Official magazine of the International Masters of Gaming Law
MALTA MARKET FOCUS
INTERNATIONAL MASTERS of GAMING LAW MAGAZINE
VOLUME 3 | NO. 2 | APRIL 2023
FINANCIAL SECURITY AND THE CASHLESS CASINO
PLUS: DOES ONLINE GAMBLING HAVE A MONEY LAUNDERING PROBLEM? ONTARIO’S 1ST BIRTHDAY THE LIGHTS COME ON IN FINLAND... ...AND START TO GO OFF IN ROMANIA BETTING ON OUR FUTURE ACT BALANCING INNOVATION WITH CONSUMER PROTECTION DOES AN ADVERTISING BAN CONTRIBUTE TO RESPONSIBLE GAMING? & MUCH MORE!
IMGL MAGAZINE | JANUARY 2023
MALTA’S FATF GREY-LISTING IMGL OFFICERS 2023
Officers of IMGL for 2023
SUSAN BREEN Secretary MISHCON DE REYA LONDON +44 20 3321 7434 SUSAN.BREEN@MISHCON.COM
QUIRINO MANCINI President TONUCCI & PARTNERS ROME, ITALY +39 06 322 1485 QMANCINI@TONUCCI.COM MARC DUNBAR Executive Vice President DEAN MEAD & DUNBAR TALLAHASSEE, FLORIDA +1 850 933 8500 MDUNBAR@DEANMEAD.COM
ERNEST C. MATTHEWS IV Vice President, Affiliate Members INTERNET SPORTS INTERNATIONAL LAS VEGAS, NEVADA +1-702-866-9128 ERNEST@ISISPORTS.COM BIRGITTE SAND Vice President, Affiliate-Regulator Members BIRGITTE SAND AND ASSOCIATES COPENHAGEN, DENMARK +45 24 44 05 03 BS@BIRGITTESAND.COM
PETER KULICK 2 nd Vice President, Treasurer DICKINSON WRIGHT PLLC LANSING, MICHIGAN +1 517 487 4729 PKULICK@DICKINSONWRIGHT.COM COSMINA SIMION 1 st Vice President SIMION & BACIU BUCHAREST, ROMANIA +40 31 419 0488 COSMINA.SIMION@SIMIONBACIU.RO
KATHRYN R. L. RAND Vice President, Educator Members UNIVERSITY OF NORTH DAKOTA LAW SCHOOL GRAND FORKS, NORTH DAKOTA
+1 701 777 2104 RAND@LAW.UND.EDU
KATE LOWENHAR-FISHER Assistant Treasurer EXECUTIVE VICE PRESIDENT, CHIEF LEGAL OFFICER EVERI HOLDINGS INC
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Getting together and getting involved
QUIRINO MANCINI President INTERNATIONAL MASTERS OF GAMING LAW
Welcome to the April edition of the IMGL Magazine, another bumper edition full of relevant and insightful contributions from our members and others in the world of gaming law. As the magazine was being finalized, many of us were en route to Napa for our spring conference which promises to be a tremendous opportunity for learning and networking. I would like to put on record my thanks on your behalf to the organizing committee led by Greg Giordano for their hard work in arranging such an attractive program combining education and enjoyment in a stunning location. Of course, Napa is not our only conference this year and plans are already well advanced for our autumn event which will be in Zurich at the start of September. For the remaining few days of April we are offering a super early bird discount of a further $100 off the full price and I encourage you to take advantage. Receiving your registration early not only qualifies you for a discount, it enables the organizers to plan more effectively for the event so do help us to help you. As well as IMGL conferences, members will also be out in force at events organized by our media partners in various locations around the world. We are reviewing the effectiveness of some of these relationships and your feedback from events you have attended will be appreciated. You will hopefully be aware that our ong-awaited new website has now been launched. As well as being a much more attractive destination, there are some specific things that we have done to
enhance our online service both for members and non-members alike. The biggest technical change is in the way that our archive of expert content is arranged and stored. Each article is individually tagged and archived in what will soon become one of the most accessible and comprehensive resources for gaming law around. This is in line with our educational mission but it also benefits contributors to the IMLG Magazine who will see their articles gain traction for a much longer period through the power of the internet. We have worked hard to make it easier to renew your IMGL membership and to pay your dues online as well as to register for our conferences. The conference pages have also been given a facelift so do check these out. Lastly, we have tried to give our members greater visibility through the site and through the event promotions we do through our partners so that industry players around the world know that IMGL.org is the go-to place to find expert gaming law advice in their jurisdictions. Do share your feedback about the website or any other issue with me or with our executive director Brien van Dyke. I am very much looking forward to meeting you in person in Napa, at one of our numerous masterclass events in Malta, Toronto, Miami, Barcelona, London and elsewhere and of course at our autumn event in Zurich. IMGL is the kind of professional network which gives you more the more you put into it, and I encourage you to get involved at every opportunity. Quirino Mancini
IMGL MAGAZINE | APRIL 2023
Poorly drafted laws meet sound regulations
As legal practitioners we are all-too familiar with poorly drafted laws and regulations that have been passed with little consideration as to unintended consequences or lack of clarity. This issue of the IMGL Magazine contains a number of examples of regulation, which cause more rather than less confusion, which miss the mark in resolving the concerns they purport to address, or which add a layer of complexity and costs to the industry where there may be no real-life justification for it. So far, so depressing, but this issue is also the bearer of good news and highlights situations where sound laws, evidence-based regulation, and judicious implementation have a positive impact on the industry, effectively protect consumers and, importantly, drive out crime. As ever, we are pleased to have received contributions from around the world. In
Germany, operators and the courts look set to be tied up with the consequences of a period of time when regulation was particularly unclear. Retrospective player refund claims are set to be a considerable drag on part of the industry with a prospect that things may get worse before they get better. The article sheds light on this matter in the context of loot boxes. Legislation passing through the Romanian Parliament threatens to introduce an almost complete ban on gambling advertising in that country. And ‘The Betting on our Future Act’ in the US pursues a similar direction although, as our contributors explain, is likely to be subject to challenge. Other articles demonstrate how regulation can keep pace with technology to better serve customers and our Latin American colleague has produced a piece in which he establishes
SIMON PLANZER PHD, Editor in Chief IMGL MAGAZINE
iGaming in Ontario One Year On
12 20 26 30 34 38 42 46 52 56 62
Does Online Gambling have a Money Laundering Problem?
