MONEY LAUNDERING
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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IMGL MAGAZINE | APRIL 2023
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