Gambling has always been a magnet to people intent on processing the proceeds of crime – in short, black money cleaning.
This is an industry characterized by huge sums of money moving from place to place at dazzling speed.
The potential for it to be used as a vehicle for transforming filthy lucre into untraceable, clean cash will always be there.
However, law enforcement agencies are more determined than ever to tackle crime by cracking down on black money cleaning. And many have their sights firmly trained on betting operators.
The UK Gambling Commission warned five online casinos in 2019 they could lose their licenses. They were not doing enough, the commission said, to stop criminals using their websites to launder money.
But whatever measures the authorities and betting operators impose, the online gaming market is now worth $170billion a year.
That makes the challenge to eradicate black money cleaning a huge one – and means the temptation for criminals to use it for that purpose remains equally large.
So, how does black money cleaning work?
Black money cleaning is a process by which criminals transform the proceeds of their activity into legitimate cash.
Once money has been laundered, it is hard for law enforcement bodies to trace it as having been obtained through criminal activity.
There are three stages in a typical black money cleaning process:
The act of depositing money (such as the cash proceeds of a drug deal) into the financial system.
The source of the proceeds is disguised by creating complex layers of financial transactions to obscure any audit trail.
The after laundry money is integrated into the legitimate financial system.
How does black money cleaning take place through online gambling?
The online market now comprises more than one-third of the UK gambling industry. The amounts of cash flowing through digital sports books’ and online casinos’ coffers are astronomical.
One strategy favored by money launderers is to deposit a large amount of money in a betting account. They then place a few small bets for appearances’ sake, before emptying the whole account.
This process is even harder to detect if the criminals are patient enough to break their loot down into small amounts.
They can then set up dozens of betting accounts, with deposits well below a benchmark likely to attract attention. After a short while, they withdraw their money.
In these instances, any paper trail will look innocent and legitimate.
The FBI has admitted that even licensed sites offer an opportunity to transfer high volumes of money in and out of different accounts.
And this is an industry in which dozens of unlicensed sites are launched every day – some of them in jurisdictions with weak or non-existent supervisory regimes.
How is it different to standard black money cleaning?
The International Monetary Fund has estimated that a staggering $1.5trillion is laundered every year – that’s 5% of the world’s GDP.
Even if only a small fraction of this amount is laundered through online gambling, it means tens of millions of dollars change hands illegally each year.
Black money cleaning through online gambling is extremely similar to the standard process.
If anything, it is harder to detect because using the money to have a few bets gives a convincing veneer of legitimacy.
In the hands of a shrewd gambler whose losses to a sports book or online casino are small, a criminal could even launder their entire stash. They would lose only a few percentage points – a better rate than they’d have to pay to an old-fashioned back-street money launderer.
How the gambling industry has responded so far
The Gambling Commission revealed in a 2018 report that it had found black money cleaning reporting officers who couldn’t explain what constitutes black money cleaning.
This was in the same year as the Commission warned five casinos they could use their license (see above).
It was also in 2018 that William Hill, one of the biggest names in UK bookmaking, was fined £6.2million for what the Commission called “systemic failures” regarding black money cleaning.
Lack of proper checks meant 10 customers could deposit large sums that were the result of crime.
The Commission’s advice includes the development of systems and controls to reduce the risk posed by black money cleaning.
But organizations have to do more than that.
They have to be committed to them, assess them regularly and train employees to check customers and know what constitutes suspicious activity.
In response, the gambling industry has been tightening up its act. Online casinos, for instance, are now obliged to verify the identity of players and to maintain an audit trail that tracks the source of money placed in bets.
How big a risk is crypto currency?
Everybody thinks they know two things about crypto currency. It’s anonymous, and transactions are smooth between accounts and across national borders.
On the face of it, with more and more online casinos accepting Bit coin and other cryptocurrencies that should make it a haven for money launderers.
However, crypto currencies are no longer as anonymous as they used to be. And one significant deterrent to people looking to invest ill-gotten gains is that it’s not always easy to liquidate your crypto-assets.
What is micro-laundering?
Micro-laundering operates in the same way as black money cleaning. The three main steps of placement, layering and integration are identical.
But Jean-Loup Richet, a cyber-crime researcher at Harvard University, conducted an in-depth study into micro-laundering through games.
He found criminals leaned towards using multi-player online role-playing games such as Second Life and World of War craft. He called them “an easy way for criminals to launder money”.
Micro-laundering follows a three-step process:
- Purchase credits (or gold, as gamers call them) using pre-paid or stolen cards.
- Set up a shop on a gold-selling site. These are popular with large numbers of gamers.
- Buyer purchases gold and the launderer clean his illegal money. Neither the buyer nor seller is aware of each other’s identity.
The sheer volume of high-speed transactions makes it extremely difficult to spot micro-laundering.
What’s next for the online gambling industry?
Sarah Harrison, CEO of the Gambling Commission, has warned its members: “It is vital that the gambling industry takes its duty to protect customers and keep crime out of gambling seriously.”
All members of the commission have responsibilities under the Proceeds of Crime Act 2002. They must report any knowledge, or even suspicion, that a customer is using the proceeds of crime to gamble.
As well as warning five casinos they could lose their licenses, the commission spoke of the “serious nature” of its findings on a host of other operators’ controls against black money cleaning.
Quite simply, anyone who sets themselves up in business as a legitimate gambling operation has both a legal and a moral responsibility to do everything to reassure its customers and the regulators.
Like many industries, the issue of credibility is central to the success of online gambling operations.
If customers fear they are betting alongside people using the industry to launder the proceeds of criminal activities, they will go elsewhere.
What should really sharpen the focus of online operators is the fact that their responsibilities are not only legal and moral, but commercial too.
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