© Dr. Michael Levi Professor Of Criminology Cardiff University, CF10 3WT, Wales Responsible Gaming Day European Parliament, 2009 Internet Gaming: the Money Laundering Risks

What are the Risks of Laundering from E-gaming? E-gaming risks compared with what? Two extremes of the money laundering continuum : 1. Complex transnational operations designed to hide the criminal origins of large and/or ongoing serious crimes so that the people and the property look legitimate – the Big Stuff! 2. Any activity that conceals, disguises, or disposes of the proceeds of any crime, no matter how small the sums So almost everything offenders do with proceeds is self-laundering by offenders – But this does not mean that it is laundering by e-gaming sites themselves Some criminals spend money on e-gaming, like they do on other risky leisure activities: but this is not Big Stuff laundering – it is really just spending!

So how do criminals try to e-launder? They can spend money gambling, lose a little, and then receive a payment from the gaming firm This is not a lot of help, except in avoiding paying cash direct into the bank, since – if the authorities ask them how they acquired the funds to lose in the first place – they have no convincing excuse They can lose funds in peer to peer transactions, thereby transferring funds to others, including nominees acting as straw men, in the same jurisdiction or abroad They might still be asked how they got the money, and there will be some kind of audit trail which might have to be explained away if there is an investigation

How do criminals try to e-launder (cont.)? Criminals register stolen or cloned credit card for gaming – attempt to transfer/withdraw funds to themselves/other criminals They deposit large amounts of funds and attempt to withdraw funds to another account

But why would criminals use e-gaming to launder? Why use e-gaming ? For crimes that generate cash – e.g. drugs trafficking, illicit sex trade, cash bribes, burglary and robbery – e-gaming is useless as a placement vehicle, because cash cannot be used direct For crimes that generate non-cash profits, laundering through e-gaming is possible – But why use e-gaming rather than other mechanisms? Disadvantages for criminals E-gaming in regulated firms make people deal with relatively small amounts per account/transaction, so they would have to work hard to launder significant sums; and Regulated firms AML models may trigger suspicion and then reports to FIUs

Indicators of Money Laundering FATF and EU 3 rd Directive E-Gaming Controls include: 1. Suspected payments 1. Attempting to register a number of payment options 2. Abnormal increase in deposits/withdrawals 2. Suspected gaming 1. Winning from or losing to the same associates, and few others 2. Regularly playing the minimum number of hands before obtaining cash-out 3. ID fraud 1. Where the same players are linked to more than two accounts 2. Behaviour of linked accounts look suspicious

I am going to lose money to you. I then want you to transfer it to our account offshore Credit Card E-Wallet Payment Processor Bank Wire E-Gaming Operator Online/documentary identity checks on players Financial institutional KYC checks Amounts logged and restricted Withdrawal ID checks based on gameplay suspicion indicators PSP KYC checks How are laundering attempts monitored?

How significant are the e-gaming risks? No physical cash Monies are received from regulated financial institutions Exposure is small per bet Anti-fraud/cheating systems make e-Gaming sites unprofitable for criminals in search of big fraud opportunities Perfect audit trail of all transactions Electronic mechanisms mean visual identification is less but location, IP address etc. are well analysed, and payee is known, subject to bank/payment card Know Your Customer controls over false/stolen identities; and regulated operators controls over linked accounts

Conclusions So is there a threat from money-laundering via e-gaming? Of course there is – there is some threat from everything criminals do and from every service that is provided that might be abused: but we dont prohibit boats, cars, credit cards or using Scandinavian saunas because these carry crime risks How big is the extra threat from e-gaming? Given that there is no cash e-gaming, the threat looks quite modest; There is a general problem of insufficient resources for follow up by enforcement authorities/FIUs on reported suspicions, not just on e-gaming It is a misunderstanding that gaming winnings – whether genuine or contrived – conceal predicate crimes perfectly They do not explain how people got the money to gamble with initially Trade-based laundering is more effective than e-gaming for large peer to peer losses– and monitoring such losses is a challenge in every sector Financial institutions and e-gaming firms are aware that the US authorities are looking for reasons to charge them if supervision fails