Combatting Money Laundering, Terrorism in Gaming: KYC Insights from Industry Experts

Iyke Bede writes that the recent National Lottery Regulatory Commission’s biennial International Gaming Conference at the Eko Hotel and Suites in Victoria Island Lagos proffered solutions to the NLRC in a panel session tagged ‘Money Laundering/Terrorism Financing and KYC in Relation to Players and Customers in the Industry’ 

Within 17 years, between 2007 and 2023, the National Lottery Trust Fund generated N22 billion in revenue. The cumulative figure is reflected in a progression that rose from less than N200 million in 2007 to a ballooned figure of N3.7 billion in 2023, reflecting the growth of the gaming industry that contributes 20 per cent of proceeds to the body. Numerous factors have driven this growth, such as a burgeoning population with a demand for entertainment, rising disposable incomes, greater acceptance of gambling, increased internet accessibility, economic opportunities, and various other elements. 

However, the most crucial factor lies in the pivotal role played by identity verification and risk assessment through the implementation of ‘Know Your Customer’ (KYC) procedures, as mandated by the National Lottery Regulatory Commission (NLRC). 

As marked in every growing sector, compliance in many aspects is often circumvented. In the gaming sector, operators do not fully adhere to laid down rules. Oftentimes, they fall short of full compliance in the face of pressure from their competition, thus bending some rules for immediate gains, although they eventually guide their customers to complete the KYC process after significant wins.

This existing partial compliance presents a hydra-headed situation where it encourages money laundering and terrorist financing by individuals who exploit loopholes in the system, as well as transforming the sector into one where underage gambling and problem gambling go unchecked. As it stands, substantial revenue is also lost as partial compliance continues to create more socioeconomic and cultural issues in society. 

Taking note of this growing trend among operators, experts and stakeholders were recently pooled at the NLRC’s biennial International Gaming Conference (IGC) held at the Eko Hotel and Suites to proffer solutions to the Commission in a panel session tagged ‘Money Laundering/Terrorism Financing and KYC in Relation to Players and Customers in the Industry’. 

The session was chaired by five panellists: Head of Department, Communication Industry, Lottery Promotion and Adverts, Nigerian Financial Intelligence Unit (NFIU), Lucy Onwuka; Director, Special Control Unit Against Money Laundering (SCUML), Daniel Isei; Head of Legal Enforcement and Regulation, Nigeria Data Protection Commission (NDPC), Babatunde Bamigboye; Senior Legal Adviser, Head, Legal and Compliance Department at KC Gaming Networks Ltd (Bet9ja), Adewale Akande; and Managing Partner, WYS Solicitors, Olafadeke Akeju. 

The panellists acknowledged challenges in implementing industry-wide compliance, leading to each operator adopting a different KYC procedure to suit its business model. Without a standardised system of data collection and verification, the trend of creating multiple accounts with fake credentials and fraudulent activities is on the increase, especially at a time when transaction volumes are high. 

To counter this, Onwuka urged the NLRC to establish a standardised format for KYC through various interagency collaborations with the NFIU, SCUML, and the Economic and Financial Crimes Commission (EFCC). 

Isei emphasised that different approaches should be adopted to check compliance levels in the online and offline/physical dichotomy that exists in the gaming sector.

“Derived from the outcome of the mutual evaluation of Nigeria National Risk Assessment, it does appear as though we are not doing too well in terms of KYC,” he noted. “In terms of reportage from the gaming industry, especially the casinos. The outcome of the Nigerian National Risk Assessment, the casinos were rated to be of moderate high, and that means a little is still required for us to be better rated.”

If “we are doing KYC for operators who have a physical presence,” where inspectors and regulators can go check their level of compliance, “how well are we doing internet-based operators that regulators do not have the opportunity or leverage to check the level of compliance?” Isei reasoned.

Akeju has a different perspective on this assessment. She surmised that many retail outlets don’t adhere to KYC guidelines in juxtaposition to the online user interface that requires it at specific steps.

“For most operators, it is easier to track online transactions. They provide details,” Akeju said, noting that they are required to register. 

Akeju added, “However when you take it to retail, this is an area where reporting, monitoring, and verification are actually very difficult. Punters walk into an outlet, hand the agent their money, and in exchange, they hand them over a slip for whatever game. There is no engagement in terms of getting to know the customer.”

On his part, Akande noted that operators are judicious in providing information statutorily required of them: filing cash-based reports with SCUML and providing Suspicious Transaction Reports (STR) and Suspicious Activity Reports (SAR) to NFIU. He suggested that government issuing platforms for ID cards, NIN, etc, be fused with existing operator infrastructure for seamless verification of players.

With data protection in mind, Bamigboye suggested to the Commission to introduce a tokenisation of identity systems that will not only provide a means for verification but also ensure data protection of the customer.

“I think the best way to do this is to look at the possibility of tokenisation of identity,” Bamigboye explained. “I walk into a gaming shop, give them my phone number, and then it is tokenised in such a way that it is no longer the phone number that I used. It is a unique identification number. It is only known to me.”