As online gambling grows, so does the risk of financial crime

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Online gambling is booming in the United States and compliance experts warn it creates opportunities for criminals to launder money or participate in other financial crimes.

The United States has seen states jump into legal online gambling with gusto, hungry for potential tax revenue. Since 2018, when the United States Supreme Court struck down the ban on sports betting, online sports betting has seen a surge.

“The more activity you have, the more risk you run,” said Alma Angotti, a former law enforcement officer with the U.S. Treasury Department’s Financial Crimes Enforcement Network, who now works as a partner in the security firm. Consulting Guidehouse Inc.

Traditional casino games have long been recognized as a money laundering risk because they consume a lot of money and, compared to banks, casinos offer their customers more anonymity, giving criminals a way to discreetly transform money of dubious origin into winnings.

Online gambling presents similar problems, but with less attention. The UK and other jurisdictions have stepped up enforcement, but the US, with its complex patchwork of state and federal regulators, hasn’t seen a major enforcement push. . Some compliance experts have predicted an imminent crackdown as the flow of money in online gambling swells.

In the first half of 2022, U.S. online sportsbooks generated about $2.8 billion in revenue by handling about $42.5 billion in bets, according to the American Gaming Association, a trade group. In August, Washington and 20 states allowed online sports betting, and six states have legalized the practice but have not yet launched legal betting, the association said.

A new type of online game called live deal is taking off in the United States as some states relax gambling laws. The WSJ’s Katherine Sayre visits Playtech’s new broadcast studio in suburban Detroit, where dealers are returning cards and spin the reels for players at home on their phone. Photo illustration: Adele Morgan

Massachusetts, for example, legalized sports betting earlier this month and will levy a five-year, $5.2 million fee in addition to taxes, the AGM said. New York state residents have been able to place sports bets online since January, with the state charging operators $25 million for a license.

Casino-style online gambling, such as digital slots, while fully legal in only six states, has also become increasingly important. This segment generated $2.4 billion in revenue in the first half of 2022, up more than 43% from the record set in 2021, the AGM said.

The sophistication of compliance regimes to ensure money is bet for fun, not crime, lags behind those of banks, making online casinos attractive targets for criminals, a said Todd Raque, an anti-money laundering expert at Featurespace Ltd. , a financial crime detection software company.

“They have a minimum [compliance] staff,” Mr. Raque said. “The bad guys are going to go like water, they’re fluid. They will go to the point of least resistance.

An online gambling site can be used to launder money in different ways. Two confederates can play to be opponents in a game, for example, with any money that emerges treated as legitimate gambling winnings.

Criminals wary of a bank’s more onerous know-your-customer requirements can also use an online gambling app — or several of them — to simply deposit money, said Joseph Martin, chief executive. general of compliance software company Kinectify.

The casino industry as a whole has made efforts to comply with anti-money laundering laws. AGA publishes best practices for AML compliance, most recently in July, and major online operators such as DraftKings Inc.,

member of the AGA, have dedicated compliance teams. But many small gambling startups trying to get in on the gold rush don’t know they need an anti-money laundering program, Martin said.

Often these startups only learn about AML requirements when Visa or Mastercard,

payment processors are starting to ask questions, he said.

Enforcement of foreign online gambling regulations has intensified in recent months, a possible indicator for operators in the United States

The UK Gambling Commission announced four fines for online anti-money laundering failures in August alone, including a fine of £14 million, equivalent to $16.4 million, against Entain,

which operates ladbrokes.com and other sites.

The commission said Entain failed to properly assess the risks of its online business and let customers deposit large sums without checking where they came from – one customer who lived in public housing, for example, deposited nearly $220,000 over six months. The company also paid £3million for breakdowns at its outlets.

Entain admitted that its systems and processes did not meet “evolving regulatory expectations”, but added that there was no evidence of actual criminal expenditures in its operations.

In Malta, an online gambling hub, the Financial Intelligence Analysis Unit in January fined an online company the equivalent of around $384,000 for failing to properly check where customers were getting money.

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US law enforcement, on the other hand, has not yet been particularly active in monitoring online gambling. Treasury’s FinCEN, one of America’s top financial crime agencies, has taken action against casinos before, but the last time was in 2018, against a 102-year-old card club in California for inadequate controls that the casino has admitted put it at risk of money laundering.

FinCEN did not immediately respond to a request for comment on the approach it intends to take going forward.

Aidan Houlihan, an executive at compliance software firm Napier Technologies Ltd., said some online gambling operators are taking a headlong approach similar to another lightly regulated industry, cryptocurrency.

“It’s a bit of a ‘don’t ask, don’t tell’ approach,” he said.

Law enforcement tends to catch up eventually, said Sven Stumbauer, anti-money laundering and sanctions practice leader at Grant Thornton LLP. The United States has a plethora of agencies that could potentially take action against a wayward online gambling operator.

In addition to FinCEN, the Internal Revenue Service also oversees the casino industry. Nevada and New Jersey, two of the top gambling states, both have rules that allow them to punish companies for anti-money laundering failures.

But it’s not yet clear which of the many U.S. law enforcement officials and financial crime regulators might emerge to play a leading role, Stumbauer said.

“That’s the million dollar question,” he said. “I don’t think anyone in the industry has the right answer to that.”

Write to Richard Vanderford at richard.vanderford@wsj.com

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