US Sports Book Advertising: Past, Present & Future Regulatory Environment
Moving the Dial with Financial Security
Regulating a Cashless Casino
Proposed Changes to the Romanian Legislative Framework on Gambling Advertising
Player Refund Claims Against Gambling Operators
Northern Lights: Finland is Finally Introducing a Licensing System for Gambling Betting on Balance: How to Protect Players & Encourage Innovation in Gaming
Do Advertising Bans Contribute to Responsible Gaming? Foundations of a Legal Theory of Betting Games
Comparing Tax Rates and Tax Takes Between New York and New Jersey
IMGL MAGAZINE | JANUARY 2023 IMGL MAGAZINE | APRIL 2023
some principles upon which better regulation can be built. The cost of regulation to the industry is not something that is easy to quantify but it is certainly getting bigger, one expression of it being the ever-larger compliance departments within gaming companies. As IMGL succeeds in its objective of opening channels of communication with regulators, we should take indeed every opportunity we can to advance the cause of sound gaming regulation. Regulation which is suitable to achieve the policy goals and proportionate by the measures it imposes on industry. I hope you enjoy this edition and look forward to having the chance to explore some of the issues it raises in Napa, Zurich or when next we meet.
VOLUME 2 • NO.1 JANUARY 2022 IMGL magazine
PLUS: UKRAINE AND BRAZIL MARKET REPORTS, DIGITAL ID IN EUROPE, CHANNELIZATION AROUND THE WORLD, APPLE’S CASINO APPS ...AND MUCH MORE TAX TALK: SPECIAL FEATURE
Yours sincerely, Simon email@example.com
IMGL Magazine • January 2022 • 1
Click the covers to catch up on past editions and search our archive of gaming law articles at www.IMGL.org/publications
IMGL Magazine is owned, published and distributed by: The International Masters of Gaming Law PO Box 27106, Las Vegas, NV 89126 USA The IMGL is a domestic non-profit corporation registered in Nevada, U.S. with registration number NV20121147120 Editor in Chief: Simon Planzer PhD, firstname.lastname@example.org Publication & Marketing Committee: Co-chairs , Stephanie Bell and Simon Planzer Members : Henrik Hoffmann, Kok-Keng Lau, Christine Masse, Peter Kulick, Anna Soilleux-Mills, Veronique dos Reis Head of Publications: Phil Savage phil@IMGL.org Design and production: SportBusiness Communications. Copyright: All rights reserved to IMGL. No part of this publication may be reproduced or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior permission from the publisher. The articles expressed in this publication do not necessarily reflect the views of IMGL but those of the authors. The publisher and editor do not accept any liability for the contents of the authors’ contributions.
IMGL MAGAZINE | JANUARY 2023 IMGL MAGAZINE | APRIL 2023
ONTARIO ONE YEAR ON
HAPPY 1ST BIRTHDAY TO ONTARIO’S iGAMING MARKET! ONE YEAR AFTER CANADA’S MOST POPULOUS PROVINCE LEGALIZED ONLINE GAMING JACK TADMAN LOOKS AT THE LEGAL HIGHLIGHTS AND NOTABLE DEVELOPMENTS
Introduction On April 4, 2023, Ontario’s regulated internet gaming (iGaming) market turned one. To celebrate, the Canadian Gaming Association threw a birthday party. A one-year-old, much like the Ontario iGaming market, is an amorphous blob of unfulfilled potential. And much like a birthday party for a one-year-old, the party is really about the parents and the community around the parents that helped the child survive and grow for its first year, like friends, family, lobbyists, and multi-national gaming organizations.
parent environment, Ontario is unique in that it has two parents, namely the Alcohol and Gaming Commission of Ontario (AGCO), the regulator, and iGaming Ontario (iGO), the government organization responsible for “conducting and managing” gaming in Ontario (more on that later). There have been numerous articles written about Ontario’s successes and areas for improvement. Those articles generally focus on Ontario “by the numbers” and will be summarized in the section below. This article is written primarily for those with an interest in the legal and regulatory gaming space, and therefore looks at some of the notable developments over the past year in Ontario from a legal and regulatory perspective.
