If you’re trying to get from Point A to Point B without getting caught by the authorities, you’re likely to head for the backroads where there are fewer police than on the highway. For the same reason, an increasing volume of illicit financial flows – money laundering, terrorist financing, and sanctions evasion – has been moving from the highways of the traditional financial system to the backroads of the casinos and gaming industry.
Casinos and gaming are generally grouped together as a sector of anti-money laundering / counter-terrorist financing (AML/CTF) activity, but they cover a range of businesses. In addition to physical casino facilities, on-line gambling is a growing sector of activity. Sports betting can be done at the venue, at a licensed betting shop, online, or even at casinos. Lastly, on-line video games using in-game currencies are a rising source of activity as criminals and terrorists seek to avoid the well-trodden path of financial institutions.
Certain challenges are common across the sector- the need for near real-time screening and transaction monitoring; the transfer of value into a non-traditional currency (chips or in-game virtual currencies) and the cross-border nature of clients and transactions. Taken together, these issues create challenges that are too complex to be addressed by manual processes.
Casinos are the most mature sector of the casinos and gaming group, with well-established typologies and comparatively well-developed regulatory requirements. At its most basic, laundering money through a casino involves bringing in cash, purchasing chips or credit for play at the casino, and “cashing in” with a check from the casino which can then be deposited into the financial system as “clean money.” A major advantage of using a casino is that large sums can be laundered at once, since it is not unusual for “VIP” customers to spend hundreds of thousands of dollars.
Two prominent casino typologies are worth noting, both of which involve criminal organizations in China. In the Vancouver model, wealthy Chinese gamblers deposit funds in the local accounts of criminal organizations in China, and in return those organizations provide funds in Canada to the gamblers once they arrive in Vancouver – these funds are the proceeds of criminal activity in and around Vancouver, and are held in local Canadian banks controlled by the criminals. The gamblers use these funds to purchase chips in the Vancouver casinos, then cash them in and receive a check from the casino. They deposit the check in the same (or different) criminally-controlled banks in Canada. The funds are then wired back to China through a series of shell corporations, and then back to the underground banks in and around Vancouver. As the last step, the funds are typically used to buy local real estate.
The second typology involves travel junkets to casinos in Macau. In order to skirt Chinese currency restrictions, a Chinese businessman (or criminal) will pay a large sum of money in Chinese currency – for example, $100,000 worth of renminbi – to a junket operator. In return, he or she will receive airfare, hotel accommodation, and a credit – perhaps $70,000 – at the casino. After using some of the money gambling, the businessman cashes out in US dollars or another currency and has thus laundered the money without directly sending it through the financial system.
Detecting these and other typologies can be done from an analysis of transactions (e.g. detecting a player who buys chips, does little or no gambling, and then leaves with the proceeds check shortly after arriving), but these typologies also offer the opportunity for screening solutions. Because the screening must be done in near-real time, modern technology is required since manual processes would take too long and would be prone to error.
In most jurisdictions today, casinos screen against lists of individuals known or suspected of criminal links and against Politically Exposed Persons (PEPs); rules in Canada and Macau have been tightened in the last few years with respect to Customer Due Diligence and Enhanced Due Diligence (EDD) by casinos in their jurisdictions.
Online gambling and betting
Of course, casino games and sports betting occur online as well as in physical locations, and this makes the AML/CTF challenges even more daunting. As is the case with online banking, the onboarding and CDD processes are not done in person, and potential customers don’t want to wait days for the process to be completed and the account opened. The only way to have processes that are both robust and quick is to leverage Artificial Intelligence (AI) and other leading technologies. With these technologies, online casinos and betting sites can maintain continuously updated lists of sanctioned individuals and PEPs that can be checked 24/7 to accommodate the operation of the business across time zones. Since money deposits, transfers and withdrawals are done on line, technology must also be deployed to check any third parties and to analyze transactions for indications of money laundering, terrorist financing or sanctions evasion.
Online gaming is a route for money laundering and terrorist financing that is overlooked by most people, but not by the criminals and terrorists. When you think of it, many games allow and encourage players to buy in-game currencies that they can use to purchase items or premium content within the game. Criminals can then sell these to other players for real currency or they can sometimes receive a refund for purchases they claim were a mistake. In either case, the funds initially paid into the game come out as money from a legitimate source, an essential element of the layering stage of the money laundering process.
Unlike casinos, you can’t move hundreds of thousands of dollars through a single transaction in a video game. Moving appreciable amounts of money requires multiple transactions, and this can be detected by AI. Additionally, AI can spot the patterns produced by the transactions and as player profiles deviate from expected levels of activity.
Addressing the Challenge
The growth of money laundering, terrorist financing and sanctions evasion through casinos and gambling reflects the need for criminals to avoid the common and closely-watched paths. Having said that, organizations from FATF to national regulators to individual businesses are increasing their focus, expanding their requirements, and raising their expectations with respect to how the sector is monitored. There remains a lot of catching up to do, but using the best technologies to create effective processes that are integrated, streamlined, and smart can help these businesses reduce their exposure to criminals and their risk to regulatory sanctions.
About Andrew Fenton: Andrew (Andy) is responsible for Corporate and Non-bank financial institutions across EMEA APAC. He began his career in Fintechs, then shifted to Corporate Banking, and occupied coverage and leadership positions at JP Morgan Chase, Bank of America and Barclays Bank. He is currently SVP of Sales for Silent Eight. Follow him on LinkedIn.