- Key insight: Online gambling's rapid spread has created new forms of money-laundering risk for banks.
- What's at stake: The risk landscape has become much more complex as gambling has migrated online. Today it involves illegal offshore gambling operators, cryptocurrencies and prediction markets.
- Expert quote: "Is the person just a fantastic bettor who's winning all their bets, or is it that, 'Hey, he's also putting money in from other places … and having it look like it is a winning when it's really not?'" —Emily Griffin, director of the financial crime compliance practice at Moody's
Criminals have long placed bets in casinos in an effort to disguise the proceeds of illegal activity. But the rise of online gambling globally has created a range of new money-laundering risks for banks, according to an advisory from an intergovernmental standard-setting organization.
On Wednesday, the Financial Action Task Force published a
"Payment systems used in gaming and gambling, such as cash, e-wallets, mobile money and virtual assets, are vulnerable to a range of money laundering risks," the group said on its website.
"The variety of payment methods accepted by online gaming and gambling operators increasingly allows rapid, anonymous, cross-border transactions, and the conversion of value into different forms," the 13-page advisory stated.
The Financial Action Task Force, or FATF, made several recommendations to its member nations on how to combat gambling-related money laundering.
Those steps include strengthening licensing and registration requirements to prevent criminals from controlling gambling operations, enhancing international cooperation and considering the development of public-private partnerships to improve information sharing.
The FATF was founded in 1989 at the initiative of the G7. It currently has roughly 40 members, including the United States, the European Commission and China.
Over the last eight years, a majority of U.S. states have legalized online sports betting. But the FATF warned that illegal gambling sites, many of which are operated in offshore locations, still represent a significant risk.
"The illegal gambling market rivals or even exceeds the legal market in some countries and continues to proliferate, attracting players through promotions and greater levels of confidentiality," the advisory stated.
In the online gambling realm, older methods of evading detection, such as using a complex series of financial transactions to disguise the money's source, are being combined with newer techniques, according to Emily Griffin, director of the financial crime compliance practice at Moody's.
Read more:
OCC and FDIC finalize narrower bank supervision procedures As education costs rise, credit unions chip in for employees A $111 million scheme to keep bad merchants banked How Google and Apple's youth plays are pressuring banks
"I think sports betting is becoming a really good case example of how old and new are coming together," Griffin told American Banker.
Some of the newer techniques being used by criminals involve the use of cryptocurrencies, Griffin said. Criminals are also funding their online gambling accounts from multiple sources, including Zelle, Venmo and Apple Cash accounts, to obfuscate the source of the money, she said.
"I think banks need to see their role as recognizing money going out," Griffin said, "and then how it's coming back in as well."
For example, it could be a red flag if a customer moves relatively small sums to an online betting site and then repeatedly moves much larger amounts from the gambling platform into their bank account.
"Is the person just a fantastic bettor who's winning all their bets, or is it that, 'Hey, he's also putting money in from other places … and having it look like it is a winning when it's really not?'" Griffin said.
Another new wrinkle for banks: prediction markets, which serve a similar function as sports betting sites for many users, but are perhaps more vulnerable to market manipulation.
"There's not a lot of very sophisticated and trained investigators — even regulators, law enforcement — to really be able to understand that kind of market manipulation," Griffin said. "That area is growing so quickly that the regulation, and then also the expertise to enforce any kind of regulation is still slow to catch up."
Griffin said that banks' compliance departments have traditionally looked at gambling from the standpoint of whether the transactions themselves are legal — for example, does the bettor live in a state where gambling is authorized?
"Now I think you're going to start to see more sophisticated investigation work, when you start to look at larger organizations, cross-border movement, things like that," Griffin added.