Whereas most gaming jurisdictions grow up in a single-
IMGL MAGAZINE | APRIL 2023
ONTARIO ONE YEAR ON
Ontario iGaming Market: By the Numbers
be available to players physically located in Ontario. One exception to this requirement is that provinces may share liquidity through an inter-provincial agreement. There are no such agreements in place. As a result, existing daily fantasy sports operators who are registered in Ontario have made a commercial decision to cease this offering. At present, no registered operators offer daily fantasy sports to players in Ontario. Legal and Regulatory “Highlights” While the previous section set out the past year’s commercial highlights, this next section will examine select legal and regulatory milestones. 3 These provide insight into the priorities of the AGCO and, in the case of the Mohawk Council of Kahnawà:ke’s application, a legal challenge to the iGaming market’s framework.
85.3% of Ontarians Playing on Regulated Sites According to a March 2023 Ipsos survey, 85.3 percent of respondents who engaged in iGaming in Ontario over the past three months did so on regulated sites. 1 Prior to regulation, the only option for regulated gaming was PlayOLG.ca, operated by the Ontario Lottery and Gaming Corporation (an Ontario government agency). PlayOLG.ca launched in 2013 and did not offer sports betting until 2021. It was not able to compete meaningfully against grey market operators. 12 Registered Operators at Launch, 45 last week, 44 Now On April 4, 2022, the registered Ontario iGaming market launched with 12 operators. At present, 44 operators hosting more than 70 iGaming sites are authorized to operate in Ontario. One operator, Coolbet, exited Ontario on April 3, 2023. Ontario does not have a cap on licenses, so it is expected that market forces will lead to operators choosing to leave the Ontario iGaming market. Gaming Revenue Increasing According to quarterly market reports released by iGaming Ontario, 2 total gaming revenue increased from CAD $162 million between April 4, 2022 and June 30, 2022 to CAD $457 million between October 1, 2022 and December 31, 2022. Active player accounts have nearly doubled, going from 492,000 as of June 30, 2022 to 910,000 accounts by December 31, 2022. At the Ontario iGaming market’s first birthday party, iGO reported approximately CAD $35.6 billion in total wagers and approximately CAD $1.4 billion in gaming revenue. According to iGO, Ontario is now one of North America’s top-five gaming jurisdictions in terms of revenue. Fantasy Flop The AGCO has taken the position that fantasy sports are a pay-to-play sports betting product and may only be provided by registered operators. Any registered activity must only
Ending the Grey Market Transition Period
“A key objective in this first year has been to move Ontario players from playing on unregulated sites to the regulated market, so that they would benefit from high standards of operator and game integrity, fairness and player protections including responsible gambling safeguards,” Tom Mungham, Registrar and CEO of the AGCO. One of the key decisions made by regulators in “new” jurisdictions is how to address grey market operators active in a jurisdiction prior to regulation. For example, in the Netherlands, grey market operators were not able to get a licence for the first six months of the regulated Dutch market. Ontario took a different approach, effectively offering a consequence-free grey-market transition period to operators. Grey market operators in Ontario thus had an advantage entering the market, as they already had an existing base of Ontario players. Prior to October 2022, the Internet Gaming Operator Application Guide (the Guide) contained a section titled “What are the requirements related to exiting the unregulated Ontario
1 Alcohol and Gaming Commission of Ontario, “At One-Year Anniversary of Ontario Internet Gaming Market, New Study Shows over 85 per cent of Players are Playing on Regulated Sites,” April 4, 2023. https://www.agco.ca/blog/lottery-and-gaming/apr-2023/one-year-anniversary-ontario-in- ternet-gaming-market-new-study-shows 2 Available here: https://igamingontario.ca/en/quarterly-market-reports 3 We note there were additional legal and regulatory highlights, particularly with respect to changes to certain iGaming Ontario policies, however, those policies are confidential.
IMGL MAGAZINE | APRIL 2023
ONTARIO ONE YEAR ON
market?” 4 This section had key statements that made it clear that one of the early priorities of the AGCO was to encourage grey market operators to apply for Ontario registration such as “facilitating a business-like transition from unregulated to regulated igaming scheme that is fair for registrants,” “we want to ensure a smooth and efficient transition to the regulated igaming scheme for operators,” and to ensure “the transition to the regulated igaming scheme is as seamless as possible – with the goal of having no ‘blackout’ period”. The AGCO encouraged operators to apply before the April 4, 2022 go-live date by allowing operators who applied for registration before April 4, 2022 to continue grey market activities until issued a registration by the AGCO. The AGCO’s welcoming treatment of grey market operators accomplished its objective to provide a safe regulatory space for operators to transition from the grey market. On October 4, 2022, the AGCO determined that enough time had passed for well-intentioned grey market operators to transition to the regulated Ontario market (and likely recieved some pressure from registered operators) and announced that it would be ending the transition period on October 31, 2022 by establishing the following regulatory standard: 1.22 Operators and gaming-related suppliers must cease all unregulated activities if, to carry out those same activities in iGaming Ontario’s regulated online lottery scheme, it would require registration under the GCA. Operators and gaming-related suppliers shall not enter into any agreements or arrangements with any unregistered person who is providing the operator or gaming-related supplier with any goods or services if, to provide those goods and services in iGaming Ontario’s regulated online lottery scheme, it would require registration under the GCA. Note: For greater certainty, and without limiting the generality of any other Standard, this Standard applies to and governs applicants. Therefore, beginning on October 31, 2022, operators applying for registration in Ontario had to stop offering gaming services in Ontario until receiving authorization from the AGCO and
iGO to provide gaming services to players located in Ontario.
