For those following the news lately it's clear that money laundering in casino and online gambling businesses is getting more interest. Last year the Ontario government came under intense scrutiny when it gave the Woodbine and Durham Region casino bid to Great Canadian Gaming, which consequently was revealed to be involved in aiding money laundering. According to reports by the RCMP, the River Rock Casino in Richmond, British Columbia helped a spa owner in his efforts to convert dirty money from drug dealing by allowing Asian "whales" to deposit stacks of $20 bills at the casino in exchange for chips and then cash out any winnings or left-over money into larger denominations. The casino denied any wrongdoing and claimed it followed all money laundering prevention rules but authorities, as well as opposition parties to the Ontario government, argued that common sense should have indicated something was wrong and, at the very least, the tellers at the casino should have gone to the authorities with their suspicions.
As well, in Europe right now, the UK Gambling Commission announced that it sent letters to 17 operators after discovering that companies were failing to prevent money laundering, terrorist financing and problem gambling and they announced they were investigating 5 companies for serious violations relating to money laundering. While the UKGC would not name the companies or the exact violations, they did indicate that the offenses were severe enough to invoke a license suspension or removal for the companies' actions.
And, in the United States, The Las Vegas Sands has been investigated on a few occasions regarding a failure to stop money laundering when it allowed two big time gamblers to wire tens of millions of dollars from Asia to the Sands Venetian Casino in Las Vegas and employees at the Sands failed to notify authority of any suspicions. And, of course the unscrupulous activities of the Sands in Macau were brought to light as part of the Steve Jacobs wrongful dismissal suit that was filed in a Nevada court. Moreover, both the MGM resorts and Caesars were fined by the FBI for failure to prevent money laundering in a case where 21 people in various states used counterfeit credit cards and stolen account numbers to make deposits and withdrawals at various casinos including the Bellagio and Caesars Palace.
Mind you, these cases are just the tip of the iceberg, as land based and legal online casinos are always being investigated for suspicion of money laundering. Because of the nature of casino gambling it's almost impossible to prevent criminals who want to hide the true proceeds of their crimes. Whether money is put into a bank, spent at a store, dropped into a charity box or deposited at a casino in exchange for chips there's really no way of identifying the source of the funds. After all, how often has a pit boss questioned an individual when he throws down $5,000 at a blackjack table before he is given the chips to play with? Casinos have often indicated that it is impossible to spot criminals unless they are careless and thus they do as they are required to in order to spot and report suspicious activity, but more often than not dirty money will just be deposited unless the person gives reason for scrutiny. However, when governments or gambling boards create new, more intense rules, Casinos will follow them.
While hiding money from the tax collectors or authorities goes back to biblical times, the term money laundering only goes back to the 1920s during the prohibition period. It is believed that the term originated when Al Capone tried to hide the true nature of his bootlegging and illegal gambling money when he logged them as part of the receipts in the several laundromats he owned. To authorities, therefore, it appeared that the money was made from a legitimate source rather than from crime. Ironically, it was those types of transactions that led to the arrest of Al Capone on tax evasion charges, when he failed to report income taxes while flauting a lavish lifestyle. Since that time, efforts to conceal funds have gotten more sophisticated, but the three tenets of money laundering are still the same.
The first step is placement, where a person introduces dirty money into the financial system (although this step can be omitted if funds are already placed in the system via non-cash proceeds). The second step is layering where the true source of the funds is hidden by combining it with legitimate money to make it appear all the funds are legitimate. And the last step is integration where the person takes back funds and the true nature of the funds is now hidden since they have a record or even receipt from a legitimate transaction. While dirty money may have been used to buy a house, for example, if that house is subsequently sold, the money received from the sale of that house can not be questioned since the home buyer is more than likely on the up and up.
The big concern with money laundering, especially nowadays, is that it helps criminals continue dirty businesses involved in contraband that harm citizens (example drug dealers who are killing addicts with fentanyl and carfentanil), and more importantly by terrorists who use laundered money to send back to groups like ISIS, Al Qaeda and Boko Haram, who are waging war against Western interests in a form of jihad against non-believers. Most of these terrorist groups are only able to operate thanks to the funds they receive by illegal activities in legitimate democratic businesses.
So, the question is whether casinos can do more to identify and prevent money laundering.
All banks have rules set before them that require they know their customers (KYC) and report any suspicious deposits or withdrawals to authorities and for the most part they are successful. But, the large number of transactions that go through the banking system and the high materiality level set by major banks of what constitutes a suspicious transaction often means smaller illegal transactions slip through the cracks. And in terms of gambling, the U.S. government may have been instrumental in hindering banks in their efforts to identify suspicious activities. When the rules were passed for the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2007 the government informed the banks that they had to identify and stop transactions from illegal online gambling businesses. When the banks asked for the names of those businesses the government told the banks to figure it out for themselves – a result of a desperate, last second effort to create regulations. Many banks decided that the best way to adhere to the rule was simply to disallow any transactions that were identified as gambling, but the government handcuffed them by telling the banks in the regulations that they would be held accountable if they blocked gambling transactions from legal businesses. Consequently, banks generally now allow transactions from known online horse racing businesses or lotteries, but block all other transactions. Nevertheless, the confusing rules allow for illegal transactions to get through unnoticed. Similarly, at the borders both the U.S. and Canadian governments have a rule that any cash over $10,000 needs to be reported and if it's not and the government suspects the money came from illegal sources the funds can be seized and the traveller charged. And often times when someone has more than $10,000 on them it's the result of money taken from a casino. Of course, while the canine units in airports are generally pretty good at sniffing out drugs or illegal meat products being smuggled in, they aren't quite as good at sniffing out large sums of money. So, for every person that is stopped it is likely that thousands of others go through undetected.
