The appeal of gambling and wagering on sporting events has enthralled both American citizens as well as their international counterparts for decades. The potential to “hit it big” has drawn individuals from all walks of life to an industry that has long been tied to nefarious financial activity, and one that continues to pose legitimate money laundering threats in 2024 – this in spite of a continuously evolving regulatory and legislative landscape governing the practice within our borders. While the Professional and Amateur Sports Protection Act of 1992 (PASPA) made the business of bookmaking illegal across the majority of the United States (outside of Nevada) for over twenty-five years, the business itself stayed able to thrive behind a system of widespread, underhanded markets that allowed bookies and bettors alike the opportunity to profit from their gambling activities while effectively skirting this legislation. All told, the American Gaming Association estimates that the illicit sports betting market in the United States alone is worth between $44bn – $64bn per year, with the regulator’s 2022 report on the unregulated gaming markets in the U.S. finding that bettors gamble upwards of $500 billion per year using unregulated sites, offshore sportsbooks, unlicensed gaming machines or offshore third-parties.2 These figures are especially staggering when considering the major shakeup in the sector seen just over five years ago when the U.S. Supreme Court struck down PASPA and effectively ended the American sports betting prohibition, allowing states to legalize sports betting.
Since this groundbreaking ruling the popularity of gambling in America has grown exponentially. All told, 38 states (as well as Puerto Rico and Washington D.C.) have legalized the practice, with mobile sports betting has been legalized by 30 states as of January 2024. Appealing to a wide number of consumers (specifically the college demographic) given the ease of use and streamlined ability to cash in and out with a few taps on a mobile device, the latter has arguably been the biggest boon to the growth of the industry. In wake of these regulatory changes, popular platforms such as DraftKings, FanDuel and Caesar’s Sportsbook have risen to prominence, often offering lucrative sign-up bonuses to potential patrons to draw them in, with word-of-mouth advertising and referral bonuses offered to existing customers to further grow the business. Today, the gross gaming revenue of the legal gambling industry in America is valued at over $90 billion annually, with this figure expected to potentially double by 2030 alone. While the novel revenue stream produced on behalf of local, state and federal economies with respect to increased labor income and taxes is undoubtedly a major boost, there are a number of downsides to the practice that have begun to emerge however.
While gambling is often viewed as a recreational activity, the reality remains that the practice – both in legal and illegal forms – can serve as a vehicle for money laundering and other criminal activities. As with any growing industry, there are bad actors looking to take advantage of potential loopholes for personal gain. Individuals seeking to legitimize illicit income derived from a number of channels (i.e. organized crime, the drug trade) often flock to the sector. Given that the industry itself hosts a wide variety of options for criminals to exploit, including physical and online casinos, and both physical and online sports betting services, individuals and criminal organizations are able to move large amounts of cash quickly and with regularity. Typically, money launderers will try to get in and out as quickly as possible. For example, in a casino setting, criminals may use dirty money in the form of cash to purchase chips or to hold an electronic balance. Once converted, they will do some very minimal betting for sake of appearance and then proceed to cash out. The cash-in, cash-out method may also include dividing the money into several smaller betting accounts or asking for the withdrawn credit to be made available in another jurisdiction before they are ultimately cashed out and effectively “washed” on behalf of the subject. Similar money laundering schemes have been seen in the sports betting realm, with users simply depositing proceeds of crime into their betting accounts and withdrawing after minimal betting activity is performed. This further impacts domestic financial institutions with respect to their AML/CFT obligations in that they are generally processing the return of these transactions to customer banking accounts.
Many variations of laundering activity can take place in this sector dependent on the method of betting taking place, with the issue becoming further pervasive as the market expands. With the growth of sports betting, traditional casinos are no longer a necessary component of the laundering process. Individuals can simply place their bets online through phone apps without ever leaving their homes. Online casinos and sportsbooks are also accepting many different payments methods for placing wagers, offering additional flexibility to criminals attempting to launder their ill-gotten funds. Furthermore, while casinos have historically been directly overseen by financial crime authorities, online sports betting operations have less comprehensive oversight. While some platforms can be affiliated with casinos, those casinos might have poor visibility into their operations, while others might fall outside the casino’s regulatory regime.3 The fact that many online platforms are available to players from across the globe further compounds this growing problem given that potential bettors can also take advantage of specific jurisdictions with less regulatory oversight. Users can also bypass potential location-verification processes required by domestic online gambling sites using virtual private networks (VPNs) to place bets from anywhere in the world.
With so much money changing hands so quickly, it can be difficult for authorities to keep track of the initial source of funds as well as where it’s all going. The rapid growth of the sector and the lack of uniform regulations between states have contributed to increased risk for the U.S. financial system as the ongoing crusade against financial crime rages on. The United States Treasury is very concerned about these risks, highlighting them as part of its 2024 National Money Laundering Risk Assessment released last week. With online sports gambling still in its relative infancy and lawmakers/authorities are still trying to catch up, various money laundering deficiencies have come to light. The report notes that while many operators are licensed through a BSA-covered market access deal with a casino and should be legally bound by the law’s requirements, these operators may not be aware of the BSA obligations required of them (including Suspicious Activity Report and Currency Transaction Report filings), or the relevant casino may not have insight into whether the operator is complying with the law, thus creating significant compliance issues. It is also difficult to determine if casinos and online platforms alike are maintaining the appropriate risk-based processes to combat potential money laundering.1
The push for more uniform regulations across the domestic sector continues. Developments in this regard remain complicated however given the rise in utilization of illegal offshore marketplaces posing arguably the greatest risk of gambling-related crime. In their report, the Treasury estimated that at least 40% of sports gambling occurs on these illegal/offshore platforms (accounting for an estimated $64 billion total annually). These platforms are generally found in foreign jurisdictions with deficient regulatory frameworks, and often accept virtual assets (i.e. Bitcoin, Ethereum, etc.) as forms of payment. Altogether, the battle against the misuse of online gambling and sports betting platforms will take commitment on behalf of both state and federal lawmakers with respect to establishing a legal framework that provides comprehensive AML coverage and improves red-flag detection capabilities for the platforms themselves, as well as for the financial institutions tied into these practices.
Citations
- 2024 National Money Laundering Risk Assessment, The U.S. Department of the Treasury, Feb. 2024.
- “Sizing The Illegal and Unregulated Gaming Markets in the United States.” American Gaming Association, Nov. 2022.
- Vanderford, Richard. “Sports Gambling a Growing Money-Laundering Risk, U.S. Says.” The Wall Street Journal, 7 Feb. 2024.