After October 31, 2022, any operator wishing to transition from the unregulated to the regulated space in Ontario had to (i) block its Ontario based customers from the time of application to the time of obtaining permissions from the AGCO and iGO; and (ii) convince the AGCO that it should be issued a gaming registration despite operating in the unregistered market following the transition date. Operators who had already applied to the AGCO, including prior to April 4, 2022, and had advanced through the application process, temporarily ceased offering gaming services in Ontario until they received authorization to offer services to players located in Ontario.
The AGCO uses monetary penalties as a compliance tool for registrants who have violated the Gaming Control Act, 1992 (the “Act”). The AGCO released information about four monetary penalties issued to registered iGaming operators in the past year. All four penalties were for advertisement and inducement (bonus) infractions related to the Registrar’s Standards for Internet Gaming (Standards). In Ontario, there is a blanket prohibition on the public advertisement of bonuses. Operators can offer bonuses on their gaming site, and through direct advertising and marketing, after receiving active player consent. 5 Operators were fined for the following reasons: 1. Tweeting an advertisement for a $250k launch party where one player would win a $100k casino bonus; 2. Tweeting an advertisement for a $10 casino bonus in return for a $25 bet; 3. Tweeting an advertisement where a user would win 100 free spins for following the operator’s twitter account; 4. Various public transit posters with an inducement to play for free; 5. Various tweets and advertisements offering boosted odds for sports betting; and 6. Various tweets and advertisements promoting “generous welcome offers”.
4 The Guide has subsequently been updated and this section has been removed. There is a similar version of the Guide for suppliers which con- tained a similar section. The version of the Guide referenced in this article can be viewed using the Wayback Machine at https://web.archive.org/ web/20220926065929/https://www.agco.ca/lottery-and-gaming/guides/internet-gaming-operator-application-guide. 5 Standard 2.05. There was also one violation of Standard 2.04 (misleading advertising).
IMGL MAGAZINE | APRIL 2023
ONTARIO ONE YEAR ON
By adopting a “no nonsense” approach to operators violating Standard 2.05, the AGCO is signaling to the public that responsible gaming is a high priority. The AGCO is also sending a message to operators that there will be financial and reputational consequences to advertising inducements. These fines counter the financial benefit connected to the violation of the standard and (hopefully) deters operators from engaging in a cost-benefit analysis of whether to advertise inducements in contravention of the Standards. Banning (And Unbanning) Ultimate Fighting Championship (UFC) Bets On December 1, 2022, the AGCO became the first jurisdiction to establish a blanket provision on UFC betting. According to a press release provided by the AGCO, the AGCO made its decision “in order to protect the betting public” due to “concerns about non-compliance with AGCO’s betting integrity requirements”. 6 The AGCO’s reasoning for banning UFC bets is that the UFC “does not prohibit all insiders from betting on UFC events”. An insider includes an athlete’s
coaches, managers, handlers, trainers, medical professionals, or other persons with access to non-public information. This contravenes the Standards, because certain standards require that (i) rules and codes shall be prescribed and enforced that include prohibitions on betting by insiders; and (ii) there are adequate integrity safeguards in place to mitigate match- fixing and any other activity that may influence the outcome of bet upon events. In its press release, the AGCO stated that “once necessary remedial steps have been taken, they [operators] may provide information demonstrating that UFC bets or betting products meet the Standards.” On January 19, 2023 the UFC and U.S. Integrity (a sports- integrity solutions provider) announced a comprehensive agreement for betting monitoring services. The press release specifically mentions addressing the AGCO’s concerns and working with the AGCO to ensure the integrity of the UFC. 7 On that same day, the AGCO reinstated betting on UFC.
The AGCO could have ignored the UFC betting controversy or
6 AGCO Requires Ontario Gaming Operators to Stop Offering and Accepting UFC Bets Due to Betting Integrity Concerns, December 1, 2022, https://www.agco.ca/blog/lottery-and-gaming/dec-2022/agco-requires-ontario-gaming-operators-stop-offering-and-accepting 7 U.S. Integrity, “Comprehensive Agreement for Betting Monitoring Services,” January 19, 2023. Available at https://www.usintegrity.com/news/ ufc-and-us-integrity-announce-comprehensive-agreement-for-betting-monitoring-services.
