Play Your Cards Right: Preventing Criminal Abuse of Online Gambling

Founded in 1831 by the Duke of Wellington, the Royal United Services Institute (RUSI) is the world’s oldest independent think tank on international defence and security.

On 12 November 2019, RUSI published an occasional paper entitled “Play Your Cards Right: Preventing Criminal Abuse of Online Gambling”, authored by Anton Moiseienko. You can download the paper below.

On its website, RUSI provides the following executive summary of the paper:

For a well-studied subject, a remarkable diversity of opinion exists on the financial-crime risks of online gambling. In 2019, the EU’s supranational risk assessment assigned the online gambling sector its second-highest risk rating and cited ‘huge’ volumes of transactions as a key reason for its potential appeal to money launderers. In contrast, the National Risk Assessment in the UK, which is the world’s largest regulated online gambling market by revenue, has consistently ranked online gambling-related risks as ‘low’, although the assessment’s methodology section underscores that money laundering can also happen through ‘low-risk’ sectors.

This is not simply a divide between European and British attitudes, however. A survey of 204 compliance, finance and legal executives in the UK in 2019 suggested gambling is the sector most often seen as at risk of money laundering. And yet, in the UK and elsewhere, confirmed instances of money laundering through online gambling remain few and far between, with the exception of organised crime infiltration. Amidst these conflicting indicators, one wonders whether a decade-old assessment that online gambling offers only ‘modest’ opportunities for financial crime still holds true today.

Based on a workshop held in London in May 2019, a series of interviews and a review of public sources, this paper explores money-laundering and terrorist-financing risks faced by online gambling operators and recommends measures for their mitigation. This research draws both on the UK experience and interviews with representatives of four other European countries’ domestic authorities. Given the cross-border nature of online gambling, this paper’s findings and recommendations are intended to be of use in both the UK and other countries that regulate online gambling (rather than prohibit it outright).

In line with earlier research, this paper finds that, like other businesses, online gambling facessome risk of criminal exploitation. At its simplest, it involves gambling of criminal proceeds forfun, rather than for cleansing illicit income. While it is inevitable that small illicit transactions can go under the radar of both gambling operators and financial institutions, gambling operators’ customer due diligence (CDD) should contribute to the detection of anomalous behaviour. Apart from financial crime, atypical gambling patterns may signify problem gambling, which further elevates the importance of effective CDD measures.

At present, however, there is considerable variance in UK gambling operators’ CDD practices, such as monetary thresholds for enhanced due diligence, and in approaches taken to one of the most widespread criminal typologies that the sector faces, namely the use of stolen bank cards. This paper’s first recommendation is for gambling regulators to consider thematic reviews focused on CDD practices and the detection of stolen cards.

The second recommendation is for law enforcement agencies and/or financial intelligence units to conduct and publish analysis of typologies based on suspicious activity reports (SARs), which, for all their imperfections as a dataset, can offer a sector-wide perspective on financial crime risks that businesses think they face. As a recent review of 250 SARs related to UK land-based casinos demonstrates, this work can be a fruitful way of enhancing collective threat awareness.

Since customers need to make and receive payments to gamble, the remaining three recommendations concern the payments infrastructure underpinning online gambling.

Specifically, they advocate:

• For those national regulators who have not yet done so, to inform financial institutions about unlicensed gambling operators that illegally offer services in the respective jurisdiction.
• For financial services regulators to review financial institutions’ ability to detect transaction laundering, in other words concealing the real nature of one’s business to obtain access to payment facilities.
• For governments to clarify which cryptocurrency activities online gambling operators can undertake and ensure their anti-money-laundering/counterterrorist-financing supervision by a regulator with adequate resources and expertise.