Online gambling as a money laundering method
8 January 2021 16:47
By Noortje Boere, senior AML specialist at the AMLC
17 December 2020
A number of Dutchmen every now and again try their luck at gambling on the Internet. However, under the Betting and Gaming Act, online gambling is currently prohibited in the Netherlands. The wilful and unlicensed provision of (online) games of chance constitutes a serious offence. The making use of such illegal facilities constitutes a minor offence.
Two exceptions exist to this rule. At present, Toto (sports matches) and Runnerz (horse racing) are (exclusively) licensed to offer persons to place a bet. All other forms of online gambling are prohibited. Foreign providers are required to ensure that their games on offer cannot be reached from the Netherlands, for example by blocking Dutch IP addresses and not facilitating payment by iDEAL. The Netherlands Gaming Authority supervises providers of games of chance and where necessary imposes fines on providers breaking the applicable laws.
Money laundering by way of online gambling
Even though online gambling is (still) illegal, this does not detract from the fact that it offers great possibilities 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. 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
One obvious improvement that can be effected is legalising the Dutch market. The Remote Gaming Act will enter into force soon. This Act legalises online gambling in Netherlands, albeit under strict conditions. The implementation of the Act has been delayed multiple times, but it looks to enter into force on 1 March 2021.
The entry into force of the Act might remedy a limited part of the money laundering problem discussed in the above. A significant number of providers will become regulated, meaning that visibility of the market will be improved. For the providers licensed by the Netherlands Gaming Authority must conduct all sorts of checks. Providers must be able to provide documents on, inter alia, integrity, the Dutch Money Laundering and Terrorist Financing Act, match fixing, and addiction prevention. In addition, providers must set up a control databank containing near real-time gaming data and register with a central registry to counter gambling addiction.
However, the question of the extent to which launderers will move their activities to the legal market remains an open one. A licence applications costs €48,000. This means that small providers are not very likely to be able to afford a licence and will continue to operate illegally. Moreover, illegal providers will always remain attractive to gamblers, as they can offer higher pay-out percentages and might have less strict controls in place. The extent to which the new legislation provides a solution is, then, yet to be seen.
 Fiedler, I. (2013). Online Gambling as a Game Changer to Money Laundering?
 For more information on the three-phase model, visit: https://www.amlc.nl/wp-content/uploads/2018/09/Witwassen-wat-is-dat-versie-2018.pdf.
 Fiedler, I. (2013). Online Gambling as a Game Changer to Money Laundering?
 Dekker, S. (4 september 2020). Amendment of the Betting and Gaming Act, the Betting and Gaming Tax Act, and some other pieces of legislation in connection with the organisation of remote gambling. Letter from the Minister for Legal Protection to the House of Representatives of the States General.