Online gambling as a money laundering method
Written by: Noortje Boere
Until 1 October 2021, online gambling was prohibited in the Netherlands. With the introduction of the Remote Gaming Act ('Wet Kansspelen op Afstand’), this has changed. Online gambling with a licensed provider is now legal. At this time, some 800,000 Dutch people gamble on the Internet, with an estimated value of € 500 million. Besides the fact that the gambling market is of considerable size, online gambling is an attractive money-laundering method. Regulation is therefore welcome.
Money laundering by way of online gambling
Online gambling offers many opportunities to launder money. For by channelling criminal money through a gambling platform, you obscure the origin of the money. Various options to do so exist.
The first option perhaps most directly captures the imagination. Someone opens a gambling account and must verify their identity by providing a bank account number. Once they have done so, the player can put money on the gambling account via a multitude of payment options. While the linked bank account can be used to do so, many other (anonymous) payment methods are also available, such as credit and debit cards, prepaid cards, cheques, and cryptocurrencies. The money placed on the gambling account is then paid out and, thus, given a legal status. The method discussed in the above assumes that the player does not, or to a limited extent only, use the money for actual gambling.
A second option is for the player to place the money as bets. In this scenario, the player will place their money – anonymous or otherwise – in games where they can work hand in glove with other players. One player will deliberately lose, so as to benefit another player. This can be done in a poker game, but also by coordinating stakes placed in (online) roulettes. While this manipulation technique does cost some money, most launderers will be very willing to pay this price for the laundered money they gain.
A third option is that of using the gambling account for effecting payment in illegal transactions. The buyer and seller of the illegal goods both hold a gambling account with an online gambling transfer. Money can easily be moved from one gambling account to another by way of player-to-player transfers. The seller will then have the money on their gambling account paid out to their payment account. Should someone ask after the origin of the money, the seller can say it concerns gambling profits, even though it actually is the profit earned by selling goods. The gambling account thus more or less functions like a bank account.
A final option is related to the last-named modus operandi. For a gambling account held with an illegal provider can also be used exclusively for storing moneys and hiding them from the authorities. The difference with the previous method is that, while in that method the money is paid out as gambling profits, in this method the money is only being concealed and retrieved from the gambling account using the same (anonymous) payment method.
The three-phase model
The literature on money laundering often refers to the so-called three-phase model. The first phase is the placement phase, in which the money – cash or otherwise – is entered into the banking system. The second phase is the layering phase, in which the money is moved around in order to conceal its origin. The final phase is the integration phase, in which the money is provided with a seemingly legal origin. It can be argued that online gambling allows for all three phases to be realised. An example of the placement phase is that of someone buying a prepaid card using cash and then depositing money from the prepaid card to the gambling account. This person will then have the money on the gambling account paid out to a current account. The cash will thus have been turned into scriptural money. Whenever someone transfers money from one gambling account to another, they act in the layering phase. Incidentally, value can also be moved in this fashion. Finally, a launderer can integrate and legitimise the criminal money by stating that the money was made from gambling.
Attractiveness of online gambling as a money laundering method
Because of the various (anonymous) payment methods available and of the fact that the authorities have a very limited view of what goes on in a gambling account, it is difficult to verify whether the gambling account is used for actual gambling or for laundering money. There are additional reasons why detection is difficult, turning online gambling into an attractive way to launder money. First, the gambling sector is one of great transaction volumes. Moreover, these transactions are often international in nature. The various jurisdictions involved and the limited extent to which the legislation between these jurisdictions is harmonised complicate investigations. Finally, gambling does not require any physical products, resulting in a “softer” relationship between input and output and greater difficulty in establishing this output.
Remote Gaming Act (Koa)
As mentioned, as of 1 October 2021 the Koa came into force, making online gambling legal under certain conditions. At the beginning of October, ten providers have been licensed by the gaming authority to offer online gambling in accordance with the new law. In order to qualify for a licence, providers must meet requirements in the field of consumer protection and addiction prevention. Providers must also set up a control database with near real-time gaming data. Furthermore, providers fall under the Prevention of Money Laundering and Terrorist Financing Act ('Wwft'). Therefore, providers will have to perform thorough customer due diligence on the players and monitor transactions. The Wwft Guideline for the Gambling Industry mentions objective and subjective indicators that can be used to report unusual transactions. In any event, a non-cash payment transaction for an amount of € 15,000 or more is mentioned as an objective indicator.
However, the question remains to what extent money launderers will shift to the legal market. The illegal providers remain attractive to gamblers because they can offer higher payout percentages and in all likelihood have less strict controls. Therefore, from a money laundering perspective, it makes sense to focus on the illegal offer as well. The Minister for Legal Protection, Sander Dekker, has promised to intensify the supervision and enforcement by the supervisory body, the gaming authority. For instance they can issue higher fines than before. In addition, the supply of illegal gambling providers was previously tolerated, as long as they did not directly target the Netherlands (for example, by blocking Dutch IP addresses and not facilitating payments by means of iDEAL). These websites must now be blacklisted (by means of a binding instruction). Finally, the gaming authority no longer focuses only on the providers, but also on the rest of the chain (such as advertisers and payment institutions).
It is nice that regulation is finally there. It remains to be seen, however, to what extent the intended shift will actually take place and whether the new legislation will provide relief. We will keep an eye on the developments.
 NOS (27 september 2021), Nederlanders geven 500 miljoen euro uit aan illegale online casinospelletjes.