forthcoming Fourth AMLD to cover all gambling activities. Should you require further elaboration on any of the issues raised, we would be happy to meet again to discuss.

1. Overview of our sector in terms of market share, activity and how each Member State regulates its land based sector

The European Gaming and Amusement Federation, EUROMAT,¹ represents the amusement and gaming device industry outside casinos (i.e. amusement with prizes and amusement only devices) before the European Union. EUROMAT was founded in 1979 and consists today of 23 national associations from 18 European countries. Members include national gaming associations from Austria, Belgium, Bulgaria, Croatia, Denmark, France (observer), Germany, Great Britain, Greece, Hungary, Italy, Lithuania, Netherlands, Poland, Romania, Serbia, Spain and Sweden.

The gaming and amusement machine industry represents 27% of the overall EU gambling market. We represent a combined industry turnover of 21 billion euro and directly employ over 250.000 EU citizens. EUROMAT members range from operators, manufacturers, distributors and owners of amusement equipment. EUROMAT closely monitors European political developments and particularly public affairs issues that impact on the gaming sector.

Gaming and amusement devices are amusement with prizes (AWPs) and amusement only machines encompassing cranes, pushers, video lottery terminals etc., which are usually located outside casinos in single sites or gaming arcades. In certain jurisdictions, such as Germany, the United Kingdom and Spain, amusement with prizes machines are defined within local legislation as gaming machines and the category of such gaming machine defined by reference to a machine stake and prize. Technical specifications are also applied to different machine categories covering matters such as speed of play and repeat wins.

In general, amusement / leisure / entertainment equipment include most of the time coin-operated machines (or coin-op machines) which means that the machines employ coins to provide customers with fun and entertainment. Most coin-op equipment accepts legal tender coins; some do accept tokens, especially those operated in specific areas (amusement arcades, family entertainment centres), and some accept bank notes as well, but the Law requires in most jurisdictions that the Amusement With Prize machines (customers can at times also be rewarded with prizes which are fairly modest) are paid in cash only. The magnetic or chip card is only used in large centres with a wide variety of games. Machines are usually classified into three different categories:

• The so-called table or "sports machines", which simulate or replicate sports games. Table soccer, basketball machines, mini bowling alleys, electronic darts, all fit into this category.

• The "amusement games", where players spend their money just for the fun of playing the machine, either alone or in competition with other players. No cash payout is given to the player. In some cases, the machine gives away a small prize, either in the form of low priced goods, replay tokens or redeemable tickets.

• The third category is the Amusement With Prize machines (AWP). These are coin-in, coin-out, low payout machines, easily found in the UK pubs, Spanish cafeterias and German arcades. These machines provide fun and limited cash prizes (up to €100, approximately).

Regulation of the Gaming and Amusement Sector

Gambling services are regulated at state and regional level in the European Union. Competence over gambling policy lies with different ministries (either national or regional) which vary from country to country, i.e. Ministry of Justice (i.e. Belgium, Ireland, the Netherlands), Ministry of Culture (i.e. Great Britain), Ministry of Interior (to some extent Spain), Ministries of Economy and Finance (i.e. Bulgaria, Hungary, Poland and Romania), Ministry of Economy and Technology (i.e. Germany), and Ministry of Taxation (i.e. Denmark). A gaming authority is usually established at national or regional level in most Member States: in Great Britain there is one national Gambling Commission, whereas in Spain there are 17 different gambling commissions to the corresponding 17 Autonomous Communities of Spain plus one national gambling commission, in Italy the gaming authority is represented by the Italian Autonomous State Monopolies Authority, known as AAMS, whereas in Ireland such an authority is yet to be established. In most Member States the gaming authority responds to the Ministry directly responsible for gambling policy and it is usually state funded but enjoys a certain degree of independence from government. A licensing system is in place in most Member States and grants a (limited or unlimited) number of licences to those operators who comply with standards set out by the Ministry or relevant gaming or local authority in each country upon payment of a fee.

Legal status and organization of gaming and amusement activities

Gaming and amusement services are legal in most EU countries. Operating gaming machines in most Member States is subject to the grant of a licence whose number (limited or unlimited) and type vary from one Member State to another (for instance Belgium has a limited number of licences for gaming arcades and unlimited number of licences for operators outside casinos and arcades, whereas Denmark and Germany set no limits in the number of licences it can issue). The gaming or local authority of the country in question usually performs all necessary controls and ensures that all relevant strict conditions are respected in detail before granting a licence. In most countries the gaming authority co-operates directly with the local department of public order and the police to perform controls and enforce the law. Certain countries adopt an official tripartite accord between regulating bodies to seek to avoid duplication and to underpin efficiency. Licensing systems include national licensing of operators, personal licences also issued on a national basis and premises licences which are granted by the local licensing authority.

