E-Gaming Industry Downplays the Money Laundering Scare

9 October 2001
The Net betting industry is outraged at a U.S. House bill that lumps Internet gambling into a group of activities involved with money laundering. Most agree that several safeguards, namely betting limits, can be put in place.

The bill, introduced over the summer by Rep. James Leach, R-Iowa, aims to prohibit Internet gambling-related financial transactions and has been included in a broader piece of legislation that targets the ways that terrorists fund their activities.

In response, critics from the online gaming industry have identified several factors that make it difficult to launder money through gambling sites.

Anthony Cabot, an attorney with Nevada law firm Lionel Sawyers & Collins, said that online gambling operators can take some pretty basic steps to prevent suspicious transactions.

First, he said, operators must make sure every customer is legitimate and must not permit any phony accounts.

They also need to be aware of any suspicious patterns of betting behavior among customers, he explained. If it looks suspicious, he added, then officials need to know about it.

Sites must also set betting limits, not only for money laundering prevention, but also to keep customers safe from gambling away all their money. Cabot pointed out that money laundering usually involves large sums of money, so operators can make laundering money through an e-gaming site difficult by setting limits on how much can be bet.

Liechtenstein's Plus Lotto has implemented similar protection. "We apply stringent anti-fraud and anti-laundering controls including due diligence on heavy spenders, weekly limits and so on," explained company head Adriaan Brink. "So we don't have any suspicious activities that are not noticed and dealt with very quickly. Having said that, we have not had an increase of fraudulent activity recently."

E-gaming customers would have to overcome a few other obstacles to launder funds on a gaming site, several gaming industry experts told IGN.

Stephen Fein from Signature Card Services, for example, said that it's difficult for customers to launder money when they're paying with a credit card.

"From my point of view, I don't understand how a credit card can be used to money launder," he said. "It's not a big issue in our world."

Fein, whose firm provides merchant credit card processing services for e-cash merchants, was astonished that Congress would be tackling this issue now. "We're going to divert resources from tracking true money laundering to monitor online gaming sites?" he asked.

Gaming Insight CEO David Sanderson was skeptical as well. "On the premise that winnings are only ever paid back to the card owner," he said, "I don't see how it can provide a viable laundering opportunity."

"Online gaming is mostly a bunch of small transfers going one way," Calvin Ayre from sports betting solutions provider eSportz added. "Gaming companies will typically only send money back to account holders, not some place else in the world. No online gaming company accepts cash, so by definition, all funds are already pre-vetted by mainstream financial institutions already using all the systems required by the law of the countries they reside in."

Brink agreed. "It seems to me that the difficulties in anonymous cash transfers into and out of Internet gaming sites would make it much more difficult than land-based casinos," he said.

Officials at U.K.-based Ladbrokes, which does not accept bets from Americans, believe they have the tightest controls in the industry. "Once you have a credit card registered with us, any money paid back has to be via the same card," spokesman Andy Clifton said.

Clifton pointed out, however, that not all gaming companies stick with a single credit card policy, highlighting what could be seen as some lax controls by e-gaming sites. "With most other companies you can bet on one card and have your winnings paid back to another," he said.

There are also a number of products on the market that I-gaming sites can use to protect from money laundering.

Several sites, for example, use Vancouver-based eSuccess' two-pronged fraud protection: Integrity, an auditing system, and Citadel, a risk management database, which together help track betting transactions.

Real-time auditing products like this can either complement or replace fraud controls already included in most casino gaming software.

Some sites are also turning to geolocation products to verify where their players are at, as well as biometric solutions to ensure that customers are who they say they are. If the customer is untruthful when giving their location, it's a good tip that there might be other discrepancies.

Biometrics has become increasingly popular security tools for land-based casinos, and that's carrying over into the virtual gaming world as well.

"A biometric solution could have an impact on identifying individuals who are attempting to pass themselves off as another individual," said Tony Bassett, the director of media operations for Inroad Solutions. The Saskatchewan-based company developed a biometric solution called Aegis Secure Login System, which senses a computer user's tendencies and habits when typing in a password.

In February the company signed a licensing agreement with eSuccess to distribute and sell the simple biometric solution to the I-gaming industry.

None of these tools are fool proof, but by combining several of them, operators can detect nearly all suspicious transactions.

On the other hand, none of the tools prevent money laundering on the part of the operator. That, in the end, is a personal choice. So far, it's not a choice many in the industry are known to have made.

Nevertheless, many American law enforcement officials believe there's a clear connection between e-gaming and money laundering; they look at online gambling companies as unscrupulous and dishonest groups that operate outside the law. Money laundering is just one more aspect of their suspected illegal activities.

J.P. Suarez, who heads the New Jersey Division of Gaming Enforcement, is convinced that such a link exists.

"I certainly think that Internet gambling sites present the opportunity to launder funds, as there appears to be little accountability or record keeping for most operators," Suarez said. "I cannot comment on any specifics, and can't really provide more details at this time."

The scenario was taken up front and center in the House last week when FBI representatives testified that they've tracked a few cases involving Internet gaming sites used to launder money. The FBI officials, however, did not provide any details.

Vicky Nolan joined the IGN staff in October 1999. She's best known for inventing fire, the wheel and swiss cheese. She can be reached at vicky@igamingnews.com.