The exponential rise of the online gambling sector in the United States and abroad is creating new opportunities for criminals, as well as the average citizen, to stash and launder money, new reports from international watchdogs indicate. Casinos and the gaming industry have long been synonymous with financial crime given that they are driven by large sums of cash and provide patrons with a level of anonymity that is highly sought after. Leading up to this point in time however, controversial and frankly outdated legislation (most of which written well before the development of personal computers, let alone smartphones) hindered the growth of the online marketplace as we delved into the new millennium. In 2011 however, the United States Department of Justice (DOJ) moved to allow for individual states to pass legislation concerning online gambling and decriminalize this activity as they saw fit. Another move that has shaped the current landscape was when the U.S. Supreme Court struck down a 1992 federal law that effectively banned commercial sports betting in most states. At the time, it was estimated that approximately $150 billion in illegal wagers were placed on sporting events on an annual basis.1 In the aftermath of the decision, states could not wait to take advantage, as online gambling meant converting considerable amounts of previously untouchable money into legitimate taxable income. Fast-forward to 2022 and twenty-two states have moved to either legalize or put forth legislation to legalize online gambling and sports betting.
In spite of what has been a relatively slow pace of adoption, this is by no means due to lack of allure to potential patrons. This sentiment is backed by the notable investment figures into this domain seen to date. Even in its relative infancy, the online sports betting market in the United States currently accounts for over $60 billion in total market size; a figure that analysts predict will eclipse $100 million by the end of 2023. While the rise of this market is being supported by many states – given that it allows them to open up additional tax revenue streams – it also creates new risks weighing on the global anti-money laundering crusade and has attracted the attention of bad actors seeking to exploit its nuances and lack of staunch regulation for personal gain. Online gambling now provides individuals with an unprecedented level of convenience in potentially gaining the ability to wash their ill-gotten funds from the comfort of their own homes. It has become apparent however that separating the fun of gambling from the nefarious intentions is quite difficult for state government authorities and compliance personnel alike. Online gambling presents many of the same money laundering risks that traditional casino gambling does, only with even less oversight. Online gambling platforms are nowhere near as capable or experienced as banks are in following know-your-customer (KYC) protocols and performing the appropriate due diligence to ensure no suspicious activity takes place. Only some of the larger online platforms (i.e. DraftKings, FanDuel) have actual dedicated compliance teams and a concrete system of checks and balances in place to limit illicit activity. Even so, many of the big names in this space have already seen their share of small-scale fines from state regulators for failing to detect improper activity, including proxy betting from jurisdictions outside of those that have officially legalized gambling, among other issues. Even more striking, a recent article on AML risks tied to online gambling published by the Wall Street Journal writes that “many smaller gambling startups trying to get in on the gold rush don’t know they need an anti-money-laundering program.”3
The fact of the matter remains that because regulations largely differ from one state to the next, there is no uniform set of standards to harbor this booming industry – at least not in the United States. To date the United Kingdom and other countries facing less-complex regional regulatory discrepancies have stepped up enforcement. While the Biden administration is asleep at the wheel on the threat of money laundering via online gambling, the United Kingdom has taken it upon themselves to lead the charge with respect to regulations and enforcement. This past August, the UK Gambling Commission announced four fines over online money laundering failures and they were not cheap; amounting $16.4 million against the company Entain, which operates several gambling sites.1 It was found that Entain failed to adequately assess the risks of its online business, allowing customers to deposit large amounts of money without verifying any of its origins.3 One customer was reportedly living in public housing while somehow depositing $220,000 over six months – a most obvious red flag. The fines for these basic failures were levied by UK authorities to set an example for other online gambling platforms. Even Malta – a country long tied to corruption and known as a traditional tax haven – has stepped up their game with respect to cracking down on money laundering through online betting, levying several six-figure fines to companies failing
Meanwhile in the U.S., nothing significant has occurred with respect to overhauling online gambling regulations. Many expect government bodies like the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Internal Revenue Service (IRS) to step up and take a leading role in cracking down on both the individual states and gambling platforms alike to limit illicit financial activity. One thing is clear however, the more money (dirty or not) flowing into the gambling/gaming sector coupled with other countries stepping up their enforcement efforts certainly provides motivation for the U.S. to do the same.
- Bramer, James Van, and Nel Andrews. “Explosion of Online Gambling Strains Financial Crime Regulators.” The Crime Report, 30 Aug. 2022.
- Liptak, Adam, and Kevin Draper. “Supreme Court Ruling Favors Sports Betting.” The New York Times, The New York Times, 14 May 2018.
- Vanderford, Richard. “As Online Gambling Grows, so Does the Financial Crime Risk.” The Wall Street Journal, Dow Jones & Company, 29 Aug. 2022.