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ONTARIO ONE YEAR ON
banned UFC betting, drafted a press release, and moved on. By taking steps to work with the UFC to ensure that the UFC meets standards for reinstatement, the AGCO demonstrated a strong commitment to player protection and betting integrity. Terminating Association with Companies Operating in the Unregulated Market A primary objective of the AGCO is to minimize the unregulated Ontario market. By allowing unregistered operators and suppliers to have a transition period, Ontario was able to capture a significant portion of the unregulated Ontario market. However, in one situation, the AGCO attempted to regulate the global activities of its registrants, which led to operator and supplier pushback. One interesting provision of the previous Guide was the requirement that all applicants “must terminate any association they may have with another company that operates in the unregulated market in Ontario once they are issued a registration from the AGCO”. Operators and suppliers would have to review their global associations and ensure they were not associating with an unregistered person providing services to the Ontario market. Registered operators and suppliers discovering these associations would either have to convince the unregistered person to cease offering services in Ontario or terminate the agreement between the registrant and the unregistered person. An operator or supplier making its game or platform unavailable to the unregistered market was insufficient to meet this requirement. This was a challenging ask, both practically (for example, a games provider identifying the parties involved where an aggregator, through its relationship with a games provider, provides the game as part of a game suite to other operators), and commercially (operators have to choose between the AGCO’s request in Ontario and breaking contractual relationships). Further complicating the situation for registrants was that this “requirement” was in the Guide, but not set out in the
Standards. When the Standards were updated in October 2022 to establish the grey market transition period ending on October 31, 2022, the AGCO could have also added a new standard relating to registrants terminating associations with companies operating in the unregistered market. Instead, the new standard focused on the services provided by and relationships of registrants as it related to the services provided by the registrant in Ontario. The AGCO updated the Guide in October 2022 and replaced the reference to “terminating associations with companies operating in the unregistered Ontario market” with the new Standard (Standard 1.22) that ended the grey market transition period. Mohawk Council of Kahnawà:ke Sues iGaming Ontario and the Ontario Attorney General Ontario’s iGaming framework is based on a creative interpretation of the phrase “conduct and manage” in s. 207 of the Canadian Criminal Code (the “Code”). 8 In the Code, all gaming “on or through a computer” must be conducted and managed by a provincial government. As fellow Canadian and IMGL member Ron Segev writes: There are a number of indicators that are generally accepted as being relevant to the determination of whether or not the government has conduct and management of the gaming activity. Those indicators include examining which entity 1. Is responsible for strategic decision-making; 2. Owns the physical infrastructure and intellectual property required to carry on business; 3. Maintains operational control; 4. Controls game selection and rules of play 5. Has control over funds; and 6. Retains a significant portion of the profits. 9 To comply with its “conduct and manage” obligations under the Code, a new government entity, iGO, was set up to “conduct and manage” gaming. iGO has control of player data, player
8 R.S.C. 1985, c C-46.]. 9 Ron Segev, Ontario: is the province’s hands-off approach illegal, iGB, August 18, 2021. Available at https://igamingbusiness.com/legal-compli- ance/licensing/ontario-provincial-oversight-illegal/.
IMGL MAGAZINE | APRIL 2023
ONTARIO ONE YEAR ON
Blowing out the candles! The first year of Ontario’s gaming market has been a commercial and regulatory success. From a commercial perspective, 44 operators are registered by the AGCO, which includes a significant portion of what was previously the “grey market”. According to iGO, the province of Ontario is one of the top-five largest North American iGaming jurisdictions. From a regulatory perspective, the AGCO has successfully facilitated a smooth transition for grey market operators and created commercial and regulatory hurdles for grey market operators applying after the transition period. The AGCO has also demonstrated a commitment to player protection by fining operators who violated advertising standards and prohibiting betting on markets with inadequate integrity oversight. The AGCO showed that it is solution-focused by working with the UFC to establish adequate integrity oversight for UFC betting. In situations where the AGCO may have exceeded its regulatory scope (such as trying to regulate operators’ and suppliers’ global associations), it narrowed its focus on registrants’ Ontario activity. Legally, Ontario’s iGaming framework is built on a creative interpretation of the phrase “conduct and manage,” as such phrase is used in the Code. The MCK is challenging whether iGaming Ontario truly “conducts and manages” gaming. The result of the challenge could close the Ontario iGaming market or may embolden other provinces to adopt a similar approach. Ontario’s iGaming market is healthy, growing, and in good stewardship. The results thus far have shown Ontario to be a leader in the North American iGaming market. Let’s hope that Ontario iGaming can avoid the “terrible twos”. Thanks to Zack Pearlstein and Will Sarwer-Foner Androsoff for their invaluable assistance with this article.
funds, and various other rights related to gaming in Ontario. In December 2022, the Mohawk Council of Kahnawá:ke (MCK) filed an Amended Notice of Application for (i) a declaration that the Ontario government does not “conduct and manage” online lottery schemes (iGaming Schemes); (ii) an order quashing the iGaming scheme because it is ultra vires the Ontario government’s authority; and (iii) in the alternative, an order declaring the iGaming scheme inoperative. MCK has a longstanding interest in gaming and wagering. The Kahnawá:ke Gaming Commission has been regulating gaming from within Canada (on Kahnawá:ke Territory) for over 25 years. MCK’s position is that online lottery schemes established under the iGaming Scheme are not conducted and managed by the Ontario government because private operators (not the province): 1. Own and operate their own proprietary platforms; 2. Are responsible for key decision-making activities; 3. Are responsible for meeting compliance obligations for their gaming sites; 4. Have authority to retain suppliers in relation to the gaming site; and 5. Are the primary beneficiaries of revenue generated by the iGaming Scheme. A hearing for MCK’s legal challenge is set for February 2024. If the MCK is successful, the Ontario iGaming market will cease to exist in its current state. If MCK’s challenge is unsuccessful, any provinces who were reluctant to shift from a monopoly model to a quasi-licensing model may have additional comfort that the “conduct and manage” framework set up by Ontario would hold up in the courts.
