The anonymity of online casinos makes them a fertile ground for money laundering, and a significant threat to the stability and integrity of the global gambling industry. But there are things that operators can do to protect their business and customers.

There was a reason why Marty Byrde from Ozark chose casinos as the perfect front for his money laundering activities. Criminals can convert dirty money into physical or digital chips relatively easily with little to no checks, gamble for a short time, and then cash out, with fresh, laundered money. The same is true for online casinos. In fact, the anonymity afforded by online casinos rivals that of even the darkest, dingiest, most back door brick and mortar casino.

The global revenue of the online casino market is projected to reach $32.69 billion by the end of this year, with an estimated 124 million active users by 2027. No longer considered a niche offshoot, online casinos are a sector in their own right, and welcome increasing numbers of players every single day. However, where there are online users, there are weaknesses in online platforms that criminals can exploit.

Global relationship between casinos and money laundering.

The impact of money laundering on the gambling industry can be felt around the world, offline and online. In July 2023, Australian-headquartered Crown Resorts found itself at the center of a major legal battle. In a landmark decision, the Federal Court ordered Crown Resorts to pay a staggering $450 million (the country’s third largest corporate fine ever) for breaches to money laundering laws.

During the trial, Crown Resorts openly acknowledged that its casinos had failed to implement adequate systems for monitoring “high-risk” gamblers and the operations of junket tours. The investigation uncovered a total of 546 violations of the Anti-Money Laundering and Counter-Terrorism Financing Act, spanning 2016 and 2022.

Despite having a population of just over half a million, money laundering in Malta’s iGaming industry is also a significant issue. The island country is home to over 500 iGaming operators, employs more than 10,000 people and generates over $1.5 billion in revenue each year. As a major industry and significant contributor to the economy, it is important that Malta is able to offer a gambling environment that is safe and secure.

In 2022, the Malta Gaming Authority (MGA) carried out 28 compliance audits, 228 desktop reviews, and additional AML/CFT compliance examinations, which resulted in the cancellation of licenses and the imposition of administrative penalties totaling €179,150. The MGA also took remediation measures against 25 license holders, amounting to over €738,000. The Fit & Proper Committee found six individuals and companies to have fallen short of its probity standards due to various factors, including the potential risks associated with money laundering.

Operators failing to comply with AML practices can face serious legal and financial consequences. AML failures include not properly assessing the risk factors associated with players, not having appropriate policies in place, failing to comply with regulatory guidance, and not implementing policies effectively.

In 2022, the UKGC imposed a £2.87 million fine on operator Petfre Ltd. for failing to comply with AML and social responsibility regulations. At the time, Leanne Oxley, Director of Enforcement and Intelligence at the UKGC, stated that other licensees should take note of the case and assess it to improve their compliance measures.

One click away: Why money launderers target online casinos.

There are numerous reasons why money launderers will target online casinos, and online gambling platforms, in general, including:

Anonymity and privacy.

Online casinos offer unrivalled anonymity and privacy for customers, which unfortunately makes for very attractive conditions for money laundering and other types of fraud. Since online casinos do not require in-person interaction, criminals can create fake identities or steal others’, making it extremely challenging for authorities to trace the source of funds.

High transaction volumes.

As many online gambling platforms process thousands of transactions every day, this makes it harder for payment providers and operators to monitor for fraud, and for law enforcement agencies to detect suspicious activities. Criminals will also often use multiple accounts to transfer money between different platforms, making the tracking of funds even more challenging.

International reach.

As gambling platforms often operate in multiple jurisdictions, money launderers often transfer money across different countries to further obfuscate funds and avoid detection.

Cryptocurrency in online casinos.

Crypto money launderers on online gambling platforms use a combination of anonymous and identifiable accounts to deposit funds, which are then withdrawn or transferred to other players.

As cryptocurrencies are decentralized, this offers a further level of anonymity, making it even more challenging to trace transaction source and destination, particularly on platforms with subpar KYC and AML measures.

What methods do criminals use to launder money in online casinos?

As online gambling platforms provide so many opportunities to launder money, fraudsters have various options to obscure the origin of dirty money and channel it through their gambling platforms of choice. For example, criminals may look to use stolen identities to open accounts and carry out money laundering schemes, and use stolen credit cards for deposits and withdrawals.

Another common method for money laundering in online casinos involves the fraudster depositing money into their account through either prepaid cards, cheques, credit and debit cards, or cryptocurrencies. The money deposited to the gambling account is then withdrawn and ultimately achieves legal status. With this method, the player does not tend to use the funds for actual betting.

If a particularly large amount of money needs to be made clean, the fraudster is likely to be concerned about amy red flags they might set off. Structuring, smurfing, or layering involves fragmenting large sums of illegally sourced funds into smaller transactions to escape detection. Money launderers do this by depositing small amounts at a time, thus eluding possible detection from regulatory authorities.

