Online gambling has become one of the world’s most lucrative industries. Predictions say that by 2024 the revenues from this business will rise to a whopping $94.4 billion. Such a large money flow is opening a lot of opportunities for criminal activity, so anti-money laundering (AML) measures are forced on all operators and gaming institutions.
“Know Your Customer” (KYC) is one of the main compulsory onboarding processes involved in anti-money laundering legislation in iGaming. According to it, online casinos must identify and verify all customers, flag potentially risky users, and monitor them for suspicious activity.
However…
…as the demand for online gambling services increases on a daily basis, so does the rigorousness of regulatory compliance. This creates the need for larger manpower in verifying and monitoring accounts, higher costs for the operators, and longer times for executing verification procedures.
This makes manual KYC procedures much costly and harder, so operators often resort to automatic solutions. Some of them work better than the human factor, while others are littered with errors.
Preventing money laundering has become an inseparable part of online casino operations. The one that operators have to incorporate in their activities by law. Such AML regulations are looser in some markets but are in place in almost all iGaming jurisdictions.
In this article, you will find out more about these mandatory procedures.
How Can Someone “Wash Money” in Online Casinos?
Actively evolving technologies are enhancing online gambling opportunities, making casino games easily accessible in many global markets. This is why new online venues are popping out like mushrooms after the rain. It doesn’t help that some jurisdictions have loose regulations and enable quite simple procedures for opening an iGaming hub.
With so many new venues, the amounts of money that are circulating in the sector increases significantly. And that lures individuals and organizations with a need to “launder” the money obtained from certain criminal activities.
Activities such as:
- Drug trafficking
- Smuggling
- Illegal arms trade
- Prostitution, etc.
Money obtained from such criminal activities is “invisible” to the government. If it simply appears on the personal or company’s account, it will alert the authorities who will then investigate its origin. To avoid detection, this money has to be “washed” and then inserted into legal money flows. And online casinos are a slippery slope, favorable for these actions.
How?
Well, the issue is that various methods used to control online gambling are generally dispersed throughout the world, including offshore jurisdictions. An online casino can be registered in one jurisdiction, have the server in another, while transactions and management may be carried out from the third parties in another country.
Sometimes, this can lead to legislative and jurisdictional gaps, suitable for money laundering. To prevent such gaps, regulators have imposed Anti-Money Laundering directives and regulations.
Anti-Money Laundering Measures And KYC Procedures In Leading iGaming Jurisdictions
As mentioned…
…some jurisdictions have very loose gambling regulations, such as Costa Rica. But if the online casino based in this country serves UK clients, then it is subject to the rigorous AML and KYC procedures imposed on UK online casinos.
A good preventive to money laundering is that iGaming venues align with the AML and KYC directives imposed by stricter jurisdictions worldwide, such as the USA, UK, and the EU.
USA
The American Gaming Association (AMA) recently updated its policies regarding KYC processes. These new regulations state that US players can’t open an account without providing: full legal name, address, and social security number.
No real money transactions can be undertaken without submitting an official government ID and proof of a permanent address. Operators who don’t comply with these regulations can face unbelievable fines.
Regarding AML measures…
…for online casinos these include filling out suspicious activity reports (SARs) for unusual transactions of over $5000, as well as reporting all currency transactions of over $10,000. Also, extremely tight requirements are imposed for recordkeeping and receipt storage, as well as all credit extensions over $10,000.
UK
Based on the Proceeds of Crime Act, UK AML regulations are extremely strict, as well as KYC procedures. On the other hand, the insistence of the UK gambling regulator on rigorous KYC regulations (known as “Threshold Verification”) isn’t solely focused on anti-money laundering.
It includes three main reasons:
- Preventing underage gambling by verifying a user’s identity
- As means of battling gambling addiction. Voluntary Self-Exclusion programs enable addicts to add themselves to watchlists to prevent casinos from allowing them to gamble. KYC processes should identify users on this list and prevent them from opening new accounts.
- Verification of the player’s identity helps to spot potentially high-risk candidates who may hold political positions of power or are subjects to financial sanctions. When done correctly, KYC protects against money laundering, terrorist funding, and other financial crime.
Upon opening an account, all UK users must complete KYC procedures. Some jurisdictions do not require these checks until deposit or withdrawal, but the UK regulator mandates that this process be completed immediately upon signup.
European Union
The EU 4th Money Laundering Directive and the Prevention of Money Laundering Act (Malta) are the main legislations that guide AML and KYC compliance for EU online casino users. These are quite similar to such policies imposed in the UK and USA, but with more lenience.
According to the gambling law of the European Union…
…users don’t have to go through KYC procedures until their accumulated deposits at the online casino reach €2000.
Are AML Regulations Preventing Money Laundry In Online Casinos?
While money laundering may seem to be a primary concern for banks and financial entities…
…reports are showing evidence of a major fault play in online casinos regarding this issue. To put it in perspective, in 2014 over 9000 money laundering reports were submitted by Finnish gambling operators, while Finnish banks turned in just 1125 money laundering reports during the same timeframe.
A few years ago, criminal groups were joining forces to launder money by deliberately losing funds in casino games and claiming “clean” prize money. A great example of this practice was The Corozzo Network, operating from 2005 to 2008. It had 26 members who ran illegal gambling and loan-sharking services through four online gambling sites, laundering more than $10 million.
AML measures of BCLC are also on the spot as the company’s executive director of investigations Cary Skrine has brought out some serious accusations to the former VP of BCLC, Robert Kroeker. He testified that back in 2019 Kroeker asked the anti-money laundering team to “loosen rules”, enabling organized Asian crime groups to play with money obtained from illegal activities. Allegations that ex-BCLC VP demanded looser rules are yet to be determined by the authorities.
For its poor AML provisions, CG Technology (trading as Cantor Gaming) was fined $22.5 million by various regulatory bodies in 2016. Lack of proper AML procedures resulted in 26 individuals, known as the ‘Jersey Boys’, laundering large sums of money through the site with bad bets.
As technology advances…
…the schemes become more complex and sophisticated. Add to that usage of virtual credit cards, prepaid mobile credit, and alternative payment gateways like PayPal, and detection of the money laundry becomes much harder.
On the brighter note…
…operators are quite aware of this fact. Fines for not following regulations measures in millions, so it’s in their best interest to impose strict procedures. More rigorous KYC checks lead to a better following of the anti-money laundry rules, making online casinos safer for both players and operators.