JACK TADMAN Principal GME Law For information contact +1 647 567-1742 email@example.com
IMGL MAGAZINE | APRIL 2023
Does online gambling have a money laundering problem? WITH BOTH THE EUROPEAN COMMISSION AND UK GAMBLING COMMISSION POINTING TO THE RISK OF MONEY LAUNDERING THROUGH ONLINE GAMBLING, PHIL SAVAGE DIGS DEEPER TO FIND OUT WHAT IS REALLY GOING ON
IMGL MAGAZINE | APRIL 2023
Our November article 1 on the extraordinary level of financial settlements being imposed by the Gambling Commission (GC) had almost as a throwaway remark a comment that the overwhelming reason given was social responsibility and AML failures. We asked at the time whether or not this indicated a money laundering problem in online gambling without drawing any firm conclusions. Since then, the European Commission has published its Supranational Risk Assessment (SNRA) 2 which singled out gambling (alongside crypto-assets) as a sector which required a “re-calculation of risk levels involved” as “significant changes have been detected” in the time elapsed since the previous report in 2019. This is in contrast to the findings of the MONEYVAL Panel of Experts report 3 (albeit dating from 2013) which said: There is currently very limited information or evidence suggesting that licensed online gambling operators in Europe are being misused for ML/FT purposes. Furthermore, various sources of literature on the topic, which were consulted by the project team, seem to indicate that the ML/FT risks linked to regulated online gambling are low and that the sector is not likely to be the preferred option for money launderers or terrorist financiers due to the following factors: • Gamblers are subject to customer identification controls and therefore their identity is known; • Financial transactions related to online gambling are conducted electronically and are therefore easily traceable; • All wagering carried out by online gambling operators is recorded. So where does the truth lie? Has so much changed since 2013 that online gambling deserves to be considered at high risk of money laundering? A growing problem? In 2018, the EU introduced the Fifth Anti-Money Laundering Directive (5AMLD), which expanded the scope of AML regulations to include provisions for the gaming and gambling industry, making it mandatory for operators to implement
effective AML measures. Under 5AMLD, gaming and gambling companies are required to conduct Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD) measures for high- risk customers, including politically exposed persons (PEPs). Operators must also monitor and report any suspicious transactions to the relevant authorities, such as the Financial Intelligence Units (FIUs). Despite this, reports of AML failures in gambling across European jurisdictions have been limited to date. In the UK, the key AML regulations are the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), which apply to all sectors, including the gaming and gambling industry. MLR 2017 requires all gaming and gambling companies to conduct a risk assessment of their business to identify and mitigate the risks of money laundering and terrorist financing. In addition, the UKGC has been given specific responsibility for money laundering in the gambling sector and issued specific guidance for the gaming and gambling industry on AML requirements. This key difference from most other jurisdictions explains why anti-money laundering failures have appeared so frequently in its judgements. But does it indicate a money laundering problem? In its SNRA the Commission did not provide any data or evidence to support the risk upgrade but quoted unnamed “competent authorities reporting that risks arising from online gambling have increased”. This, together with an industry “characterised by fast economic growth and technological development, with a strong growth of the online sector”, seems to have been enough to give rise to the concerns. At the same time, the SNRA seemed to relax its stance towards brick-and-mortar casinos. Although these still “present an inherently high-risk exposure, their inclusion in the AML/CFT framework since 2005 has had a mitigating effect”. Taken at face value, online gambling with its high growth, technology base and chequered past associations would appear to be the perfect conduit for the transfer of illegal funds to the legitimate economy. There are huge volumes of financial transactions providing cover, there is no physical product and winnings are often tax free. 4 The European Gaming and Betting Association (EGBA) in its advice on AML
1 It’s a Fine Thing IMGL Magazine Volum 2, No 4 https://online.flippingbook.com/view/571235438/28 2 EUR Lex https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022DC0554
3 Moneyval Research Report https://rm.coe.int/research-report-the-use-of-online-gambling-for-money-laundering-and-th/168071509c 4 Dr Ingo Fiedler, University of Hamburg, Institute of Law and Economics, Online Gambling as a Game Changer to Money Laundering? 2013
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also recognizes a higher risk inherent in the digital world. It says: “business relationships that do not take place face to face, such as online gaming, pose a higher ML/TF risk (e.g., risks of identity theft and other fraudulent acts relating to impersonation).” 5 Although it does go on to say that “due to the technological mitigating measures and controls put in place, this risk can be mitigated to an acceptable level.” With concerns raised at such a high level, we wanted to investigate further to understand whether worries over money laundering through online gambling were justified and whether the steps being taken in the UK and further afield are likely to achieve their objective of reducing the risks. Without such analysis there is a danger that there is a greater focus on what AML compliance should look like than is known about how money laundering is organized via online gambling platforms or the reductive impact of AML compliance mechanisms. 6 Some definitions Money laundering is described in the UN Vienna 1988 Convention Article 3.1 as: “the conversion or transfer of property, knowing that such property is derived from any offense(s), for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in such offense(s) to evade the legal consequences of his actions.” 7 For the purposes of this article we will consider this the “traditional” definition. This narrow description is quite different from the UK position where money laundering is defined in the Proceeds of Crimes Act 2002 (POCA) and includes all forms of handling or possessing criminal property, 8 including possessing the proceeds of one’s own crime, and facilitating any handling or possession of criminal property. The catch all UK approach explains in part why there are so many more apparent AML failures identified by the Gambling Commission. As highlighted above, the UKGC’s specific remit to address money laundering in the industry is another reason. In March 2023 in just the latest enforcement action, brands within the William Hill Group were asked to pay a record £19.2 million penalty
for social responsibility and anti-money laundering failures.
