Fraud involving gambling licences and grants

Case information

Fraud in the licence application

A well-known racing personality (the originator) was deemed unsuitable as a key person for the relevant gambling licences and resorted to deception to stay involved.

The originator formulated a plan and orchestrated the application for a trust to get a class 4 operator’s licence. The trust’s shareholders included the originator’s father.

Given his history in the industry and the involvement of his father, the Department of Internal Affairs (DIA) was sceptical of the originator’s non-involvement and tested this claim. To deceive DIA into believing that he was not a key person, the originator arranged with his father and a shareholder to corroborate his story that he was not involved. He used his father’s email address and signed his father’s name on documents. 

The trust also claimed that funding for the application would be mostly from a finance company loan, but the funding was really obtained by the originator from three racing clubs. The racing clubs that provided the funding were potential recipients of grants from the trust.

If DIA had known of the originator’s involvement and the true source of the funding for the application, the licence would not likely have been issued.

Fraud in grant distribution 

The originator had a practice of invoicing racing clubs at the start of each season, and he would lobby for them to get grants from various trusts and societies. He had some influence over the grants processes, and this enabled these racing clubs to receive about three times the amount that they paid him for lobbying services.

The originator influenced the grants processes by:

• Arranging terms and timings of grant applications with the racing clubs and maintaining a schedule in advance. He then recommended a schedule of grants to the payments committee of the trust, who effectively rubberstamped them.
• Adjusting timings and amounts of grants made by the trust to ensure that some racing clubs (who missed out on funds from other trusts) would receive the amount of funding that he had ‘lobbied’ for. 
• Entering into an arrangement with another individual for them to take legal ownership of shares in companies that he effectively owned. These companies were involved in the running of licenced premises for Class 4 gambling. If the DIA had known of the originator’s effective ownership of these companies, they would not have granted the venue licences.
• Forming personal connections to exert influence on the grant processes of other trusts. Because he effectively held the venue licences where other trusts could operate gambling machines, he formed close relationships with these trusts that allowed him to predict to the racing clubs where they would get their grants from. 

Over a period of six years, the originator and related entities received $11.5 million for lobbying.

Prosecution outcome

Three people were found guilty of obtaining by deception: 

• The originator on five charges and sentenced to four years and six months in prison. 
• The person who took legal ownership of the originator’s companies, on three charges and sentenced to 12 months’ home detention. 
• The shareholder who corroborated the originator’s story, on one charge and sentenced to 12 months’ home detention.

The Gambling Commission agreed with the DIA’s decision to cancel the trust’s licence after it found that the licence was obtained by providing materially false and misleading information.

Impact of offending

• Reputational damage to DIA.
• Confidence in the integrity of the gambling sector was compromised.
• Racing clubs that refused to pay the originator’s fees lost out on grants they may otherwise have received.
• Wider community interests suffered because of the concentration of grants within the racing clubs who paid the originator.
• Racing clubs that paid the lobbying fees to the originator could have used those funds in more beneficial ways.

Fraudster personas

In this case, there were four main personas.

The deceiver

The originator deliberately concealed his ownership of the companies that operated the gambling venues.

The organised

Collectively, some of the parties involved planned and coordinated this fraud to get a benefit for themselves.

The enabler

The originator’s father and the shareholder enabled deception of the DIA by corroborating the originator’s story that he was not involved in the trust.

The impersonator

The originator impersonated his father by sending emails that appeared to be from him but were not. He also forged his father’s signature on relevant documents.

Red flags

While red flags do not necessarily indicate fraud, they can be a sign that something is out of the ordinary and may need to be looked into.

• Previous history: The originator had previously been considered unsuitable by the DIA to hold operator’s licences and venue licences. Some gambling inspectors had expressed concerns about his suspected involvement with the trust.
• Lack of verification: A lot of reliance was placed on verbal representations made by the originator and others to DIA. The initial six-month licence period granted by the DIA gave them time to revisit this and verify information beyond just the verbal statements of the people involved.
• ‘In name only’ arrangements: The arrangement involved an unnecessarily complicated structure for funding. Loans were made from the clubs to the originator but were ultimately for the trust; this allowed the clubs to receive grants from the trust. This should have flagged to the club representatives that there was an issue.

Effective countermeasures

These are examples of countermeasures that could have been helpful in this instance. 

• Independent verification: reviews based on independent, or at least documented information, are more reliable than verbal checks.
• Ethical culture: this is about creating a culture that encourages supportive behaviour. An unethical culture can lead to incentives that encourage fraudulent or corrupt behaviour. The grants scheme operated by the originator resulted in the clubs paying him approximately one third of the grants they received from trusts. While lobbying is not illegal, the scheme meant it was not a level playing field in terms of clubs receiving grants.

Strengthening counter fraud capability

• Does your organisation have processes in place to verify information that you receive? Are your employees familiar with these processes?
• Do your employees document evidence of the verification?
• Do your employees understand how to perform quality assurance checks correctly and consistently? Are the outcomes of these checks followed up on?

More information

• Find out more about the seven common personas that fraudsters use when committing financial crimes
• Find out more about the fraud triangle framework of pressure, rationalisation and opportunity
• Explore countermeasures organisations can use to help prevent fraud happening in the first place