 2. EUROMAT’s position on the Commission’s initial considerations ahead of the forthcoming Fourth AMLD

EUROMAT supports the current scope of the Third AMLD which covers only (online) casinos. Furthermore, EUROMAT strongly believes that broadening the scope to cover all gambling activities would result in the imposition of an excessive and unnecessary burden on activities that due to their nature represent only very minimum and limited (if none at all) AML/CTF risks. This would be the case, in particular, of the gaming and amusement machine industry outside casinos. As illustrated above, the activities offered by this sector entail only low stakes and low payouts. The process of money laundering is therefore highly unattractive, as it would result in a very expensive and time consuming process, which defeats the whole purpose of the activity.

Hence, broadening the scope to cover our activities would not have any real value in the fight against money laundering, but would however result in an excessive and unnecessary burden on a low risk sector.

Current AML rules and the land-based gaming and amusement machine sector

A majority of Member States have provisions in place to monitor, control and prevent money laundering in the gambling sector. Member States have transposed the 2005 Third AMLD into national legislation and apply various methods to control the origins of funds when they exceed a certain amount. Consequently, due to the fact that our activities normally do not reach the established thresholds, most of the requirements in place do not apply to our industry or are never applicable to our activities in practice. By way of example, the situation in some EUROMAT member countries is as follows:

In Austria, all gambling activities are covered. There have been no gambling related incidents since the entry into force of the rules in 1984. In accordance with the new law on complete , AWPs will have a maximum stake of €1 and a maximum win of € 1.000. Currently, the maximum stake is of €0,50 and the maximum win of €20. The case is, however, different for machines located in casinos, where the maximum stake can amount up to €1.000 and wins over €1.000.000 are allowed. This is one of many examples of the different level of risk associated to casino gaming as compared to amusement arcades.

In Belgium, in order to tackle the issue of money laundering, any transaction higher than €10.000 must be processed either by credit card (in casinos only) or by debit card (in gaming arcades and casinos). Again, given the low level of stakes and payouts, a transaction of €10.000 is way beyond what one would expect in a gaming arcade.

In Germany, there are specific provisions in the German Criminal Code (StGB) which consider manipulating gaming and amusement machines (Article 263) and using counterfeited coins and notes to play on gaming and amusement machines to be criminal offences. The German Prevention of Money Laundering Act (Geldwäschegesetz vom 13. August 2008) obliges the industry in general and state casinos in particular to exercise due diligence with transactions of €15.000 and more. Again, it would be highly unlikely that a single (or linked) transaction of €15.000 would ever make it to a gaming arcade.

In Great Britain, the position is that all operators are required to have in effect policies and procedures to minimize money laundering as part of their licence conditions, therefore amusement arcades that are regulated by the Gambling Commission are included. All remote and non remote casino licences, remote and non remote betting licences have additional anti money laundering obligations, but only remote and non remote casinos are considered to fall within the Third AMLD (please see Annex I for a summary of the differences. The requirements for casinos are much more detailed, as the national regulator has considered that the risk posed by the casino sector is much greater than that for other sectors. The national regulator has not changed its view on this.

In Hungary, only certain types of gambling activities fall under the scope of money laundering legislation, namely operating casinos and operating card halls. These venues are obliged to register their players. Currently, all gaming and amusement machines are registered by an integrated monitoring device. The new regulation concerning the server based gaming system for all gambling machines (which will enter into force on 1 January 2013) will allow the tax authorities to see the data throughout all the phases of the transactions. Furthermore, gaming operators are subject to a verification process every year, whereby the examination has to prove they are not involved in any criminal cases or offences, they do not have accrued taxes, public debts, etc.

In Italy, the gaming and amusement machine industry is covered by money laundering legislation. General requirements for money handling and circulation have been set, which are representing significant compliance costs for the operators. In practice, however, the activities of our sector are not covered by current rules due to the fact that AWPs only accept coins. The maximum stake is of €2 and the maximum prize per game of €1. Therefore, EUROMAT Italian member association, SAPAR, is currently trying to obtain an exception. Without a proper justification existing rules do not apply VLTs which accept bills of up to €500.

In the Netherlands, anti-money laundering principles fall within the scope of the Dutch “Unusual Transactions Law” which sets the obligations for casinos to report all unusual financial transactions (which are officially identified by the Ministry of Finance) to a special agency of the Ministry of Finance when there are certain indicators. The stake for a 3-second spin can mount up to €150 in a casino, it is maximum of € 0,20 in arcades. The maximum prize for a 3-second spin in an arcade is of €40, while in casinos there is no limit to the amounts in prizes.

In Romania, the activities of the gaming and amusement machine industry are theoretically covered by money laundering legislation. However, the National Office for Prevention and Control of Money Laundering is mainly focusing on Casinos rather than slot organizers due to the lower risk of the latter, which can offer only very small stakes and prizes to players.

In Serbia, the activities from the gaming and amusement machine industry fall under the scope of money laundering legislation. However, Serbia follows an approach whereby it avoids implementation of rules which would bring unnecessary burden to operators and bring no results in the combat of money laundering. Hence, only casinos (live games), given their high stakes and payouts, are obliged to comply with certain requirements, such as the registration of players and tracking of suspicious transactions.