The SNRA essentially encourages European gambling regulators to move much closer to the UK position. The EGBA guidelines also mirror this position in advising gambling operators to take a proactive approach to consider the risks of money laundering when conducting customer due diligence and monitoring. Given the broad agreement that the UK’s approach is helpful, we will use UK data to try and understand whether and how much money laundering is going on and how current AML regulations would likely impact it. Under the UK definition of money laundering, the proceeds of crime flowing through online gambling platforms fall broadly into two categories. Internally and externally derived funds. Internally derived funds are those where there is an irregularity within the game itself. Players of online poker could, for example, collude using messaging services to cheat other players. The EGBA confirms this in its 2023 AML Guidelines saying that “where the outcome can be influenced by the customer, such as in the case of poker, operators need to monitor for signs of individual misuse or collusion.” 9 In general it confirms: “Transfer of funds between the accounts of different players within the same operator presents a risk factor, which must be considered due to the peer-to-peer nature.” The organization of illegal lotteries is another example of irregularities, this time in the entire game. However, illegal lotteries have as their main objective the generation of profits through the provision of gambling services without having obtained a license. In both cases the funds generated are the proceeds of crime and those involved may have committed a money laundering offence. That said, these types of funds do not need to be laundered in the traditional sense as they are already part of the financial system (a core objective of money launderers). Having been staked and been part of a gambling game they can be withdrawn unhindered. The second category is externally derived funds, that is funds which are the product of crimes carried out elsewhere. These subdivide broadly into two: organized criminal gangs using
5 EGBA Guidelines https://www.egba.eu/uploads/2023/03/230306-EGBA-Guidelines-on-AML-for-Online-Gambling-FINAL.pdf 6 Duncan, P. & Lord, N. (2022) ‘Organized crime money laundering through online gambling businesses in Great Britain’ Emphasis added 7 www.imolin.org/pdf/imolin/UNres03e.pdf 8 https://www.legislation.gov.uk/ukpga/2002/29/part/7 9 https://www.egba.eu/uploads/2023/03/230306-EGBA-Guidelines-on-AML-for-Online-Gambling-FINAL.pdf
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gambling to recycle funds from drug dealing, fraud etc. and those using illicit money to fund their gambling habit. It is immediately obvious that the two groups have very different motivations. As the SNRA itself says, “the criminal economy remains overwhelmingly cash-based” giving organized crime groups the challenge of turning large amounts of banknotes into funds which can be used legitimately. By contrast, the problem gambler has no interest in money laundering per se, but may have committed a money laundering offence by using stolen money to gamble. What is the risk of money laundering actually taking place? Having identified the two groups at risk of being involved in money laundering through online gambling, we will now try to assess the levels of risk in both cases. This is relevant as most advice is to take a risk-based approach to resourcing AML. Suspicious Activity Reports (SARs) are the only proxy data available to try to understand the size of the potential criminal activity channeled through gambling. In 2021/2 over 901,000 SARs were received by the UK National Crime Agency (NCA) resulting in the denial of £305.7m. 10 However, only 6,352 SARs were made by the gaming/leisure sector (which includes both physical and online casinos), accounting for 0.7 percent of the total. The data is not broken down further, but if this translated perfectly into the proportion of funds denied, the total in 2021/2 would have been £2.14m. The kind of criminality uncovered by SARs is also interesting. John Lewell-Clarke, Financial Intelligence Officer at the Gambling Commission told SARs in Action magazine that: “SARs provide us with typologies and are sources of information to increase our understanding of how criminals may be exploiting the gambling sector. This usually entails people acting as unlicensed bookmakers, taking bets or acting as a betting intermediary . 11 He goes on to say that “The Commission identified an increasing offering of illegal lotteries where no gambling license was held.” As we have already seen, these internally
derived funds may be criminal but they do not require money laundering in the traditional sense of the term. Looking at consecutive SAR Annual Reports there is a clear increase in the number of SARs submitted from the gaming and leisure sectors growing from 2,154 in 2018 to 5,150 in 2020; and from bookmakers growing from just 872 in 2018 to 1,984 in 2020. 12 Again the data is tantalizingly broad brush, but the reasons behind the increase have at least as much to do with engagement by the NCA as they do with an increase in suspicious activity. As Keith Bristow, independent chair of the Gambling Anti-Money Laundering Group says “It was noted by the NCA that the number of SARs submitted by the gambling industry [in 2016] was low and the quality submitted variable. The industry has since worked to improve the quality and number of SARs submitted.” If the quantity of reported suspicious activity is low and mainly related to illegal gambling, what is the likelihood that a large amount of dirty money is washing through the industry undetected? Without the data this is impossible to answer with any certainty but a look at the modus operandi of organized criminal gangs may be instructive. Criminal activity that generates large volumes of cash creates a challenge for the criminal, one which a brick-and-mortar casino may help to solve. The Cullen Commission Report into money laundering in British Columbia published in June 2022 highlighted the role of the province’s casinos and the BC Lottery in turning hundreds of millions of dollars from cash into a bankable form. 13 In over 460 pages of often brutal assessment of the failures of land-based gambling there was not a single reference to the digital space as a conduit for illegal cash. This could be because there is only one legal online gaming operator, but the thoroughness with which investigations were conducted into other sectors strongly suggests that the Commission did not consider online gambling was at high risk of money laundering. In order for cash to be deposited with an online gambling operator it first has to be converted to digital form. There could be a risk of cash being deposited at those establishments with both retail and online operations, but they are likely to be the
