Protect Your License - Money Laundering

13 November 2001

Money Laundering

In the last article I introduced the concept of "regulated risk management." Summarily: Risks are identified, the regulator defines requirements to mitigate the risks and the business has to demonstrate to the regulator that the risk has been considered and addressed. How the risk is addressed is largely a business decision. The key issue is that the risks are addressed and that due diligence in process is demonstrable.

We will now start to take a closer look and dissect the GGS risk management regulatory framework template for e-gambling.

Let us begin with the topic of money laundering.

With all forms of e-commerce, there is either a clear end-to-end financial transaction (e.g. transfer of funds) or there is a tangible product supplied (e.g. a novel) that is traceable through a basic financial audit. To this end, over and above traditional regulatory measures, most governments are taking a self-regulatory approach to e-commerce. That is, the industry sets a code of conduct which the government sanctions and to which the industry must self regulate. There is merit in such an approach and provided the system is open to external scrutiny, there is little scope to hide or launder money. Here we are interested in the data itself and applying basic accounting principles to that data. Most accounting firms can perform such a financial audit task.

Nevertheless, there are always exceptions to every rule and the exception to e-commerce is, e-gambling. Money goes into a "black box" and a different amount of money comes out (sometimes). Unless one has a very good appreciation of not just the data, but also the integrity, security and other characteristics of the data, one has little assurance of how the money is being treated or how it is being used. The detailed systems assurance required is not a skill-set of most accounting practices and requires specialized technical expertise.

Good regulation ensures that:

    a) Every reasonable care is taken to identify the holder of an account. This is largely done through a well-defined registration process at the time of entry and again at the time of payment.

    b) A holder of an account may only hold one account and funds cannot be transferred between accounts within the casino or associated digital bank.

    c) An audit log is securely maintained on every activity associated with an account. This of course includes deposits, withdrawals, bets, winnings, purchases and adjustments and even extends to the reproduction of game replays.

    d) Player accounts are under the control of the regulating jurisdiction and open to full scrutiny by the regulator.

    e) The system is to automatically report “suspicious transactions” as prescribed by applicable anti-money laundering legislation.

    f) The technology is reviewed to ensure there are no holes in security (e.g. back-doors in encryption algorithms) that would enable manipulation of account data or audit trails.

    g) A system of internal controls and operating procedures is to be put in place over the automated checks and balances to confirm the integrity and consistency of the systems.

    h) And much more.

In fact, with the right regulatory framework, the last place someone would wish to attempt to launder money would be an Internet casino or sports book.

A further issue that differentiates e-gambling from general e-commerce is the fact that e-gambling is putting other people’s money at stake utilizing a technology that deals in emotions (entertainment).

Next month we will look at the hot topic of responsible and underage gambling. At what point does the government violate freedom of choice and enter the homes? How does the government still maintain public confidence that the risk is adequately addressed? Next month we introduce the (not so new) concept of "informed consent" and how the GGS regulatory framework addresses the issue of responsible and underage gambling.

Steve Toneguzzo is the CEO and president of GGS, the recognized pioneer and world leader in regulation and business risk mitigation related to Internet Gambling Systems, security and operations for regulated markets.

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