Another scenario involves the player using deposited funds to bet. The player will place their funds in games, collude with other players, and place coordinated bets. Although this method involves losing some money, fraudsters are willing to make such an investment to launder money. Chip dumping, a technique in which a player intentionally loses chips to another player at an online poker table, is one of the greatest examples of collusion in online gambling. The individual receives chips and then cashes out, effectively laundering money.

The third most common way to launder money through online casinos involves using the gambling account as a makeshift bank account to make illegal transactions. Both parties (buyer and seller) would utilize a gambling account to transfer funds through P2P (player-to-player) transfers. The seller can then cash out illicit funds stored on their gambling account to their payment account. If asked about the source of funds, sellers often claim the money is generated from gambling profits.

Those who use gambling platforms for the purpose of money laundering often use multiple accounts to transact money between different platforms. Gnoming refers to the act of using multiple accounts to help one player win. The other accounts are created to deliberately lose in head-to-head games like poker.

The final method involves using a gambling account to store and conceal illicit funds from authorities. This approach differs from previous methods as funds are not withdrawn but concealed and retrieved from the gambling account using the same (anonymous) banking method.

Learn more about the three stages of money laundering (Collection; Placement; and Integration) here.

Red flags: How to detect money laundering in online casinos.

Below are the most common money laundering-related red flags operators should watch out for:

Unusual betting patterns with players placing large bets on low-risk games or frequently changing betting patterns.
Frequent large transactions.
Rapid deposit and withdrawal cycles with criminals depositing large sums to their accounts and withdrawing them quickly.
Multiple accounts and IP addresses for conducting transactions.

How are regulatory bodies addressing money laundering in online casinos?

Regulatory bodies worldwide have taken several initiatives to address money laundering in online casinos. These include the requirement to adhere to strict measures as part of AML and terrorist financing regulations.

For instance, the UK has one of the most regulated gambling industries in the world. The UK Gambling Commission, which is currently running a series of consultations to bring the gambling environment into the digital age, has recently made customer onboarding and verification processes much stricter. Without complete verification, operators can neither let customers deposit funds nor give them access to bonuses, free bets, or even free-to-play games.

Most regulatory bodies also require online casinos to conduct Customer Due Diligence checks, also known as Know Your Customer (KYC) requirements. This process involves gathering and verifying basic information about the customer via a reliable source. Discover more about the dangers of online casinos, and the importance of KYC in ensuring a safe and secure gambling experience in our blog, ‘The importance of KYC in online casinos.’

How can online casinos prevent money laundering?

Online casinos must embrace the benefits of technology to combat money laundering. Technology can help detect money laundering by analyzing large amounts of data and identifying suspicious transactions and gambling patterns. This is done by utilizing automated systems that flag transactions that meet specific criteria, e.g., large or unusual transactions.

Below are some ways operators can prevent money laundering with the help of technological advances:

Machine learning and AI solutions.

AI-enabled identity verification solutions can identify player identities and behavior patterns indicative of money laundering. Such systems learn from past transactions to identify unusual patterns. These solutions are also able to verify huge amounts of information by comparing customer data with identity documents, biometric data, or external databases.

Blockchain technology.

Blockchain technology can be utilized to create a transparent and immutable ledger of transactions. All transactions on the blockchain create a permanent trail of unalterable records. Consequently, authorities can more conveniently trace the source of money.

Reporting suspicious activities.

Operators must report any suspicious activities or transactions to the relevant authorities. This includes any unusual transaction that does not meet specific financial thresholds or other standards set by local regulations. Here, automated systems that flag suspicious transactions can be used.

Risk assessments.

Risk assessments include closely examining transaction patterns, geographic locations, and user profiles to ascertain the likelihood and potential risk of money laundering activities. After risks are detected, operators can take the appropriate measures to mitigate them, e.g., the implementation of advanced due diligence protocols on high-risk users. Adopting an effective risk-based approach by identifying high-risk users and transactions can also lighten the overall burden of regulation on operators.

Transaction monitoring.

Lastly, operators can use technology to monitor transactions via SoF (Source of Funds) and SoW (Source of Wealth) checks. This helps ensure transactions are legitimate and funds are not the proceeds of criminal activity.

How does money laundering impact online casino users?

The impact of online casinos falling victim to money laundering can be disastrous. Firstly, there is the obvious reputational damage, as existing and future customers will ask questions about the legitimacy and security of the platform, resulting in a loss of player trust.

Players who do stay on the platform and are concerned about money laundering will potentially change their deposit habits. Another likely impact could be players no longer trusting KYC processes for fear their information may be misused.

Operators can allay player fears by remaining proactive and vigilant in their efforts to prevent money laundering, which could involve implementing more advanced anti-fraud technologies and joining forces with regulatory bodies to ensure compliance with relevant laws.

Protect your business and your players.

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