10 https://nationalcrimeagency.gov.uk/who-we-are/publications/632-2022-sars-annual-report-1/file 11 John Lewell-Clarke, Accredited Financial Intelligence Officer at the Gambling Commission quoted in SARs in Action magazine of February 2021. Emphasis added. 12 Keith Bristow, independent chair of the Gambling Anti-Money Laundering Group quoted in SARs in Action magazine of February 2021. 13 https://cullencommission.ca/com-rep/
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larger operators with due diligence procedures in place. In any event, if cash is successfully converted into chips or slot credits it would seem more likely that it would be cashed out at the casino where it was deposited. At relatively low levels, pre-paid vouchers or a pre-loaded card used to deposit money into a player’s account methods are much more vulnerable to criminal exploitation because they provide customers with the possibility to mask their identity and their source of funding.” 14 When it comes to organized criminal gangs, however, the challenge of cash seems unlikely to be best solved through online gambling. Large amounts of cash can be washed through cash- intensive businesses, smuggled to jurisdictions with weak AML or high corruption where it can be deposited, or cash mules can be used to deposit smaller amounts at multiple banks etc. In all these cases, assuming it is successful, the money ends up in a useable form. It may be further disguised by layering through a complex series of financial transactions. This will disguise the audit trail and provide anonymity, but it is no more likely to involve a digital casino or other online gambling company than any other type of business. At lower levels, a gambling win can be used to explain source of funds being used in another transaction, but this is not a practical solution where criminal activity continues to generate significant cash profits. Online criminal activities such as hacking and ransomware, drug dealing via darkweb markets etc. are more likely to show up in online gambling, in theory at least. In his 2018 paper, Sex, drugs, and bitcoin: How much illegal activity is financed through cryptocurrencies? 15 Sean Foley of the University of Sydney found that approximately one-quarter of bitcoin users and one-half of all bitcoin transactions were associated with illegal activity. He estimated that around US$72 billion of illegal activity per year involves bitcoin. The figures are disputed, but the age of the data suggests that, if anything, they could be under- rather than overstated. Revelations from the closure of the Silk Road and Hydra marketplaces showed high levels of criminality associated with bitcoin use and there were US$8.2 trillion worth of bitcoin transactions in 2022. 16 This evidence and more besides supports the European Commission assessment in its SNRA that the risk profile of crypto currencies
should be raised.
The number of transactions linked to online gambling is unknown although data from Satoshi Dice suggests it is likely to be significant. Whether these are evidence of money laundering is a completely different question, however. At lower levels there are now many more places to spend crypto and for larger sums there are well-trodden routes to turn crypto into fiat currency. Again, online gambling could be used to further disguise the origin of funds but there is nothing inherent in, or particularly efficient about online gambling as a method to achieve this aim. On the other hand, where a customer transfers funds from a bank account or a card linked to a bank account held in their name with an institution established in a reputable jurisdiction, the ML/TF risk is theoretically low. However, this did not prevent the UKGC from citing over confidence that funds coming through Financial Conduct Authority (FCA) regulated firms mitigated/removed proceeds of crime risk. 17 It is interesting that proceeds of crime is highlighted here as there is no suggestion that money used to gamble, with all the accompanying risks of losing, is evidence of organized criminals laundering their ill- gotten gains. Criminals may accept losses as the price of turning cash into bankable funds and payout rates in online gambling are high. However, the biggest risk, according to BBC specialist journalist Geoff White, is identity theft. “I’d say online gambling businesses are potentially at more at risk than other [land based] ones because online identity validation is so much harder to do than in physical establishments, and online fraud can be carried out at scale. For example, you might be able to trick a casino with a fake ID, but if 100 of you turn up and try it, you’ll likely fail. By contrast, if you make 100 automated account creation attempts online, how many will the automated fraud tools detect? We’ve seen fraudulent account creation inflicted en masse on challenger banks. We’ve also seen North Korean hackers duping identity verification systems at crypto businesses so it seems logical they’d try the same tricks with online gambling. Money laundering is a crime of opportunity and criminals are always changing their tactics.” 18 In 2016, White reported on the attempt by North Korea’s
14 EGBA Guidelines on AML for Online Gambling 2023 15 https://cashessentials.org/app/uploads/2018/07/foley_karlsen_talis_sex_drugs_and_bitcoin.pdf 16 Coinmetrics https://twitter.com/lopp/status/1609540199146561543 17 https://www.gamblingcommission.gov.uk/news/article/gambling-commission-fines-32red-and-platinum-gaming-gbp7-1m 18 Geoff White author of The Lazarus Heist and Crime Dot Com
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