And online casinos and sportsbooks have rules put in place to prevent money laundering by the gambling commissions that license them. The UKGC rules, for example, always focused on the customers and made sure that businesses had documentation that proved they knew their customers. This included requiring gambling companies to be sent scans of passports or drivers licenses, utility bills, the front and back of payment cards etc. It also required that a first payment to a customer's account be tracked and confirmed. But the UKGC recently also included rules for gambling operators themselves, including requiring the operators to hire third person auditors unrelated to the company to keep track of any suspicious activities and to question the businesses themselves to ensure they are complying with rules. The Commission uses tools like questionnaires, reviewing cases kept by casinos, thematic work and conducting routine visits and inspection of policies implemented by the casinos and gambling sites to ensure they follow guidelines set out. Alderney and Malta have similar rules, but people I spoke to in the industry believe this may not be enough. A former Department of Justice (DoJ) employee stated as such in his experiences investigating online gambling establishments:
"Unfortunately, most businesses and gambling boards, while good natured, are more concerned with signing up new customers than they are with stopping any criminal funding. Consequently, they will do everything that is laid out for them in the rules, but no more. Now that isn't good enough. If someone makes a $5,000 deposit by MoneyGram to an online casino I want that transaction investigated thoroughly, particularly if it's the first deposit made. A driver's license and utility bill just isn't good enough as these can be easily altered, and criminals are notorious for using mules to have money sent to an individual that isn't the true customer. And that's particularly true with new sources of funding."
That comment brings up new issues that commissions are trying to deal with, but may be very difficult to stop. Today there are hundreds of gambling websites that take deposits and make withdrawals through crypto currencies, especially bitcoin. Some businesses convert the crypto currency to fiat currency and require players to play with U.S. dollars or Euros, while others conduct all transactions in digital currencies. The nature of crypto currencies, that they are anonymous and don't go through the traditional banking system, makes it very difficult to track suspicious funding. Ironically that's exactly why crypto currencies were invented in the first place and why they became so popular.
Who will ever forget that Silk Road that operated on an anonymous server (Tor) and required all payments to be made by bitcoin. In exchange for bitcoin people could obtain illegal drugs or guns and even hire hit men to maim or kill their enemies. And for the longest time most kidnappers were asking for bitcoin as ransom for releasing a person. Because payment is sent to a bitcoin address that isn't linked to a particular individual it's the perfect tool for money laundering and terrorist financing. It is suspected that most money being sent to terrorist groups nowadays is done through crypto currencies like bitcoin, litecoin or ethereum. And for gambling sites crypto currencies are ideal because they don't go through the banking system. Because of that threat some governments are now instituting new rules relating to anti-money laundering initiatives and crypto currencies. Canada, Australia and the EU have released new guidelines for digital currencies and they are very similar to other anti-money laundering rules.
In Australia for example, businesses accepting crypto currencies are required to enroll in the Australian Transaction Report and Analysis Centre (AUSTRAC) and enroll on the Digital Currency Exchange Register maintained by Austrac; Adopt and maintain a program to identify, migrate and manage the money laundering and terrorist financing risks they may face; Identify and verify the identities of their customers; Report suspicious matters, international transactions using digital currency that exceeds $10,000 or more to Austrac; and keep certain records relating to transactions and customer identification on individuals for 7 years.
Analysts tell me that while the rules are nice, they will never work because it's impossible to stop digital transactions relating to illegal activity unless the criminal makes a glaring error or wants to be caught. They claim the only way to truly track and stop illegal digital transactions is to use the approach of many countries like China who are making it illegal to process digital transactions and sentence to death anyone in violation of the rules. Of course, in democratic countries that will never fly.
Money laundering is a concern to countries, economies and public safety. The gambling industry, both online and at land-based establishments need to do more to identify and stop any activities that are clearly suspicious, but the governments and banks need to do their due diligence as well. The clear majority of businesses I spoke to said they are only too happy to combat money laundering and terrorist financing, but they need the government and banking industry to help. A couple of casino managers have told me that when it comes to identifying suspicious activity the total burden falls on them and the banks will never accept any blame. He also claims the governments always look at the casino as the fall guy in cases where money laundering is suspected because they are an easier target than banks. And, as we have seen with the UIGEA regulations, the vagueness of the rules and the uncertain penalties for non-compliance don't help the matter. It's a new time and all entities involved with currency transactions (fiat and digital) need to work together to come up with solutions that will keep the criminals at bay. Unfortunately that is easier said than done.